Summary: The Indian government has introduced amendments to Section 143(1) of the Income Tax Act, 1961, as part of its efforts to combat tax evasion and fraud. Section 143(1) governs the processing of income tax returns and allows for adjustments like rectifying arithmetical errors, correcting incorrect claims, disallowing losses filed after due dates, and addressing mismatches between audit and tax returns. The 2025 amendment introduces a new clause (iia) that mandates checking for inconsistencies in a taxpayer’s current return compared to previous years’ returns. While this may seem straightforward, it has significant implications for taxpayers. Now, individuals must ensure that their returns are consistent with prior filings, which may lead to more scrutiny from the Central Board of Direct Taxes (CBDT). Taxpayers will likely receive more notices and clarifications from the tax authorities than before. As a result, taxpayers are advised to maintain thorough documentation of their claims to be prepared for any queries or discrepancies. Furthermore, taxpayers should be cautious about incorrect claims that could trigger notices. In conclusion, the amendment seeks to enhance tax compliance by ensuring taxpayers file consistent and accurate returns. The specific guidelines on the types of inconsistencies to be checked are expected from the CBDT, providing further clarity on this amendment’s implementation.
With Increasing tax avoidance and multiple tax frauds, Indian government is now taking rapid actions to avoid tax evasion and frauds as much as possible by amending their acts. Let’s discuss one instance which covers amendment made in section 143(1), before discussing the amendment let’s take an overview of section 143(1) which governs the processing of income tax returns and allows for following adjustments:
- Rectification of arithmetical errors in returns.
- Correction of apparent incorrect income tax claims.
- Disallowance of losses if return filed after due dates.
- Disallowance of mismatch of income/losses between audit and income tax return filed.
- Disallowance of certain deductions
Now, proceeding to the amendment as per Finance Act 2025, a new clause (iia) is inserted under subsection 1 of section 143 of income tax act 1961, which says:
“(iia) any such inconsistency in the return, with respect to the information in the return of any preceding previous year, as may be prescribed”
Apparently, this looks a bit obvious, but if this amendment is read and analysed with the eyes of a professional, it has a bit deeper impact, the consequences can be any of the following:
1. Taxpayers now have to pay keen attention to details and considering the prior year returns to confirm if everything aligns with previous year, considering any changes can be there if they are true to their essence.
2. CBDT will now send frequent and multiple notices and clarifications from the assesses than they earlier used to.
3. Taxpayers are now advised to maintain proper documentations of all the claims made, so as to be prepared when any notice arises.
4. Taxpayers need to look out for incorrect claims.
Conclusion
The amendment to Section 143(1) under the Finance Act, 2025, is a proactive step by the government to improve tax compliance. Taxpayers should be vigilant in filing their returns, ensuring consistency with previous filings, and maintaining adequate records to justify any discrepancies. The specific guidelines regarding the nature of inconsistencies to be checked are awaited from the CBDT, which will provide further clarity on the implementation of this amendment.
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