Companies may also update tax returns within two years
The new provision in the Finance Bill 2022 will benefit firms including start-ups
NEW DELHI: Companies too can update their tax returns within two years after the end of the assessment year under a new scheme proposed in Finance Bill 2022 but if any misuse is noticed, the government will limit its use to select classes of tax payers in future, a government official said.
Finance minister Nirmala Sitharaman last week announced in her union budget speech that a new provision being introduced in the Income Tax Act will allow updating income tax return for fixing omissions or mistakes in correctly estimating the income for tax payment.
The proposal is worded in such a way that it will cover not only personal income tax payers but also corporate tax payers which will benefit companies including start-ups, explained the official who spoke on condi tion of anonymity. The Finance Bill describes the eligible entity as “person” which covers both individual as well as corporate tax payers.
“However, if any misuse of this provision is noticed, the government can exclude any particular class of assessees from the purview of this scheme,” explained the official.
The updated return filing scheme complements another scheme brought out by the Central Board of Direct Taxes (CBDT) last year, the e-Verification Scheme, 2021. This deals with collection of information about transactions and its verification in a faceless way which will help in detecting mismatches between the information available with the department and what has been reported by the tax payer to identify any possible income that has not been taxed.
Such e-verification covers information available with the designated officials or which is shared by other official arms including the Director General of Income-tax (Intelligence and Criminal Investigation). If the e-verification lead to detection of previously untaxed income, penal consequences were to follow, but the new option to update the return within two years of the assessment year offers an opportunity to the tax payer to pay the tax and put the matter to an end. This helps to avoid reopening of assessments, issuance of notices, appellate proceedings and penalty in the range of 100-300% where found guilty, explained the official.
The scheme is not just about correcting errors. “The scheme for updating tax returns allows an assessee to come out clean on income that has escaped assessment in the past,” explained Ved Jain, former president of Institute of Chartered Accountants of India. Depending on when the updated return is filed within the two year period allowed, there is an additional tax of 25-50% of the aggregate tax and interest payable. This payment is be made before filing of the updated return.
The Bill says that updated return is not allowed to be filed that has the effect of showing a loss or reducing the total tax liability determined previously or resulting in a refund or increases the refund. Also assessees who have faced a search, survey or seizure of jewellery, money or valuables in relevant years cannot file updated returns.
The tax department has been gradually scaling up oversight of transactions in the economy based on third party reporting and use of taxes to be paid or collected at source.