Did you get a ‘limited scrutiny’ income tax notice? Here’s what to do

Did you get a ‘limited scrutiny’ income tax notice? Here’s what to do


Any form of communication from the Income Tax Department has the power to give you sleepless nights. Add to that the recent announcement from the I-T Department about issuing seven lakh letters to taxpayers who have entered into high value transactions. This pertains to individuals with cash deposits of over Rs 10 lakh in a saving bank account or investing in fixed deposits, sale/ purchase of immovable property valued at Rs 30 lakh or more.

Then there are taxpayers who may have received ‘Limited Scrutiny’ notices from the department, where as the name suggests, the tax returns of the person concerned, is selected for limited scrutiny.

Before you hit the panic button in a knee-jerk reaction, let’s understand what ‘limited scrutiny’ means.

What is a Limited Scrutiny?

Limited Scrutiny cases are those cases where a limit has been set on the enquiries to the extent of the mismatch or inaccurate reporting. The I-T department is alerted about mismatches through their automated systems and as per their predefined triggers or parameters.

The Central Board of Direct Taxes (CBDT) has made it easier for taxpayers to comply with such notices. They have done away with the need to visit the tax office multiple times and even the need to furbish several documents to an income tax officer that’s otherwise the order in a regular scrutiny case.

The scope of enquiry in these cases is limited to the ones selected on the basis of the parameter(s) of AIR/CIB/26AS data. In such cases, the assessing officer would also confine the questionnaire to the specific issues pertaining to AIR/CIB/26AS data. This will help save the taxpayers from the cumbersome processes that are currently in place.

In such cases, what kind of a letter or notice you can expect?

As per the instructions issued by the CBDT, the assessing officer (AO) is instructed to issue a notice with clear remarks — ‘limited’ and ‘selected’ — under computer-aided scrutiny selection (CASS).

The assessing officer will limit the enquiry to the specified cases/ transactions only. The officer will also send a subsequent notice which lists down the information and documents required under under the purview and confined to the reasons for the selection of the scrutiny.

This means, any notice that you may have received from the income tax department should have the aforementioned clearly, if it has to fall under the ‘limited scrutiny’ case.

Can the I-T officer ask for any documents apart from the ones mentioned in the limited scrutiny notice?

During the hearing of a limited scrutiny case, if the income tax officer has reason to believe that there is potential undisclosed income which could exceed Rs 5 lakh (the limit is Rs 10 lakh for metro cities) requiring substantial verification on any other issue(s), then the case may be taken up for ‘Complete Scrutiny’ with the approval of the income tax commissioner concerned. This wider scrutiny can only be conducted as per the guidelines and procedures.

In the cases under scrutiny, where the assessing officer feels the need to make any additions or disallowances of any item, then the officer should give that taxpayer a fair opportunity to explain his/ her position. This is in accordance with the principle of natural justice.

What to do if you get a ‘Limited Scrutiny’ notice?

Here are some things you need to do immediately:

1 Don’t panic or ignore: Your first reaction would be to press the panic button or ignore the notice completely. Both these ways are wrong. The key is to handle the situation carefully and sincerely, or you may end up paying a hefty penalty.

2. Identify the reason for the limited scrutiny: As mentioned above, the Income Tax Department will clearly mention in the notice that the notice has been issued under limited scrutiny and selected under CASS. It will also list the reason for the issue.

3. Gather the documents: Start collecting the documents corresponding to the specific transaction that the I-T department had identified. The idea is to justify the genuineness of the transaction and the documents needed can vary depending on the gravity of the notice.

Here are somethings you should always remember and follow

1. Reply in time: Always reply within the requested time frame even if you haven’t managed to collect the required documents. You can always request for some time to put the documents together. Timely responses establish that you’re honest and intend to cooperate with the law.

2. Preserve the Envelope: If you receive the tax notice in an envelope, keep it safely because it contains the Speed Post number which is evidence that it was delivered to you. These days, such notices are also sent via email, so make sure that you provide the email id which you regularly use while filing your tax returns.

3. Professional Help: If the notice seems grave, then it would be prudent to have a chartered accountant (CA) look at it and represent you.



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