Deficiency

Reviewed by Komal | Updated on Aug 27, 2020

What is deficiency?

Deficiency is the difference between the amount of tax that a taxpayer reports in their income tax return and the tax that is assessed by the income tax department. It is not a word described under the income tax act but such differences are mentioned as deficiencies in a taxpayer’s day-to-day life. The department intimates such deficiencies through an intimation order under section 143(1) of the income tax act,1961.

How is this deficiency calculated?

Once a taxpayer has filed his income tax returns, the department assesses his returns based on the information available from different sources. After the assessment process, the income tax officer intimates the taxpayer about any mismatch or discrepancy found in the returns through Order 143(1). The order can be sent for a tax demand as well as a tax refund.

When the order is for a tax demand, it is usually called as a deficiency found in tax filing. The taxpayer has to respond to this notice within 15 days from the date of receiving it. Any failure might result in a notice for scrutiny.
The assessment process involved here is fully computerised and does not have any human intervention.

What are the various adjustments made by the department?

To arrive at any deficiency or tax refund, the department calculates total income or loss with the following adjustments:

  1. Arithmetical error in the income tax return.
  2. Any incorrect claim of expenses or deduction which is apparent from any information provided in the tax return.
  3. Disallowance of set-off of loss in the financial year.

How to pay such deficiency amount?

If the taxpayer agrees to the tax demand raised by the income tax department after carrying out various adjustments, he is required to pay such taxes.

However, while paying tax on the demand raised under this section, one has to choose 'Tax on Regular Assessment (400)' under 'Type of Payment' in Challan 280.