Income Tax Assessment: Types of Assessment in Income Tax

Income Tax Assessment is the review of the details disclosed in the Income Tax Returns filed by the taxpayers to ascertain the accuracy and compliance. It is done by the Income Tax Department (IDT). There are various types of Income Tax Assessments that happen. 

In this article, we have discussed the types of assessment that you should know as a taxpayer. 

What Is Income Tax Assessment?

The Income Tax Department (IDT) reviews the Income Tax Returns (ITR) filed by the taxpayers. This review process involves verifying the details disclosed by the taxpayers in their ITR and comparing the details with information available through AIS, TIS, Form 26AS and other sources. After verifying the tax return, if the ITD finds all the details accurate and in compliance, it will initiate and refund, else a demand notice will be issued. 

Income Tax Assessment is the examination of all the information disclosed in the ITR by the taxpayer to ensure it is accurate and in compliance with the regulations. 

Types of Income Tax Assessments

The various types of Income Tax Assessments are given below:

1. Self Assessment

The taxpayer determines the income tax payable. The taxpayer consolidates the income from various sources and adjusts the same against losses, deductions or various exemptions available during the year. The total income of the taxpayer is arrived, from which TDS, TCS, and Advance Tax are deducted to determine the tax payable on such income. The tax payable is called self-assessment tax and must be paid before filing the income tax return.

2. Summary Assessment

It is a type of assessment carried out without any human intervention. In this type of assessment, the information submitted by the taxpayer in the income tax return is cross-checked against the information that the income tax department has access to. In the process, the reasonableness and correctness of the return are verified by the department. The return gets processed online, and adjustments for arithmetical errors, incorrect claims, and disallowances are automatically done. 

For example, credit for TDS claimed by the taxpayer is found to be higher than what is available against his PAN as per department records. Adjusting in this regard can increase the tax liability of the taxpayer. After making the aforementioned adjustments, if the taxpayer is required to pay tax, he will be sent an intimation under Section 143(1). The taxpayer must respond to this intimation accordingly. 

Read a more detailed article on Section 143(1).

3. Regular Assessment

The income tax department authorizes the Assessing Officer or Income Tax authority, not below the rank of an income tax officer, to conduct this assessment. The purpose is to ensure that the taxpayer has neither understated his income nor overstated any expense or loss nor underpaid any tax. The CBDT has set certain parameters based on which a taxpayer’s case gets picked for a scrutiny assessment. 

• If the taxpayer is subject to a scrutiny assessment, the Department will send a notice well in advance. However, such notice cannot be served after the expiry of 6 months from the end of the Financial year, in which the return is filed. 
• The taxpayer will be asked to produce the books of accounts, and other evidence to validate the income he has stated in his return. After verifying all the details available, the assessing officer passes an order either confirming the return of income filed or making additions. This raises an income tax demand, which the taxpayer must respond to accordingly.

4. Scrutiny Assessment

After submitting an income tax return, an Income Tax Officer may be assigned by the Income Tax Department to assess the tax filing. The taxpayer is informed of this through an Income Tax Notice under Section 143(2). The officer may request information, documents, and books of accounts for scrutiny assessment, which will be thoroughly examined. The officer then calculates the income tax payable by the taxpayer, and if there is a mismatch between the income and the tax due, the taxpayer can either pay the extra amount or receive a refund.

If the taxpayer is not satisfied with the assessment, they can apply for recitation under Section 154 or submit a revision application under Section 263 or Section 264. If the Scrutiny Assessment order is still considered invalid, the taxpayer can appeal to higher authorities such as CIT (A), ITAT, High Court, and The Supreme Court, in that order.

5. Best Judgement Assessment

This assessment gets invoked in the following scenarios: 

• If the taxpayer fails to respond to a notice issued by the department instructing him to produce certain information or books of accounts. 
• If he/she fails to comply with a Special Audit ordered by the Income-tax authorities.
• The taxpayer fails to file the return within the due date or such extended time limit as allowed by the CBDT 
• The taxpayer fails to comply with the terms as contained in the notice issued under Summary Assessment After providing an opportunity to hear the taxpayer’s argument, the assessing officer passes an order based on all the relevant materials and evidence available to him.

6. Income Escaping Assessment

When the assessing officer has sufficient reasons to believe that any taxable income has escaped assessment, he has the authority to assess or reassess the taxpayer’s income. The time limit for issuing a notice to reopen an assessment is 4 years from the end of the relevant assessment Year. 

Some scenarios where reassessment gets triggered are given below. 

• The taxpayer has taxable income but has not yet filed his return. 
• The taxpayer, after filing the income tax return, is found to have either understated his income or claimed excess allowances or deductions. 
• The taxpayer has failed to furnish reports on international transactions, where he is required to do so.

Assessment could close quickly for some taxpayers, while it could prove to be quite grueling for others. If you are not comfortable dealing with income tax officers, it is suggested that you take the help of a Chartered Accountant to help you with your case.

Penalty For Not Filing Income Tax Return

The Income Tax Department imposes penalties for failure to file ITR within the specified due dates. The due date to file ITR for non-audit cases for FY 2024-25 (AY 2025-26) is 15th September 2025. The penalty for late filing or non-filing of ITR is as follows:

• If the total income is below Rs. 5 lakhs the penalty is Rs. 1,000
• If the total income is more than Rs. 5 lakhs the penalty is Rs. 5,000

Further, late filing or non-filing of ITR attracts interest @ 1% under Section 234A.