No deductions if I-T returns filed late

Finance Minister Arun Jaitley has quietly slipped in a draconian provision in the Union Budget presented on Thursday to deny all permissible deductions and exemptions to the taxpayer under the Income Tax Act if the returns are not filed by the specified due dates.

One can now miss the last date to file the returns at his peril as he will be denied all tax breaks available in the form of deductions and exemptions and made to pay tax even on amounts so far allowed to reduce the total tax burden. The new provision is hidden in the fine print of the explanatory memorandum to the Finance Bill elaborating its Clause 23 that covers all taxpayers, including the individuals, and made applicable from April 1, 2018, to apply from the assessment year 2018-19.

It reads fairly innocuously as if an existing clause has been extended further unless one grasps import of the extension in depriving 70 kinds of deductions and exemptions if the taxpayer misses the deadline for any reason. So far one could get away paying a small penalty for late filing of returns, but henceforth he will lose all benefits available under the law.

Only last year Jaitley had brought in a clause for penalties for late filing but it was left up to the discretion of the assessing officer to levy them or not. Now one has to not only pay penalty, but also pay tax on the amounts he used to claim as deductions and exemptions.

What all are deductions and exemptions that will be denied if the return is not filed on or before the deadline? They include interest on housing loans, rents paid, mediclaim, insurance premia, contribution to provident fund, medical insurance, medical treatment, children's school fees, interest on loan taken for higher education, interest on bank savings, deposits under the national savings scheme, pension fund and other investments like infrastructure bonds, purchase of certain new shares, donations to charitable institutions under 80G or donations to political parties or for scientific research and rural development, and so on. The list is exhaustive. It covers 70 sub-sections of Section 80 that are clubbed together in Chapter VI-A of the Act that actually cover "the entire class of deductions."

The Finance Bill plays the trick by lumping together all items under this Chapter by extending to it Section 80AC of the Income Tax Act that was hitherto meant for denial of deductions of profits and gain to five categories of corporate entities in infrastructure, special economic zones (SEZs), hotels and conventions centres in specified areas, etc. unless they file returns on or before the last date.

The explanatory memorandum elaborates that only some lose benefits of deductions for not filing returns on time while "this burden is not cast upon assesses claiming deduction under several other similar provisions."

It goes on to state, "In view of the above, it is proposed to extend the scope of Section 80AC to provide that the benefit of deduction under the entire class of deductions under the heading "C - Deductions in respect of certain incomes" in Chapter VI-A shall not be allowed unless the return of income is filed by the due date."

A top finance ministry official gave an excuse that the government is going for complete automation that leaves no scope for computing deductions and exemptions if returns are not filed on or before the due dates as the assessing officers will not be available to interact with taxpayers to consider why they could not pay tax and file returns on time. The official cited the announcement made by Jaitley in his budget speech to go for the assessment in the electronic mode from this year, which will "almost eliminate person-to-person contact leading to greater efficiency and transparency."