Understand the Different Types of Assessment in Income Tax

The procedure of assessment in income tax involves the determination of tax liability by the Income Tax Department. This process can occur through various methods, each with distinct implications for taxpayers. 

These range from self-assessment to income tax escaping assessment. You need to be aware of these various assessment types and how they work to comply with the taxation rules.

Meaning of Income Tax Assessment 

After every financial year, eligible individuals and entities need to file income tax returns (ITR) and pay tax based on the net taxable income earned during the year. Once you file the ITR, the income tax department assesses and verifies the submission. This process is known as income tax assessment. 

Your ITR can be selected for a specific assessment based on the criteria set by the Central Board of Direct Taxes (CBDT). As mentioned earlier, these can be regular or self-assessments in income tax.

Types of Income Tax Assessment Under the Income Tax Act

The Income Tax Act outlines several assessment procedures to determine an individual or entity’s tax liability. Here are the different types of assessments you must know:

Regular Assessment

The Income Tax Department assigns an Assessing Officer (AO) or an income tax officer to conduct this assessment. They focus on the following-

• The accuracy of the income that you have reported
• The accuracy of the calculation of the tax and the final payment
• Whether you have understated the income, overstated the expenses or losses or underpaid the tax 

The CBDT has established the following criteria for this assessment-

• If the officer feels you come under scrutiny assessment, they will issue you a notice within 6 months from the end of the financial year of filing the ITR
• You need to provide evidence for reported income
• After this, the assessing officer confirms or adjusts the return; the latter can lead to tax demands

Also Read: Five Heads of Income Under the IT Act

Self-Assessment

In this assessment of taxation, you calculate your tax liability yourself. Here’s what you need to know about self-assessment in income tax:

• The tax department provides various forms for filing the return
• You need to consolidate the income from different sources and adjust it against losses, deductions or exemptions available during the year
• Doing this will give you the net taxable income and calculate the tax as per the slab rates
• Deduct the tax deducted at source or TDS and Advance Tax from the tax liability calculated 
• Doing this will determine whether you have to pay more tax or will receive a refund 

Summary Assessment

This type of tax assessment is carried out without any involvement of humans. Here’s what happens-

• The information that you submit in your ITR is cross-checked with the data in the income tax department’s records
• During this process, the department verifies the reasonableness and accuracy of your ITR
• The return is processed online and adjusted for arithmetic errors, incorrect claims and disallowances, if any, are made automatically
• If the adjustments lead to an increased tax liability, you will receive a notice u/s 143(1)

Scrutiny Assessment

Once you submit your return, an officer may be assigned by the IT department to assess your ITR. It works like this:

• You receive a notice u/s 143 (2) that an officer is assigned to assess your return 
• The officer may request documents, books of accounts and other relevant details for the assessment 
• The officer calculates your income tax payable
• If there’s a discrepancy, you will either have to pay the extra amount or receive a refund
• If you’re dissatisfied with the assessment, you can apply for rectification u/s 154 or submit a revision application u/s 263 or 264
• If the Scrutiny Assessment order is still considered invalid, you can appeal to the higher authorities (in this order): CIT (A), ITAT, the High Court and the Supreme Court

Also Read: Tax Free Income in India

Income Escaping Assessment

This assessment in taxation happens when the IT department thinks a taxable income has escaped assessment. A notice can be issued or an assessment can be opened within 4 years from the end of the assessment year. Reassessment happens in these scenarios:

• If you have a taxable income but haven’t filed your return
• If you have either understated your income or claimed excess allowances or deductions
• If you have not provided reports on international transactions, where required

Best Judgement Assessment

This assessment is applicable in the following situations:

• If you don’t respond to an IT notice regarding specific information or books of accounts
• If you don’t comply with a Special Audit ordered by the IT department
• If you fail to file the return within the due date or the grace period
• If you don’t comply with the terms issued under Summary Assessment

After hearing your arguments, the AO uses all the relevant material available to make a decision. This is called the Best Judgment Assessment.

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FAQs on Income Tax Assessment Under the Income Tax Act

What is the assessment of tax under the Income Tax Act?

Tax assessments under the Income Tax Act refer to the verification or evaluation of the ITRs filed by an individual or an entity.

What is regular assessment in income tax?

This is when an assessing officer conducts the assessment to check and ensure that you haven’t:

• Understated your income 
• Overstated deductions, expenses or losses 
• Underpaid your tax 

Here’s how the procedure of assessment in income tax works:

• For scrutiny assessment, the department sends a notice 6 months from the end of the FY in which you file the return.
• You need to provide evidence for reported income, after which the assessing officer confirms or adjusts the return, which may lead to tax demands.

What are the different types of assessment in income tax?

Various tax assessments under the Income Tax Act include:

• Regular Assessment
• Self-Assessment
• Summary Assessment
• Scrutiny Assessment
• Income Escaping Assessment
• Best Judgement Assessment
• Protective Assessment

What do you mean by scrutiny assessment?

It is when the Income Tax Department assigns an assessment officer to assess the return you file. You will receive a notice u/s 143 (2) from the Assessing Officer.