Income Tax Assessment: Types of Assessment in Income Tax

Every year, taxpayers must file their income tax returns within the applicable due date to ensure compliance with the country’s tax laws. The filed ITRs are examined by the Income Tax Department with various types of income tax assessment procedures to ascertain the validity of filings and uncover possible discrepancies. In this article, we discuss what are the different types of assessments in income tax law and how they impact the taxpayer.

According to the provisions of the Income Tax Act 1961 , if an individual’s earnings exceed the basic exemption limit, they must file income tax returns. The new tax regime sets the basic exemption limit at Rs. 3 Lakhs for individuals under the age of 60 years. Therefore, any person earning above Rs. 3 Lakhs in a given financial year, must self-determine their tax liability and file their ITR. Once the ITR is filed, the income tax department examines the accuracy of the income details included. This scrutiny and review of ITRs by the income tax authorities is termed as income tax assessment. Income tax assessment procedures evaluate the returns filed by the taxpayer under different conditions and provisions. Accordingly, there are various types of assessments in income tax.

Taxpayers should be aware of the following different types of assessment in income tax:

• When the assessee fails to respond to multiple notices sent by the IT Department requesting books of accounts or other relevant documents.
• When the assessee fails to file their returns by the specified due date.
• When the assessee does not cooperate or comply with the directives of the IT Department.
• When the Assessing Officer is not satisfied with the documents provided.

• When the assessee has earned taxable income, but the ITR is not filed.
• When the ITR is filed but the income is understated or losses are overstated.
• When reports and details on international transactions are not furnished.

1. Self Assessment u/s 140A In India, self-assessment is the most common type of assessment in income tax. Under the self-assessment procedure of income tax, the taxpayer calculates the total taxable income on their own. As per the provisions of Section 140A, the taxpayer must first consolidate income from various sources, including salary, rent, business income, capital gains, etc. This total income needs to be adjusted against losses or applicable deductions/exemptions to arrive at the net taxable income for the year. Next, the assessee must deduct advance tax or TDS already paid from the net taxable income to determine the outstanding tax liability. This outstanding amount of tax is self-assessment tax which must be cleared before filing returns. The deadline for filing self-assessment ITRs is 31st July of every financial year.
2. Summary Assessment u/s 143(1) Applicable under Section 143(1), summary assessment is a type of assessment procedure in income tax where the information provided by the assessee is tallied with the details available to the IT Department. This type of assessment in income tax is conducted without human intervention and is used to locate clerical errors, miscalculations, incorrect claims, incorrect disallowances, or any other inconsistencies in the taxpayer’s ITR. In other words, the accuracy of the ITR is verified by the Income Tax Department. A summary assessment is generally carried out prior to notifying the taxpayer of ITR discrepancies, refund, adjustment, or errors.
3. Scrutiny Assessment u/s 143(3) Scrutiny or regular assessment in income tax is a type of assessment procedure that is not applicable on all filings. The Income Tax Department authorises an Assessing Officer to conduct such an assessment if the taxpayer’s profile meets certain CBDT parameters. Scrutiny assessment in income tax is conducted to check if the taxpayer has paid inadequate tax either by understating their income, overstating losses, or underpaying taxes. The AO examines books of accounts or other documents thoroughly to validate that there is no disparity between income earned and taxes paid. Post verification, the AO passes an order either ratifying the ITR filed or raising an income tax demand. If the assessee is unhappy with the assessment, they can apply for recitation u/s 154 or appeal to higher tax authorities, including the CIT, the ITAT, and the High Court. Also Read: Tax Deducted At Source: Meaning, Returns, Filing And Due Dates
4. Best Judgement Assessment u/s 144 This type of assessment in income tax can happen when there is no response from the taxpayer on multiple notices issued by the Income Tax Department. In other words, this assessment procedure in income tax happens only when the assessee fails to cooperate with the IT Department, providing them with relevant information and documents. In such cases, the Assessing Officer is responsible for computing the tax liability of the individual - to the best of his judgement. Here, ‘best judgement’ refers to computing the tax liability of the assessee with utmost honesty.Best judgement assessment procedures in income tax are commonly adopted in the following instances:
5. Income Escaping Assessment u/s 147 Income escaping assessment is one of the most critical types of assessments in income tax. This income tax assessment procedure is followed when the income tax officer believes that taxable income has escaped assessment in the given financial year. In such cases, a reassessment will be ordered. For concealed funds of Rs. 1 Lakh or more, the AO can reopen ITR filings from the last 3 years. If the concealed income amounts to more than Rs. 50 Lakhs, cases from the last 10 years can be reopened.This type of income tax assessment happens in the following situations:
6. Assessment in Case of Search u/s 153A This type of income tax assessment is applicable on taxpayers who have been searched u/s 132 of the Income Tax Act. According to the income tax assessment procedures outlined in Section 153A, the Assessing Officer can scrutinise the taxpayer’s ITR for the last six years, immediately preceding the ‘search’ year. However, it is to be noted that the assessment must be made in accordance with the material disclosed during the search.

Also Read: What is Advance Tax Payment? - Guide to Advance Tax in India

Understanding the various types of assessments in income tax is crucial for taxpayers as it helps simplify the complicated tax landscape. Knowledge about the different types of income tax assessments helps taxpayers ease the process of filing taxes, interpreting notifications, and the ingrains a need to ensure compliance.Ready to make the most of your money? Start your tax planning journey now!