Home / Budget / News /  The returns relief for revised tax filing

The Union budget has opened a window of 24 months from the end of an assessment year to file a revised income tax return (ITR) in case the taxpayer missed reporting an income or discovered an error in the original tax return. This window replaces the current deadline of either three months before the end of the assessment year or before the completion of the assessment, whichever is earlier.

The new provision is an attempt to promote voluntary tax compliance. “This additional timeline (current window of 2-5 months) for filing a revised/belated return may not be adequate when we factor in the utilization of huge information and data available coupled with the “nudge approach" that motivates the taxpayer towards the desired objective of voluntary tax compliance, starting with the filing of correct tax returns," said the Memorandum to The Finance Bill, 2022, adding it will facilitate ease of compliance to the taxpayer in a litigation-free environment.

Tax experts agreed. “The intention is to allow taxpayers an opportunity to pay any unpaid taxes without severe consequences, in case they have made a mistake at the time of filing and return is already processed," said Archit Gupta, founder and chief executive at Clear, a tax-filing service.

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This option will also be available to those who haven’t filed a tax return previously for the relevant assessment year.

The changes take effect in April this year. “The new timeline for updating ITRs might apply to tax returns for the financial year 2021-2022 as well as they will be filed in the assessment year 2022-23, which is when the rule is kicking in," said Sandeep Sehgal, partner, tax at AKM Global, a tax and consulting firm.

Penalty of up to 50%

The extended timeline is not all good news for taxpayers, as those who choose to update their ITR after the end of the assessment year (AY) will face an additional tax of 25-50% on the due tax.

As per the finance bill, the taxpayer will have to pay 25% additional tax on the aggregate of the total tax and interest accrued on it when the updated ITR is filed 12 months after the end of the assessment year.

The penalty will double to 50% if the ITR is updated between 13 months and 24 months. Penal interest on self-assessment tax is levied at 1% per month on a simple interest basis.

“This amount is payable in addition to the regular tax due on the additional income reported, and in addition to regular interest and fee which is applicable for delayed tax payments," said Alok Agrawal, partner, Deloitte.

Despite the steep penalty, Agrawal said this provision is still beneficial to taxpayers. “As per the existing provisions, a penalty of 50% for under-reported income (or 200% for misreporting of income) of the tax due may be levied by the tax authorities.

With the release of the annual information statement (AIS) and linking of PAN with Aadhaar, undisclosed income may not remain untracked for long.

Hence, this new provision may incentivize voluntary payment of additional taxes of 25%/50% (apart from regular tax, interest and fees) as opposed to payment of the regular penalty, which may even go up to 200%. By encouraging taxpayers to disclose their unreported income upfront, this mechanism may enable such taxpayers to settle their final tax liability in an expeditious manner, without having to undergo a protracted litigation process," he said.

Note that even after the new provision comes into effect, taxpayers who file a revised return as per the çurrent timeline of three months prior to the end of the assessment year or before the assessment will not be charged any penalty.

Since this provision also includes those who haven’t filed a tax return within the due date, such taxpayers will also be required to pay a late filing fee, said Karan Batra, founder of charteredclub.in. The penalty for filing late ITR is up to 5,000.

Moreover, there are certain conditions under which a taxpayer can update ITR within the extended timeline.

First, taxpayers can’t file a revised return that reduces their tax liability. This would exempt reporting losses to be set off as that may reduce the final tax outgo.

Second, taxpayers who have received scrutiny from the taxman or whose bullion, jewellery, valuable articles or books of account have been seized or requisitioned under Section 132 or Section 132A will also not be allowed to update their ITR. “This benefit is meant for bonafide taxpayers who, suo moto, wish to offer additional tax on their incomes to the tax authorities and not in the case of taxpayers where cases of search or survey or assessment have been initiated," said Shailesh Kumar, partner, Nangia & Co LLP.

The budget also proposed a system under which repeated appeals by the income tax department on identical issues can be avoided. If a question of law with respect to an assessee is identical with an appeal that is lying before a High Court or the Supreme Court, the filing of further appeals by the department shall be terminated till such question of law is decided by the court, explained Amit Singhania, partner, Shardul Amarchand Mangaldas & Co.

Karishma Phatarphekar, partner, Deloitte India, said that this move may have limited coverage for cases involving questions of law, and it may still not reduce litigation for fact-intensive issues like transfer pricing and international tax.

“Also, the taxpayer needs to consent on whether it is a repetitive question of law; therefore, in a situation where the decision goes against the taxpayer at the high court stage, it will be difficult for the taxpayer to make out a different case," she added.

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