The government has taken a number of steps to make the income tax (I-T) return filing and assessment proceedings more automated and system-driven, instead of personal interaction between the tax authorities and the taxpayer. The main idea of such steps is to make the process more efficient and taxpayer friendly and reduce corruption.
Changes in processing of ITR
The government last year enlarged the scope of adjustments permitted in processing of I-T returns and also made processing of I-T returns a mandatory step, even before scrutiny assessment is initiated in case of a taxpayer. The revised law relating to processing of I-T returns has taken effect from April 1, 2017 and is applicable for all I-T filed on/ after April 1, 2017. Sub-section (1) of Section 143 of the Income Tax Act deals with processing of I-T returns. Earlier, scope of this provision was very limited and tax authorities were allowed to correct merely certain prima facie errors or arithmetic mistakes, without getting into issues which require detailed explanations or debatable issues. Vide Finance Act, 2016, the Government enlarged scope of corrections permitted under Sub-section (1) of Section 143. Apart from correction of arithmetic errors and a prima-facie incorrect claim, certain other adjustments will also be allowed in processing of an I-T tax return, such as disallowance of loss claimed if the return of the year is furnished beyond the due date of filing income tax return.
Hardship to taxpayers
Where income reported by a taxpayer does not match with income reported in TDS certificate/ tax credit statement based on TDS returns filed by various payers, tax authorities were permitted to make an adjustment to the extent of such difference. However, this created hardship for taxpayers, who reported taxable income on net basis after claiming deduction for permitted expenses, but TDS certificates/ tax credit statement issued to them reflected gross amount of payments without taking into account deduction for permitted expenses. This resulted into unnecessary tax demands being raised in cases of such tax payers and increased unnecessary correspondence with tax department for correction of these tax demands raised on processing of I-T returns.
Rationalisation of provisions
Vide order issued on October 11, 2017, the CBDT has sought to correct this anomaly and give relief to taxpayers liable to income tax on their net profits after deduction of permitted expenses and who are bound to have difference between gross revenues as per TDS certificates/ tax credit statements issued to them vis-à-vis net profit reported by them for income tax purposes. At the same time, for taxpayers who are liable to pay income tax on their gross revenues (more specifically foreign entities not having taxable presence in India but earning passive income such as royalty, FTS Interest, etc., from India), such correction will be applicable. Also, while processing their I-T returns, tax authorities are likely to match their gross revenues with TDS certificates/ tax credit statements and any differences may result in additional tax demand for such taxpayers. So, all entities (including foreign companies), which are liable to income tax on their gross revenues, will need to reconcile their taxable income with income reported by various payers in their TDS returns and in case of any mismatch, they will need to communicate with respective payers for correction in their TDS returns.
The writer is director, Direct Taxation, Nangia & Co LLP