The scheme, proposed in the Union Budget presented on February 1, recognises that taxpayers may have for genuine reasons missed out on declaring an income and the window gives them a chance to amend their returns.
The two-year window provided to taxpayers to disclose omitted income and correct mistakes made in income tax returns, is not an amnesty scheme, Revenue Secretary Tarun Bajaj said on Wednesday emphasising that an additional 25 per cent tax will have to be paid on income that wasn't previously disclosed.
The scheme, proposed in the Union Budget presented on February 1, recognises that taxpayers may have for genuine reasons missed out on declaring an income and the window gives them a chance to amend their returns, Bajaj told PTI in an interview.
The window will be a permanent feature, allowing taxpayers to correct any discrepancy or omissions in their ITRs within two years of filing, subject to payment of taxes.
An additional 25 per cent on the due tax and interest would have to be paid if the updated income tax return (ITR) is filed within 12 months, while the rate will go up to 50 per cent if it is filed after 12 months, but before 24 months from the end of relevant Assessment Year.
How this works is, if someone forgets to show an income of Rs 50,000 and the tax on it is Rs 15,000. Then he/she will have to pay 25 per cent or 50 per cent extra tax (depending on when the updated return is filed) on the Rs 15,000.
Bajaj said since small investors are indulging in a lot of financial transactions, there are chances that they genuinely miss out on showing certain income in ITR. Also, some people may have gone abroad and have not been able to file returns, they will get a chance to file returns.
"Small investors have entered the stock market, people have entered the crypto market. So, genuinely you may miss out on certain income to be shown. So, if your return filing last date is July-end and by December-end you can file a revised return. After that, you don't even have a chance to do it. The whole idea is, one, we give a chance to people if they realise they have made a mistake they can correct the mistake. But at the same time, if it comes to the notice of the tax department that taxes have not been paid, then action will follow. So once we start issuing notices, then you don't have this option (to file an updated return). If people start taking chances like that (by not filing the correct ITR originally), it will not work," he said.
Currently, if the I-T Department finds out that some income has been missed out by the assessee, it goes through a lengthy process of adjudication, and the new proposal would repose trust in the taxpayer.
The provision of filing an updated return will remove the "rough relationship" between a taxpayer and tax officer, who would have otherwise issued a notice asking for a penalty on due taxes.
"It is not telling the taxpayer that you will get a chance (to file ITR after 1/2 years). We are charging this extra tax because otherwise, a genuine taxpayer can also say that we will file later. It is not an amnesty scheme. It is going to be part and parcel of I-T law after it is passed by Parliament," Bajaj said.
In her Budget speech, Finance Minister Nirmala Sitharaman had said that the I-T Department has established a robust framework of reporting of taxpayers' transactions and some taxpayers may realise that they have committed omissions or mistakes in correctly estimating their income for tax payment.
"With this proposal now, there will be a trust reposed in the taxpayers that will enable the assessee herself to declare the income that she may have missed out earlier while filing her return," she said.