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IT return must even if you dont have tax liability
April, 25th 2016

The Finance Minister has proposed some changes in the provisions relating to income tax returns. Let us discuss these provisions.

At present, an Individual or an HUF has to file its income tax return before the due date which is generally July 31 of the subsequent year, if the total income before deducting various deductions available under Chapter VIA exceeds the basic exemption limit. These deductions include various deductions such as those under Section 80C for life insurance policy, EPF, PPF, NSC, ELSS, school fee, repayment of home loan, ULIP etc. The other deductions available are for NPS, mediclaim, medical expenses incurred for specified disease or dependent special person, interest on savings bank up to Rs 10,000 etc.

So though your income may not be taxable after giving benefits of the various deductions available, you are still required to file your income tax return if your income before such deduction exceeds Rs 2.5 lakh in case you have not completed 60 years, Rs 3 lakh if you are a senior citizen and Rs 5 lakh if you have completed 80 years of age.

At present, as per Section 10(38) of the Income Tax Act, all long-term capital gains (asset held for more than 12 months) earned on sale or redemption of shares and units of equity-oriented schemes are exempt if STT (Securities Transaction Tax) has been paid on such sale or redemption. Though the income tax return forms required the assessee to mention details of exempt income in the form, such information of exempt income, even if substantial, were not available to the income tax department in case the total income before the deductions did not exceed the exemption limit. The Budget proposes that while calculating the amount of total income for the purpose of requirement to file the income tax return, the amount of exemption available in respect of such long-term shares/units shall not be deducted. Hence in case your total income before claiming various deductions under Chapter VIA as well amount of exemption available under Section 10(38) in respect of long-term capital gains on shares and units of equity-oriented schemes exceeded the basic exemption amount, you will have to file your income tax return even if there are no tax liabilities. This will even cover the cases where the taxpayer doesn’t have any taxable income during the year but the amount of exempt income exceeds the basic exempt income in which case you will have to file the income tax return.

Time limit for filing belated return

Currently you can file your return even after you miss the initial due date of July 31 within two years from the end of the year for which you have to file your income tax return. This return which is filed after the due date is called belated return. For example, for the year ended March 31, 2015 your due date was July 31, 2015 but you can file the same by March 31, 2017 i.e. two years from the end of the year. The Budget proposes that from next year onwards you will have to file your income tax return within one year from the end of the year. So the income-tax return for the current financial year which will fall due on July 31, 2017 will have to be filed before March 31, 2018. So on March 31, 2016 two returns will become time-barred simultaneously — one for the year ended March 31, 2016 and the other for the year ended March 31, 2017.

Right to revise the IT return

After having filed your income tax return, if you notice any error or omission, you can file a revised return, only and only if the original return of income has been filed by the due date i.e. July 31. So in case you miss to file the original return by the due date, though you can file the return within two years, you cannot revise the same in case you find some severe mistake in the return already filed. The Budget proposes to remove this disability and gives you the right to file revised return as many times as you want within a period of one year from the end of the year.

It may be noted that though you will be able to revise your income tax return filed after the original due date of filing, but you will lose your right to carry forward losses in case the return is not filed by the due date of July 31.

Provisions of defective return

At present, the law gives powers to income tax officer to treat an income tax return filed as defective return in certain circumstances and give you an opportunity to rectify the mistake within 15 days. In case you do not rectify the mistake within the time allowed, the return filed is treated as not having been filed ever. One of the reasons for which the income tax return can be treated as defective is when you have not paid the taxes which are due as per the income returned on or before the due date of filing the income tax return.

So if you file your income tax return without paying full taxes payable, the ITO would treat the same as defective and in case you fail to rectify this defect within time allowed, the return filed would be treated as non-existent. The presumption of income tax return not having ever been filed used to cause a lot of problems to the taxpayers. The Budget proposes to remove this reason for treating the return as defective. So from next year even if you file your income tax return without paying the tax due, the return would still be treated as perfect return except that you may have to interest on the short fall of the taxes.

From the above discussion it appears that the Budget proposals relating to filing of income tax returns are generally taxpayer-friendly except curtailing the time limit for filing the belated return.
The writer is CA, CS and CFP. At present, he is working as Company Secretary of Bombay Oxygen Corporation Limited. The views expressed in this article are his own

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