Many individual taxpayers would have received a notice from the Income Tax Department regarding Limited Scrutiny under Section 143(2).
The notice reads:
What the notice means is that the taxpayer’s income tax return for AY2015-16 has come under scrutiny for derivative (futures) transaction.
The income tax department wants the taxpayer who has received this notice to furnish evidence regarding their transactions in the derivatives market. If you receive this notice, you should reply to it. A taxpayer should never ignore a notice from the tax department.
When you get a notice under Section 143(2), it means that your income tax return has been selected for detailed scrutiny by your assessing officer. The officer can serve this notice up to 6 months after completion of the assessment year to which it pertains. The assessing officer may ask you to provide books of accounts of your trading activity such as trading statements and bank account details.
The next steps for the taxpayer would be to get in touch with their assessing officer and submit the evidence that has been sought. Not doing so will result in another notice from the department. Taxpayers in the cities of Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkatta and Mumbai can have an email-based communication with the assessing officer if they want.
Did you know that derivatives and F&O traders have to report their trading losses in the income tax return? Read more about how to treat share trading losses.
Share trading is treated as a business for the purpose of taxation. We have special plans for traders and professionals to help them simplify their taxes.
Remember: It is never a good idea to ignore a notice from the income tax department. You should not be worried about it either. Acknowledge the notice, understand what it means and reply to it accordingly.