Balwant Jain

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

Provisions relating to filing of income tax returns

At present, an Individual or an HUF has to file its income tax return, before the due date which is generally 31st July 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 like those under section 80C for LIP, 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 saving bank upto Rs. 10,000/-etc.

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

Presently,  as per section 10(38) of income tax act, all the 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 returns 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 Union budget 2016  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 tax payer does not 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

Presently you can file your return even after you miss the initial due date of 31st July 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 31st March, 2015 your due date was 31st July 2015 but you can file the same by 31st March 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 end of the year. So the income tax return for the current financial year which will fall due on 31st July 2017 will have to be filed before 31st March 2018. So on 31st March 2018 two returns will become time barred simultaneously one for the year ended 31st March 2016 and the other for the year ended 31st March 2017.

Also Read-Revision of Belated Return – Qua Clause 65 of Finance Bill, 2016 

Right to revise the return of income filed

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. 31st July. So in case you miss to file the original return by the due date, though you can file the return within two years but 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 please 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 31st July.

Provisions of defective return

Presently 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 reason 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 tax officer would treat the same as defective and in case you fail to rectify this defect within time allowed and  the return filed would be treated as non existent. The presumption of income tax return not having ever been filed used to cause lots of problems to the tax payers. 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 tax payer friendly except curtailing the time limit for filing the belated return.

Balwant Jain is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. Views are personal. He can be reached at jainbalwant@gmail.com

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  • Nem Singh

    Very most valuable updated knowledge in relation to filing of return considering all minor issues in relation to earning of income. Most Regards Balvant ji!

  • Ramachandran Venkataraman

    I have a doubt. I subscribe to public Provident fund. Every year the interest paid is entered in the account book. I presume this need not be shown under “exempt income” as the amount is NOT paid to me.

    • S Balasubramanian

      This presumption is not correct. When the amount is credited to your PPF account, it is paid. Therefore, interest credited on 31st March of each year is interest paid to the account holder.

      • Kishore Sainanee

        However the new law talks specifically of tax exempt income of LTCG of equity / equity MF’s sale on which STT has been paid . Does the same hold true for PPF tax free income? Hopefully, Mr. Balwant Jain can clarify.
        Thanks Balwant Sir for a clear well educative article on the proposed changes .

        I have one more Question … is the income received by NRI outside India ( which is tax free in India) also to be compulsorily indicated in the exempt income when filing returns ?

        • S Balasubramanian

          In our own interest, we should add PPF interest too. Over the years, the money accumulated in PPF accounts and other assets can be easily explained this way.

  • Ramachandran Venkataraman

    the answer by S Balasubramanian. “When the amount is credited to your PPF account, it is paid.”. If it is paid to me can I withdraw the interest without any conditions.