Businesses will also be able to update their tax returns

Businesses can update tax returns within two years of the end of the tax year under a new regime proposed in the 2022 Finance Bill, but if abuse is found, the government will limit its use to certain categories of taxpayers in the future, a government official said. .

Last week, Finance Minister Nirmala Sitharaman announced in her Union budget speech that a new provision introduced in the Income Tax Act would allow income tax returns to be updated to correct omissions or errors in estimating income for tax payment.

The proposal is worded to cover not only personal income taxpayers but also corporate taxpayers, including startups, said an official who spoke on condition of anonymity.

The finance bill describes the eligible entity as a “person”, which covers both individual taxpayers and companies.

“However, if misuse of this provision is found, the government may exclude a particular category of assessees from the scope of this scheme,” the official said.

The updated reporting system complements another system introduced by the Central Board of Direct Taxes (CBDT) last year, the Electronic Verification System, 2021.

This involves collecting transaction information and verifying it anonymously, helping to detect inconsistencies between the information available to the department and what was declared by the taxpayer to identify possible untaxed income.

This electronic verification covers information available from designated officials or shared by other official services, including the Director General of Income Tax (Intelligence and Criminal Investigations).

If the electronic verification results in the detection of previously untaxed income, criminal consequences were to follow, but the new possibility of updating the declaration within two years of the tax year offers the possibility for the taxpayer to pay tax and grab a finish.

This avoids the reopening of assessments, the issuing of opinions, appeal procedures and penalties of around 100 to 300 percent in the event of guilt, the official explained.

An email sent to the Department of Finance seeking comment went unanswered at the time of publication.

Schema is not just about correcting mistakes. “The tax return update system allows an assessee to clear income that has escaped assessment in the past,” said Ved Jain, former president of the Institute of Chartered Accountants of India.

Depending on when the updated return is filed within the allowed two years, there is an additional tax of 25-50% of the total tax and interest payable.

This payment must be made before filing the updated declaration.

The bill states that an updated return is not permitted to be filed if it has the effect of showing a loss or reducing the total tax payable previously determined or resulting in a refund or increase reimbursement.

In addition, taxpayers who have had their jewelry, money, or valuables searched, investigated, or seized in the relevant years cannot file updated returns. day.

The tax administration has gradually intensified the monitoring of transactions in the economy based on third-party declarations and the use of taxes to be paid or collected at source. This allows him to profile taxpayers and encourage them to pay the right amount of tax.

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