Home / Budget / Opinion /  Budget 2022: An attempt to boost compliance

On the personal tax front, the Finance Bill 2022 has left individual taxpayers feeling bittersweet. Majority of them are left let down as none of their wish list items such as changes to tax slabs  rates, increase scope of available tax deductions, tax relief on work from home expenses, increase in standard deduction limit, among other things, found a place in the Union Budget. However, some are just relieved that no additional taxes were introduced. 

Among other things, the Budget introduced many provisions to boost compliance and stem litigation for taxpayers. 

Streamlining of faceless assessments

The government introduced faceless assessment with an aim to increase transparency, accountability and efficiency in income tax assessments. The scheme, essentially, removed human interface between the assessing officer and the assessee. However, technical and procedural difficulties arising from implementation of the faceless assessment scheme led to a series of litigation in the last few years. 

To resolve these challenges, the Finance Bill 2022 proposes to streamline faceless assessment procedures. Nonetheless, one will have to wait and see whether these amendments will triumph in resolving the current procedural and technical issues or not. Also, removal of the clause rendering assessments as void if procedures as per the scheme are not followed may roll back the stimulus of taxpayers who challenged assessment orders on this ground.

Cash credits - onus extended to explain source of funds in hands of lender

Section 68 of the IT Act provides that where any sum is found to be credited in the books of an assessee, and the assessee offers no explanation about the nature and source thereof or the explanation offered is not satisfactory, the sum so credited may be taxable. 

To counter the pernicious practice of conversion of unaccounted money by crediting it to the books of assesses through a masquerade of loan or borrowing, it is proposed to amend Section 68 to explicitly cover loans and borrowing within its ambit. The proposed amendment also extends to all assessee, whether resident or not and therefore applies to individuals as well. There is an additional requirement to satisfactorily prove the source of funds of the lender.

Filing of updated returns

The window provided to file updated returns is like extended timelines for filing belated and revised returns. This move will allow taxpayers a chance to rectify certain errors, omissions or mistakes in estimating the income at the time of filing the original return by filing updated returns within two years from the end of the assessment year. However, the pitfall is that the taxpayer pays an additional 25-50% of the aggregate of tax and interest on the additional income declared in the updated return over and such base taxes. This could mean an effective tax of nearly 65 percent for cases falling in the highest tax and surcharge bracket. Interest consequences would be additional.

The article is authored by Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP and co-authored by Amita and Ankur. 

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