Assessment is a crucial part of the Income Tax filing and paying process. Once the assessee submits all documents necessary, an assessment is conducted to cross-check the values submitted and make sure that all the data is accurate. Since filing income tax is a crucial process mandatory to be conducted at the end of each financial year, the need to conduct accurate assessments is also crucial. And as taxpayers, it is your duty to be accustomed to the different kinds of Income Tax assessments that can be used to arrive at the amount needed to pay in tax on the taxable income for that particular financial year.
Keeping that in mind, keep reading to know more about five different kinds of Income Tax assessments, what they mean, what they encompass and how they affect your Income Tax evaluation. While there are other methods as well, these five are the most commonly used among taxpayers and thus, it would benefit them to get to know about these five types in greater detail. This can also help them to make informed decisions when tax filing season comes. Whether they want to adopt the self-assessment method or wish to get the assessment done by the Income Tax Department, keep reading to know more about these methods in detail.
Types of Income Tax Assessments
When talking about Income Tax Assessments, there are five major kinds that are used when assessing the documents. The five assessment types address different areas of the process and contribute to the successful filing of Income Tax. As mentioned before, while there are a few more methods, these are the most commonly used ones, which is why this article focuses on these five methods only. The five types are explained in detail below.
Self-assessment – u/s 140A
Self-assessment is the type where the assessee conducts the assessment themselves, calculating the income earned in the Financial Year themselves and filing the tax on their own as well. In short, the process is an entirely individual process involving self-calculation. This kind of assessment is conducted as per Section 140A within the Income Tax Act.
In the process of self-assessment, a form provided by the central tax department is used. The assessee uses this form to compile all their income sources from the past year, calculates them against any and all losses, exemptions, and deducted amounts, and arrives at the first final calculation on the basis of these earnings and deductions. Furthermore, Advance Tax and TDS are also deducted by the assessee themselves from the total amount arrived at, which becomes the final income earned in that financial year. The tax is then filed on the basis of this final amount, which the assessee must pay before moving on to filing returns for this tax amount paid.
Summary Assessment – u/s 143
The Summary Assessment method is part of Section 143(1) of the Income Tax Act of India. Contrary to self-assessment, where the assessee evaluates the tax amount on their own, summary assessment involves assessing the data entered by the assessee against the data the IT department already has access to in their database. This data-based evaluation conducted by the Income Tax department focuses on how “reasonable” and “correct” the data is. Online calculation of returns is done and automatic resolutions are implemented to any mathematical errors, faulty claims, and disallowances.
This kind of assessment can be done within one year of the end of the financial year for which the income tax is being filed. And through the calculation process, the total income or loss of income incurred during the year can be evaluated.
Scrutiny Assessment – u/s 143
Scrutiny assessment is a more detailed method of assessment carried out by the Income Tax department. In this assessment method, an assessing officer is assigned to an assessee chosen at random to conduct a more scrutinised and in-depth assessment. Intimation of the same is given through an official notice to the assessee regarding their selection for a Scrutiny Assessment. Once the assessing officer is provided with the necessary details and documents, such as the book of accounts, the officer would conduct a thorough evaluation of the accounts of the documents and calculate the taxable income earned in the financial year and the amount of tax to be paid against that income. In case of discrepancies, the assessee is then given the choice of either accepting the order as passed by the officer, accepting a refund for the difference amount or declaring it as a loss determined by the officer.
Under this assessment method, the assessee can also follow the statutes under Section 154 and submit an official application for rectification of IT return. On the contrary, they can also submit a request for revision as per Section 263 or 264 of the act. However, if the order passed after the scrutiny assessment is not as per the liking of the assessee, then appeals can be filed in the order of CIT(A), then the ITAT, then the High Court, and finally, the Supreme Court.
Best Judgement Assessment – u/s 144
The Best Judgement Assessment method is similar to the scrutiny method, in that it requires an active role on the part of the assessing officer. In this method, an income tax officer examines the taxpayer. Based on this assessment, they use their best judgement to determine and compute the taxable income of the assessee and how much tax is to be paid on that taxable income. However, this method is not a preferred one, since it takes place if the assessee does not participate actively in providing income-related information, fails to file a tax return, or fails in maintaining accurate books of accounts.
In light of this, the best judgement assessment method is conducted based on the following criteria:
- The assessee has not filed an Income tax return.
- The assessee has failed to comply with requests to provide the necessary details and documentation in an earlier stage of scrutiny.
- The assessee has failed to comply with notices issued by the Income Tax Department regarding income tax returns filing or initiating an “audit of accounts”.
- The assessee has provided information but that is not sufficient or satisfactory as per the requirements put forth by the income tax officer.
If the assessing income tax officer finds the assessee to be applicable for one or more of these criteria, then it can be grounds for conducting the best judgement assessment on their part.
As the name suggests, this assessment method is used to focus on assessments done to protect the “interest of the revenue”. This method is undertaken in instances when a party offers the income but Revenue determines the income to be assessable by another party. As a result, it leads to Revenue gaining the right to evaluate this income that has been offered protectively, making this protective assessment final in the eyes of the law. Specifically, this method takes place when two different assessing officers determine the income to be valid and applicable in their category of assessing.
In such cases, it is up to the authorities to decide upon the person actually liable to pay the tax accrued on the taxable amount. However, it must also be kept in mind that while this is a valid assessment method, issuing a protective order for the purpose of recovery is not valid or permissible. It is simply a paper assessment method, and when the paper is assessed by the final assessing officer, the department that the officer belongs to gets to recover the tax amount from the assessee.
Filing income tax and income tax returns every year can be a confusing process, especially when you don’t know the various methods that can be adapted to conduct the process. In such cases, getting to know these five most common methods can be beneficial for you in your own income tax and returns filing process. As per the methods covered here, you can choose to file your income tax using the self-assessment method by undertaking the process yourself. On the contrary, if you are not familiar with all the information and documents required to file it yourself, you can also rely on the other methods. Regardless, you can choose to read up more on each method and make the process of IT filing for the coming financial year closing easier by having all the necessary documents and books of accounts ready so you are not subjected to unnecessary scrutiny or evaluation from the Income Tax Department.