Moving out of India Permanently- You may get taxed in Previous Year itself

Certain transactions which leads to tax being payable in the Previous Year instead in the Assessment Year 

Mottu: Hello Patlu, it came to my knowledge that you are planning to relocate yourself outside India?

Patlu: Hello Mottu, yes, I have got an opportunity in gulf country effective from 19-05-2020 and hence I am relocating out of India on 12-05-2020, thereafter might never return to India.

Mottu: Being your Chartered Accountant you did not considered discussing this with me? Patlu, you should have informed me about your relocating plans earlier.

Patlu: Why? What happened?

Mottu: While handling your scrutiny for the financial year 2018-2019 that is for the period from 01.04.2018 to 31.03.2019, it has come to the knowledge of your Assessing officer that you are planning to relocate out of the country forever and hence now he has informed me that now he will be passing assessment orders for 3 years and not just for the financial year 2018-2019.

Patlu: Huh?? Right now doing he is conducting our scrutiny for the financial year 2018-2019 only how can he pass assessment orders for 3 years?

Mottu: He will first complete scrutiny for the financial year 2018-2019 which is already on going that is for the period 01-04-2018 to 31-03-2019. He will then complete scrutiny for the financial year 2019-2020 that is for the period 01-04-2019 to 31-03-2020. Thereafter he will complete scrutiny for the financial year 2020-2021 that is for the period 01-04-2020 to 12-05-2020.

Patlu: How can he do? As of now we are standing on date 28-03-2020, the financial year 2019-2020 is yet to conclude and the financial year 2020-2021 is yet to be commenced. Moreover tax can be paid in assessment years only and not in the financial years. For the financial year 2019-2020, assessment year is 2020-2021 and similarly for the financial year 2020-2021, assessment year is 2021-2022, how can he tax us for the assessment years which are yet to kick off?

Mottu: He can very well do this, as per section 174 of the Income Tax Act’ 1961, if it comes to the knowledge of the assessing officer that the assesse is planning to relocate himself out of the country with no present intention to return then the total income upto date of departure can be taxed in the financial year itself though assessment year has not commenced. Using this exception he can very well compute total income even though assessment years for financial 2019-2020 and 2020-2021 are yet to commence. He will pass following 3 assessment orders:

1. Assessment order for the financial year 2018-2019 by applying income tax rates applicable for the assessment year 2019-2020;

2. Assessment order for the financial year 2019-2020 by applying income tax rates applicable for the assessment year 2020-2021; and

3. Assessment order for the financial year 2020-2021 (01-04-2020 to 12-05-2020) by applying income tax rates applicable for the assessment year 2020-2021.

Patlu: Mottu, to be truthful with you, I intended of not filing income returns for the financial year 2019-2020 and 2020-2021 as I am moving out of the country on 12-05-2020. I inspired to set aside lot of money by not filing income tax returns for this 2 assessments years as under:

1. Not making tax saving linked investments which blocks cash; and

2. Not paying tax on income earned during this 13 months and 12 days which burns cash.

Alas! I realise that with your prior consultation with you, I  could have saved my tax by proper timely tax savings linked investments.

Mottu, what can we do now, please guide me otherwise I will end up losing lot of cash in form of taxes as no tax savings linked investments in current financial year have been made by me.

Mottu: It is okay, no need to worry you just got saved, as we still have 3 days to do tax planning, let us start right away.

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