It’s normal to make a mistake or two, especially when handling tasks you’re unfamiliar with and need to become more familiar with, such as filing income tax returns. An error in reporting income or failing to report crypto transactions under Schedule VDA can be a problem.
When this happens, the tax department classifies your return as ‘defective’ and issues a defective notice u/s Section 139(9). This notice is designed to assist you in correcting any errors.
However, if you address these issues promptly, you could avoid unwanted consequences.
In this article, we’ll explore the common reasons your return might be marked as defective and guide you on responding to the defective return notice under Section 139(9).
What Is A Defective Notice?
The income tax department authority issues a defective notice u/s section 139(9) when mistakes or inconsistencies are identified in your income tax return (ITR).
These issues include missing information, conflicting details, calculation errors, or other problems. The notice reminds you to correct these errors, ensuring your tax return is accurate and complete.
What Is 139(9) Of Income Tax Act?
Section 139(9) of the Income Tax Act deals with the consequences of filing an incomplete or incorrect income tax return. If you submit your return but it lacks necessary details or contains errors, this section comes into play. It empowers the tax authorities to reject the return and request a corrected version.
When you file your income tax return under Section 139(9), the income tax department has the right to notify you if things need to be corrected or information needs to be added.
You must then correct these errors and resubmit your return. This process ensures that all tax returns are accurate and complete, helping to maintain the tax system’s integrity.
Reasons To Get Notice U/S 139(9)
The Assessing Officer may issue a defective return notice under Section 139(9) for several reasons, including the following errors or omissions:
- Incomplete Income Tax Return (ITR): If your ITR needs more essential details in its annexures, statements, or mandatory columns, such as Schedule VDA, or if income from all sources is not mentioned, the return may be marked defective.
- Missing Tax Information: When taxes have been paid, but their details are omitted in the ITR, including TDS, TCS, advance tax, or self-assessment tax, it can trigger a notice.
- Mismatch in Name: Discrepancies between the name on your ITR and your PAN card can also result in a defective return notice.
- TDS and Income Mismatch: A defective notice may be issued if you claim TDS but do not include the corresponding income in the ITR.
For example, if you earn interest from term deposits, and the bank deducts TDS, the interest income and the TDS amount should be reported. - Tax Payment Discrepancies: A defective return notice may be issued if the taxes paid are partial or do not align with the tax liability stated in the ITR.
- Bookkeeping Issues: Please submit complete or mandated books of accounts, such as trading accounts, profit and loss accounts, and balance sheets, to avoid a defective return notice.
- Income Tax Audit Concerns: If an audit is required under Section 44AB, you must submit a complete audit report, including the profit and loss account, balance sheet, and auditor’s report. Incomplete submissions or missing documents can result in a defective notice.
- Cost Audit Non-Compliance: Not submitting ‘Cost Audit’ details as required by the Companies Act, 2013, can also lead to a defective return notice.
- Presumptive Taxation Inaccuracies: For presumptive taxation cases, inaccuracies in the computation of presumptive income, non-disclosure of relevant details, or mismatched gross receipts can trigger a defective notice.
For example, you may receive a defective return notice if your gross receipts are not mentioned in the Profit and Loss account or exceed INR 2 crore in ITR 4. - Incorrect Details in ITR: Filing an ITR with correct details regarding turnover, income limits, or accurate reporting for a specific head of income can lead to a defective notice.
Which Errors In Crypto Tax Filing Can Attract Notice Under Section 139(9)?
Accurate reporting of crypto transactions in the Schedule VDA section is essential to avoid notices under Section 139(9).
Here are some common errors that can lead to such notices and how to prevent them:
Non-Reporting Crypto Swapping
One common mistake is failing to report crypto-to-crypto transactions, also known as crypto swapping. Many people think only fiat currency transactions need to be reported, but that’s not the case.
Each crypto swap is a taxable event and must be reported. Record every swap, detailing the fair market value at the time of the transaction, to avoid discrepancies and potential notices.
Error In Mentioning Individual Transactions in Schedule VDA
Schedule VDA is specifically for reporting crypto transactions. Errors in this schedule, such as incorrect transaction dates, amounts, or types, can attract a notice under Section 139(9).
When entering each transaction, double-check all details to ensure accuracy. Using reliable tax software such as KoinX or consulting a tax professional can help minimise these errors.
Non-Reporting Of Crypto Losses
Lastly, non-reporting of crypto losses is a significant error. Even if you’ve made losses, it’s essential to report them. Not reporting these losses could lead to an incomplete return, prompting a notice from tax authorities.
Summarising All The Capital Gains
Another frequent error you can commit is summarising all the capital gains that you accounted across the financial year. Instead, you need to separately mention each and every capital gains transaction along with their type and date of occurrence.
How Will I Receive A Notice Under Section 139(9)?
The Income Tax Department will send the defective return notice under Section 139(9) to your registered email address. The subject line will be “Communication under section 139(9) for PAN AWZXXXXXX for the Assessment Year 2023-24.”
The notice will be attached to the email and secured with a password. You must enter a password following a specific format to access the notice. This format includes your PAN in lowercase, followed by your date of birth in the DDMMYYYY format.
For instance, if your PAN is XYZAB1234C and your date of birth is 25 November 1985, the password would be xyzab1234c25111985. Ensure you use the exact format to avoid any issues accessing your notice.
When To Respond To A Defective Notice Under Section 139(9)?
Receiving a defective return notice under Section 139(9) can be concerning, but knowing when to respond can help avoid complications. When you get this notice, you must act quickly. Respond within 15 days from the date you receive the notice.
If you miss this 15-day window or don’t file your response within any extended time granted, the original return you filed will be considered invalid. This means you could lose any potential refund and face other issues related to your tax filing.
How To Respond To A Defective Notice Under Section 139(9)?
Receiving a defective notice u/s Section 139(9) can be stressful, but handling it promptly can prevent potential issues. Here’s how to respond effectively.
Review the Notice
First, carefully review the notice sent by the Assessing Officer. It will highlight the specific defects or errors in your tax return. Understand the issues raised and address them accurately.
Revise Your Return
You have 15 days to revise your return and correct the defects in the notice. Make the necessary amendments as per the given steps:
- Access Your Dashboard: Log into your tax portal and click on “Pending Actions” to see if you have any notices or actions required.
- Navigate to e-Proceedings: Click on “e-Proceedings” to access any notices that need your attention. If you don’t see any notices, the system will display “No e-proceedings records.” If there are pending actions, click “For your action and view Notices.”
- Submit a Response: Click “Submit a Response” to address the notice. You’ll be prompted to select whether you “Agree” or “Disagree” with the notice.
- Respond Accordingly:
- If you agree, The system will ask you to provide details or explanations about the defect identified in the notice.
- If you Disagree, Choose the option to disagree and enter your reasons in the provided text box.
- Attach Documents: If you’re using the offline utility mode to fix the defect, upload any required attachments in the designated section.
Request an Extension If Needed
You can request an extension if you need more time to address the issues. To avoid penalties, apply for this extension before the initial 15-day period expires.
Consequence Of Neglecting A Defective Notice U/S Section 139(9)
Ignoring a notice under Section 139(9) of the Income Tax Act can have severe consequences for you as a taxpayer. Here’s what you need to know about the potential repercussions:
Invalid Return
You must address the defects mentioned in the notice within the specified timeframe or any granted extension to ensure your original return is valid. The tax authorities may disregard your initially filed return altogether. This means you could lose any benefits or deductions you might have claimed.
Assessment Based on Defective Return
When you neglect a defective notice, the tax authorities may proceed with assessing your taxes based on the incomplete or incorrect information in your defective return. This could lead to inaccurate tax assessments, possibly increasing tax liability or other unfavourable outcomes.
Penalties and Interest
Not responding to the notice or failing to correct the defects can attract penalties and interest. The tax authorities can impose fines for non-compliance, adding to your tax liability and financial burden.
Loss of Deductions and Benefits
A defective return with incorrect or missing information can cause a loss of eligible deductions, exemptions, or benefits. You might miss out on tax relief you would have otherwise qualified for, increasing your tax liability.
Increased Scrutiny
Ignoring a defective notice might trigger heightened scrutiny from tax authorities in future assessments. It can lead to more rigorous audits or investigations into your financial affairs, complicating your tax situation further.
Addressing any defective notices promptly and accurately is crucial. This helps ensure your tax returns are valid and minimises the risk of additional penalties or complications.
Where to Check for Defective Notice U/S Section 139(9)?
To find out if you’ve received a defective notice under Section 139(9), log into your account on the Income Tax Department’s e-filing portal. Once you’re on your dashboard, check for any notifications or messages. The portal will usually display alerts or notices if there are issues with your filed return.
By regularly monitoring this section, you can stay on top of any defects and respond promptly to avoid potential penalties. Make it a habit to review your e-filing portal to ensure that your tax filings are in good order and to address any issues quickly.
How Can KoinX Help?
Managing crypto taxes can be challenging, but KoinX simplifies the process and ensures compliance with tax laws. KoinX simplifies your crypto tax filing by automatically generating a Schedule VDA report. This ensures that all crypto transactions are accurately reported, helping you comply with tax laws.
Automated Crypto Tax Calculation
KoinX automatically calculates taxes for all your crypto transactions. You no longer need to manually track each trade or worry about complex calculations. It handles everything, making your tax reporting straightforward and accurate.
Accurate Generation of Schedule VDA
It generates a precise Schedule VDA report, essential for correctly reporting crypto transactions. This ensures that all your transactions are documented accurately, reducing the risk of errors and omissions in your tax filings.
Easy Integration with Major Exchanges
It seamlessly integrates with more than 280 cryptocurrency exchanges. This integration means you can easily import your transaction data without manual entry, streamlining the process and ensuring that your data is current and accurate.
Comprehensive Reports for Filing Returns
KoinX provides comprehensive reports tailored to file your tax returns. These reports include all the necessary details and are designed to meet compliance requirements, simplifying the submission process and giving you peace of mind.
Avoid the complexities of manually computing crypto taxes. Sign up on KoinX today and manage your crypto taxes more efficiently.
Conclusion
Receiving a defective notice under Section 139(9) can be challenging, but knowing how to address it is crucial for resolving the issue. You can prevent future complications by swiftly correcting the errors and providing the necessary information within the stipulated timeframe.
