Union Finance Minister Nirmala Sitharaman will present her ninth budget on February 1, 2025, just over six months after the previous one in July 2024, which introduced streamlined capital gains tax calculations and modest income tax relief for salaried individuals.
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There has long been a request for enough time after financial year-end for the final submitting income tax returns, in addition to the tax benefits that individual taxpayers expected. As of now, the original tax returns must be filed by July 31 of the “assessment year” (the year after the financial year in which income was received), and the amended and belated forms must be filed by December 31 of the same year. These short filing deadlines have only caused problems for taxpayers, even though the income tax agency has concentrated on automating the income tax return filing procedure.
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We have discussed below some of these challenges.
- Only 45 days window currently available
Employers must only provide Form 16 to salaried taxpayers by June 15 of the assessment year. This has resulted in these taxpayers just having a 45-day window to prepare and submit their ITR. Before submitting an ITR, a number of tasks may need to be assessed and taken into account, including reconciling bank statements, analysing joint income with a spouse, compiling Form 26AS and the Annual Information Statement (AIS), setting up money for unpaid taxes, etc. Furthermore, information may need to be compiled from a variety of sources, even for capital gains computations. For instance, selling stocks, bonds, mutual funds, real estate, etc.
The income tax portal frequently experiences an excessive amount of load due to the volume of ITRs filed and the little window of 1.5 months for filing income tax returns. Because of this, when filing income tax returns in the past few days, people frequently face technical issues on the e-filing website.
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- Collating overseas income and assets details
For taxpayers who qualify as ordinary resident in India, it is a mandatory requirement to report all overseas incomes and assets. It is challenging for taxpayers to gather and compile the essential information for the Indian fiscal year in nations with diverse tax seasons, whether calendar or otherwise. Foreign jurisdictions’ income tax returns are typically unavailable prior to July 31st, even for those nations that have a fiscal year. It will be easier for these taxpayers, particularly those who need to claim credit for overseas taxes, if more time is given to file income tax returns.
- Consequences of missing July 31 deadline
Individual taxpayers have the choice between the existing and new tax regimes if the original ITR is submitted by the July 31 deadline. However, people may be subject to additional tax liability when filing a belated tax return if this short deadline is missed. This is due to the fact that there would be no way to choose the previous tax system. Additionally, in accordance with income tax regulations, a taxpayer who files a return after the deadline is not permitted to carry forward any losses for the year, with the exception of losses on real estate. Additionally, late filing costs of up to Rs 5,000 and additional interest (on any outstanding taxes due) are assessed, which can have a substantial financial impact on some taxpayers.
Based on above, the due date for filing the original return should be extended at least till August 31 instead of July 31.
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Extend deadline to file revised and belated return
- Unavailability of overseas tax return (especially for countries following calendar year or otherwise as their tax year)
In India, taxpayers who meet the requirements to be considered residents and ordinarily residents (RORs) must record their worldwide assets and liabilities on their income tax returns and pay taxes on their worldwide income. The calendar year is used as the tax year in many nations, including the US, Canada, and Singapore. Prior to the updated return filing deadline, it is challenging to compile income and asset information for these nations. For instance, in the United States, tax returns for the year 2024 would not be finalised until at least April 2025. However, in India, the credit for taxes paid from January to March 2024 can only be claimed by filing the amended, belated forms for FY 2023-24 (AY 2024-25) until December 31, 2024, which will be finalized only after the 2024 US tax return.
ROR taxpayers may be obligated to claim a foreign tax credit for taxes paid outside of India in a number of situations. Additionally, under the Double Tax Avoidance Agreement (DTAA), these individuals may be eligible for a variety of tax benefits that they must seek. Foreign tax returns and evidence of payment are necessary in order to guarantee that these computations and reporting are completed correctly. The Foreign Tax Credit (FTC) claims and DTAA relief would be based on the taxes withheld at source and the income shown on paystubs in the foreign nation if the deadline for filing the amended, late return is not extended. In the event of an income tax department audit, this could result in legal action.
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Additionally, underreporting or misreporting foreign assets and income can result in penalties under the Income Tax Act and the Black Money Act. Therefore, it is essential to have information on foreign income, ultimate tax obligations, assets, etc.
- Additional interest and penalty for tax payable cases
If the deadline for revised, belated return is missed, the only option available to the taxpayer is to file an updated tax return. There are consequences for choosing this option. An revised return cannot be filed if it lowers the tax liability, claims or increases tax rebate amounts, etc.; it can only be filed if the ITR shows an additional tax liability.
Within two years of the conclusion of the applicable assessment year, that is, for FY 2023–2024, the revised or belated tax return deadline is December 31, 2024, and the updated return filing period is April 1, 2025, through March 31, 2027. Consequently, during for FY 2023–2024, from January 1, 2025, to March 31, 2025, no tax returns can be filed. If there are balance tax liabilities to be paid, this leads to additional interest implications on the taxpayers.
It may be possible to extend the deadline for filing revised or late returns until at least March 31 of the assessment year. This can assist taxpayers avoid penalties and interest levies by preventing them from underreporting or misreporting foreign assets and income.
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