Income Tax Department's Mismatch Campaign: Addressing Discrepancies in Returns

Introduction

India's Income Tax Department (ITD) is accelerating the process to reconcile mismatches between taxpayers' reported income and available data, specifically income arising from interest and dividend. It is under the e-Verification Scheme-2021 aimed at promoting more transparency and voluntary tax compliance.

What Triggered the Recent Correspondence?

The ITD has found a number of cases where data reported in Income Tax Returns (ITRs) differ from information collected from third parties, such as banks and financial institutions. These cases primarily involve interest and dividend income, high-value transactions, and cases of non-filing of returns by taxpayers where substantial financial transactions have taken place.

Key Developments

Electronic Campaign Launched: The Central Board of Direct Taxes (CBDT) has launched an electronic campaign addressed to filers and non-filers whose AIS information is not matching their ITRs for FY 2021-22, FY 2022-23, and FY 2023-24.
Automated Notifications Sent: Taxpayers will be notified via SMS and email when there is a mismatch and will be prompted to verify the mismatches.
Structured Inquiry Process: The communication is structured inquiry process and not formal notice, so that taxpayers can respond online without the need to file documents.

How the e-Verification Scheme-2021 Functions

Proactive Identification of Mismatches
- The ITD makes use of third-party data of companies, mutual funds, and banks in order to cross-check ITR details.
- Discrepancies are identified and the affected taxpayers are notified through electronic communications.
Compliance Portal Usage
- Access: Taxpayers can access the e-Filing portal and find the Compliance Portal under the 'Pending Actions' option.
- On-Screen Resolution: The portal offers on-screen viewing of mismatches, providing feedback, and monitoring status of resolution.
- No Upload of Documents Required: Most instances can be resolved directly on the portal without additional documentation.
Special Treatment for Interest Income

In the event of interest income reported in the 'Others' category in Schedule OS in the ITR, taxpayers will not be required to respond to matching mismatch notifications.
Such cases will be cleared automatically, with portal status 'Completed', as a gesture to data mapping limitations.

Who Is Impacted by the Mismatch Campaign?

Non-Filers: Taxpayers with taxable income or significant transactions who have not submitted ITRs.
High-Value Transaction Persons: Persons with significant deposits, property acquisitions, or share market investments not declared in their ITRs.
Under-Reporters: Persons who may have reported income inaccurately or omitted, particularly interest and dividends.

Example Scenario

One salaried employee in Mumbai, Mr. Rajesh Sharma, received a mismatch notification pertaining to his reported interest income. On logging into the Compliance Portal, he discovered that interest on his fixed deposit, reported under 'Others' in Schedule OS, was not picked up by the system. The mismatch automatically got matched, and the portal showed 'Completed' with no action required to be performed by him.

Follow-up Action Required for Taxpayers Who Have Received Mismatch Communication

Log in to e-Filing Portal
- Login through your PAN/Aadhaar details.
Review the Annual Information Statement (AIS)
- Verify listed transactions in your AIS with the income reported in your ITR for the concerned financial year.
Respond to Mismatches

Mismatch agreed? Offer explanation or comment directly on portal.
Disagree? Resolve the discrepancy using available options.
- Submit an Updated ITR (ITR-U) in case of discrepancies not already resolved before specified deadlines.

Key Deadlines
- FY 2023-24: Submit amended or belated ITRs by December 31, 2024.

FY 2021-22: Revised ITRs can be submitted until March 31, 2025.

Effects of Inaction

Inaction on mismatch communications can lead to increased scrutiny or formal notices by the ITD, which can result in penalties or investigation.

Details of Features of the Compliance Portal

Transparency and Monitoring: Taxpayers can view all pending action and compliance notices, tracking their responses in real-time.
User Categories: The portal can be used by individual taxpayers, businesses, charitable organizations, and tax professionals for compliance management.
Security Measures: Pan/Aadhaar logins guarantee confidentiality and integrity of information to secure access.

Mismatches Reasons

System Limitations: ITD system failures may render it impossible to identify interest income under 'Others' in Schedule OS, leading to spurious alerts.
Third-Party Reporting Errors: Varying reporting trends from banks and financial institutions can cause discrepancies in AIS-ITR.
Incomplete Disclosure: Taxpayers unknowingly leave sources of income from various avenues.

Benefits of the e-Verification Initiative

Induces Voluntary Compliance: Induces taxpayers to clear mismatches voluntarily without fear of immediate penalties.
Reduces Requirement for Litigations: Initiates closure online, lessening the requirement for faceless litigation or formal correspondence.
Follows Government Vision: Functions in line with the 'Viksit Bharat' vision, where emphasis is on technology for efficient and transparent collection of taxes.

Most Frequently Asked Questions

Q: Is this notice a statutory one? A: No, it is a designed question that seeks voluntary compliance without initiating a case of legal action.

Q: If I have shown my interest income under 'Others' in Schedule OS? A: You are not required to answer the mismatch; the system will automatically correct and mark the case as 'Completed.'

**Q: What if I don't notice the notice? A: Ignoring ongoing mismatches may lead to questioning or official notifications, with potential fines for unresolved differences.

Official Sources for Amendments and Updates

Press Release by PIB, Ministry of Finance, CBDT.
Income Tax Department e-Filing Portal – Compliance User Manual.
Assume Business Standard: CBDT Spotlights Mismatches.

Taxpayer Guidance

Regularly Review AIS: Check your Annual Information Statement after major financial transactions or while filing the ITR.
Maintain Records: Keep a record of all dividend and interest income, including bank and company statements.
Seek Professionals' Help: Approach a chartered accountant or tax consultant if unsure to reconcile mismatches.
Check Compliance Portal: Login at regular intervals to access the status of pending compliance actions or communications from the ITD.
Understand Deadlines: Not filing a revised return within the deadline period can result in penalties or loss of the right to correct.
Use Feedback Options: If errors occur in AIS data, use the feedback option on the portal to reject or correct the data at once.