An additional window for tax return compliance

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A new concept of updated reporting was introduced in Budget 2022.

HIGHLIGHTS

  • The tax liability will be calculated after granting credit due for TDS, withholding tax, withholding tax, etc.
  • Late payment interest on the provision of the tax return for non-payment of withholding tax and for the postponement of the payment of withholding tax will be levied, where applicable.
  • Updated returns can be filed beginning with tax year 2020-21 and beyond.

By Anita Basurar

In recent times, reduced deadlines for filing late or revised tax returns provide taxpayers with a short period of time to rectify inadvertent errors or meet these deadlines in unfavorable situations. Until now, the last day to file the revised or late return was December 31 of the tax year.

In order to provide an additional opportunity to correct any omissions or errors made in the filing of the original/late/revised tax return or in the event that such return is not filed due to unforeseen circumstances, a new provision to the ‘updated return’ was introduced under section 139 (8A) of the Income Tax Act 1961 (the Act) by the Finance Act 2022.

According to the new provision, an additional period of 12 months/24 months from the end of the relevant tax year is granted to all taxpayers with an additional cost of 25%/50% of the tax payable, respectively, with which the update declaration can be filed.

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Some of the key features of the updated reporting provisions are:

· It can be filed once for a tax year.

· The tax liability will be calculated after granting credit due for TDS, withholding tax, withholding tax, etc.

· Late payment interest on the provision of the tax return for non-payment of withholding tax and for the postponement of the payment of withholding tax will be levied, where applicable.

· The updated return can be filed from tax year 2020-21 and beyond.

· The declaration must be accompanied by proof of payment of the tax.

It is important to note that no updated declaration can be produced in the following cases:

· The return results in a decrease in tax payable or an increase in refund or loss claim.

· If an assessment/reassessment proceeding is pending against the taxpayer for that assessment year.

· If a search/investigation has been made against the taxpayer, then for this tax year and the tax year preceding this tax year.

· If proceedings are pending for this tax year.

· If information from a foreign jurisdiction is received in accordance with the tax treaty and is communicated to the taxpayer for the relevant tax year.

· The tax officer has the information under various laws such as smugglers, benami, black money, money laundering, etc. and the same are communicated to the taxpayer.

· CBDT has notified such taxpayers or classes of taxpayers as not being eligible to file the updated return.

Recently, CBDT notified the rule for providing the updated declaration with the ITR-U form, a simple form which requires the disclosure of income under the different heads of income (without detailing the distribution of these) as well as the reasons for the updated statement. Also, details of tax payments should be provided in the same.

In addition, the ITR-U form must be filed with a digital signature in audited cases and an electronic verification code in unaudited cases. There is no option of manually signing and sending the same to Bangalore for the updated return.

The provision of a window for updated returns is a positive step by the government for maximum compliance in filing returns. The same can be used by taxpayers who cannot file the return or are unable to revise the error or omission before December 31 of the tax year. However, the additional 25%/50% tax liability would act as the determinant of such opportunity, as the same applies to reporting compliance. Some open aspects/issues regarding the updated statement are discussed below:

· Applicability of penalty provisions such as misreporting or under-reporting in the tax return on additional income disclosed in the updated return.

· Selecting cases in scrutiny narrows the window for updated reports because the updated report cannot be filed for cases selected for scrutiny.

· Returns resulting in reduced losses or refunds seem out of reach under the literal interpretation of the Act. The same can be clarified for the inclusion or exclusion of the same.

One could consider filing a request for tolerance of delay in cases of genuine hardship instead of opting for an updated declaration, since the tolerated delay does not entail any additional tax liability, i.e. 25% or 50%.

(The author is a chartered accountant. With over 22 years of domestic and international tax experience, Anita has authored articles on key topics published in leading industry journals.)

(Disclaimer: The opinions expressed in this column are those of the author. The facts and opinions expressed herein do not reflect the views of www.timesnownews.com.)


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