What are the Different Types of Assessment in Income Tax?

According to the Income Tax Act 1961, individuals earning above the basic exemption limit must file Income Tax Returns (ITR). The Income Tax Department examines the accuracy of the furnished financial details and assesses the taxability. Income tax assessment is scrutinising a taxpayer’s ITR information by the income tax authorities. This blog will cover the main types of assessment in income tax. Ensure compliance with income tax regulations by understanding the various assessment methods. Learn when self-assessment, regular assessment or best judgment assessment may apply to your tax situation.

Content

• Self-Assessment Under Section 140A
• Assessment under section 143(1) | Intimation/Summary Assessment/Refund Order/Demand Order
• Scrutiny Assessment Under Section 143(3)
• Best Judgment Assessment Under Section 144
• Income Escaping Assessment Under Section 147

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Section 140A – Self Assessment 

Self-assessment is the most common type of income tax assessment in India. It is done by filing an ITR with the Income Tax Department.

Under self-assessment, the taxpayer is responsible for calculating their taxable income and paying the due tax. After taking TDS and subtracting advance tax paid, tax payable should be given under Section 139, Section 142, Section 148, or Section 153A.

How To Do Self-Assessment?

To do a self-assessment:

• Calculate your total income, including your income from all sources, such as salary, business income, rent income, and capital gains, for the financial year.
• Calculate your deductions and exemptions. You may be eligible for several deductions and exemptions, such as the standard deduction, the house rent allowance, and the deduction for medical expenses.
• Determine your net taxable income (Your total income minus your deductions and exemptions).
• Calculate your income tax liability. 
• Pay your income tax liability (either online or through a bank).

The deadline for filing your ITR is 31st July for every financial year. 

Assessment under section 143(1) | Intimation/Summary Assessment/Refund Order/Demand Order

Assessment under section 143(1) is a simplified assessment procedure for low-income taxpayers and simple tax returns. This preliminary assessment is referred to as a summary assessment without calling the assessee. It is a convenient and efficient way for taxpayers to file their ITRs and pay taxes. 

How Does Summary Assessment Work?

The scope of assessment under section 143(1) involves conducting a preliminary check of the ITR, such as checking for arithmetical errors and verifying the taxpayer’s tax payments. At this stage, tax authorities do not scrutinise the return. 

If the income tax department is satisfied with the return, it will send the taxpayer an intimation. This letter states that the taxpayer’s return has been assessed under section 143(1) and that no tax is payable or refund is due.

If the income tax department finds any discrepancies in the return, it will notify the taxpayer. This will allow the taxpayer to explain the discrepancies. If the taxpayer cannot explain the discrepancies, the income tax department may make a refund or a demand order.

Who Is Eligible For Summary Assessment?

Taxpayers are eligible for summary assessment if they meet the following criteria:

• Their total income for the financial year does not exceed Rs. 5 lakh.
• Their income is from salary, pension, or interest from savings bank accounts.
• They have not claimed any deductions or exemptions other than the standard deduction.

How To File For Summary Assessment?

• File your ITR on time to file for summary assessment. 
• You can file the returns online or in person at a tax office.
• Ensure that you have provided all the required information accurately and completely. 
• Attach supporting documents, such as salary slips or Form 16.

Benefits of Summary Assessment

Summary assessment has several benefits, including:

• A convenient and efficient way to file your ITR.
• You have more control over the assessment process.
• Allows you to avoid late filing penalties by filing your return on time.
• You can avoid scrutiny assessment, which is a more detailed assessment procedure.

Scrutiny Assessment Under Section 143(3)

Scrutiny assessment under section 143(3) is a detailed assessment of the taxpayer’s ITR to confirm the correctness and genuineness of the taxpayer’s various claims, deductions, etc.

The assessing officer can assess the best of their judgment in the following cases:

• If the taxpayer fails to file the required return within the due date prescribed under section 139(1), 
  • A belated return under section 139(4) 
  • A revised return under section 139(5)
  • An updated return under section 139(8A)
• If the taxpayer fails to comply with all the terms of a notice issued under section 142(1).

Note: The assessing officer can issue a notice under section 142(1) asking the taxpayer to file the return of income. The taxpayer will appear before the assessing officer and place his arguments, supporting evidence, etc., as required by the assessing officer.

How To Prepare For Scrutiny Assessment?

If you are selected for scrutiny assessment, you should be prepared to provide the assessing officer with all the necessary documents and information. This may include:

• Salary slips
• Form 16
• Bank statements
• Investment statements
• Bills and receipts for expenses

Best Judgment Assessment Under Section 144

Best judgment assessment under section 144 applies when the taxpayer has not filed a return or has filed an incomplete or inaccurate return. In such cases, the assessing officer will assess the best of their judgment based on all relevant material gathered.

The assessing officer may gather information from various sources, such as the taxpayer’s employer, bank, and other government agencies. They may also use their knowledge and experience to assess the taxpayer’s income.

The best judgment assessment is usually higher than the assessment that the taxpayer would have received if they had filed a complete and accurate return. This is because the assessing officer will likely err on caution when they do not have all the relevant information.

How to Avoid a Best Judgment Assessment?

You can avoid a best judgment assessment by –

• Filing a complete and accurate ITR on time. 
• Requesting for an extension if you cannot file your return on time.
• Consulting a qualified tax professional in case of any questions or concerns about your ITR.

How to Prepare for a Best Judgment Assessment?

To prepare for an assessment under section 144, you should:

• Gather your income tax documents, such as salary slips, bank statements, investment statements, and bills and receipts for expenses.
• Review your ITR. 
• Ensure that you have reported all of your income from all sources and claimed all of the deductions and exemptions you are eligible for.
• Be prepared to answer questions about your ITR. The assessing officer may ask about any item on your return, so be prepared to provide supporting documentation if necessary.

Here are some additional tips for preparing for an assessment under section 144:

• Keep your documentation up-to-date and ready.
• Prepare yourself to explain any discrepancies in your ITR.
• Cooperative with the assessing officer.
• If you disagree with the assessing officer’s assessment, you have the right to appeal.

Income Escaping Assessment Under Section 147

Income escaping assessment (section 147) is a provision in the Income Tax Act, 1961, that allows the income tax authorities to assess income that has escaped assessment in a previous year.

Suppose any income of an assessee has escaped assessment for any assessment year. In that case, the assessing officer may assess or reassess such income or recompute the loss or the depreciation allowance for that assessment year.

Please note that once assessment, re-assessment or re-computation has started, the assessing officer is empowered to assess or reassess the income according to the procedure mentioned in new section 148A that was not followed before issuing such notice for such income.

Income can escape assessment for a variety of reasons, such as:

• The taxpayer may have failed to disclose their income in their income tax return.
• The taxpayer may have made a mistake in their income tax return.
• The income tax authorities may have mistakenly assessed the taxpayer’s return.

If the income tax authorities discover that income has escaped assessment in a previous year, they can issue a notice to the taxpayer under section 147. The notice will state the amount of income that the authorities believe has escaped assessment and the tax that is payable on that income.

The taxpayer has the right to object to the notice under section 147 and is responsible for presenting the proof to prove himself correct. If the taxpayer cannot prove that the authorities are wrong, they will be liable to pay the tax on the income that has escaped assessment.