All tax-paying individuals are liable to pay tax as per the law if they fall under the tax bracket. This process starts with calculating the total amount you need to pay every year. The thing to note is that the Income Tax Department gives you different options to assess this amount.
Read on to know what it entails and what types of assessment you can choose from.
Meaning of Income Tax Assessment
After every assessment year in income tax, eligible individuals and entities need to file income tax returns (ITR). Based on that, you will pay tax on the net taxable income earned during the year. Once you file the ITR, the income tax department assesses and verifies the submission. This process is known as income tax assessment.
Your ITR can be selected for a specific assessment year based on the criteria set by the Central Board of Direct Taxes (CBDT).
Types of Income Tax Assessment Under the Income Tax Act
The Income Tax Act outlines several assessment procedures to determine an individual or entity’s tax liability. Here are the different types of assessments you must know:
Regular Assessment
The Income Tax Department assigns an Assessing Officer (AO) or an income tax officer to conduct this assessment. They focus on the following:
- The accuracy of the income that you have reported
- The accuracy of the calculation of tax and the final payment
- Whether you have understated the income, overstated the expenses or losses or underpaid the tax
The CBDT has established the following criteria for this assessment:
- If the officer assigns you under scrutiny assessment, they will issue you a notice within 6 months from the end of the financial year of filing the ITR
- You need to provide evidence for reported income
- After this, the assessing officer confirms or adjusts the return; the latter can lead to tax demands
Self-Assessment
In this assessment of taxation, you calculate your tax liability yourself. Here’s what you need to know about self-assessment taxation:
- The tax department provides various forms for filing the return
- You need to consolidate the income from different sources and adjust it against losses, deductions or exemptions available during the year
- Doing this will give you the net taxable income and calculate the tax as per the slab rates
- Deduct TDS and advance tax from the tax liability calculated
- Doing this will determine whether you have to pay more tax or will receive a refund
Summary Assessment
This type of tax assessment is carried out without any involvement of humans. Here’s what happens:
- The information that you submit in the ITR is cross-checked with the data in the income tax department’s records
- During this process, the department verifies the reasonableness and accuracy of your ITR
- The return is processed online and adjusted for arithmetic errors, incorrect claims and disallowances, if any, are made automatically
- If the adjustments lead to an increased tax liability, you will receive a notice u/s 143(1)
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Scrutiny Assessment
Once you submit your return, an officer may be assigned by the IT department to assess your ITR. It works like this:
- You receive a notice u/s 143 (2) that an officer is assigned to assess your return
- The officer may request documents, books of accounts and other relevant details for the assessment
- The officer calculates your income tax payable
- If there’s a discrepancy, you will either have to pay the extra amount or receive a refund
- If you’re dissatisfied with the assessment, you can apply for rectification u/s 154 or submit a revision application u/s 263 or 264
- If the Scrutiny Assessment order is still considered invalid, you can appeal to the higher authorities (in this order): CIT (A), ITAT, the High Court and the Supreme Court
Also Read: Direct Tax Vs Indirect Tax
Income Escaping Assessment
This assessment in taxation happens when the IT department thinks a taxable income has escaped assessment. A notice can be issued or an assessment can be opened within 4 years from the end of the assessment year. Reassessment happens in these scenarios:
- If you have a taxable income but haven’t filed your return
- If you have either understated your income or claimed excess allowances or deductions
- If you have not provided reports on international transactions, where required
Best Judgement Assessment
This assessment is applicable in the following situations:
- If you don’t respond to an IT notice regarding specific information or books of accounts
- If you don’t comply with a Special Audit ordered by the IT department
- If you fail to file the return within the due date or the grace period
- If you don’t comply with the terms issued under Summary Assessment
After hearing your arguments, the AO uses all the relevant material available to make a decision. This is called the Best Judgment Assessment.
Now that you know the types and meaning of assessment in income tax, you can comply with the rules of the Income Tax Act and avoid penalties for non-compliance. If you need financial assistance, getting a Fibe Instant Personal Loan of up to ₹5 lakhs can be a smart option.
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FAQs on Income Tax Assessment
What is the assessment of tax under the Income Tax Act?
Tax assessments under the Income Tax Act refer to the verification or evaluation of the ITRs filed by an individual or an entity.
What is regular assessment in income tax?
This is when an assessing officer conducts the assessment to check and ensure that you haven’t:
- Understated your income
- Overstated deductions, expenses or losses
- Underpaid your tax
Here’s how the procedure of assessment in income tax works:
- For scrutiny assessment, the department sends a notice 6 months from the end of the FY in which you file the return.
- You need to provide evidence for the reported income, after which the assessing officer confirms or adjusts the return, which may lead to tax demands.
What do you mean by scrutiny assessment?
It is when the Income Tax Department assigns an assessment officer to assess the return you file. You will receive a notice u/s 143 (2) from the Assessing Officer.
What is a ‘faceless’ tax assessment?
This is a scheme to revamp the taxation process and make it more efficient. This eliminates the need for face-to-face meetings for assessing officers or any other person for tax authorities. This ensures efficient tax payment through electronic portals.
