Claiming any deduction/allowance in Income Tax Return which was not considered in Form 16/16A

This post is dedicated on one of the core issues which tax payers must face during Income Tax Return filing of AY 2017-18 (FY 2016-17).

Last One year, government took every step to clean the black economy of India and creating complications for tax evaders using reforms like Income Declaration Scheme (IDS), demonetisation, implementing GST, Black Money Bill, Benami Property Act, RERA and so on. One of such measure for tax evaders had been taken by amending Section 143(1)(a) of the Income Tax Act, 1961 in Budget 2017. Using this newly added sword notices has been delivered to thousands of tax assessees regarding Mismatch of Income with Form 16/16A.

This amendment is going to hit hard for those Income Tax Assessee’s (Majorly Salaried Employees) who used to make manipulative claims of allowances (LTA, medical, HRA etc) or deductions (Section 80C, 80D) in Return of Income and claims refund of TDS deducted from Salary. Let’s discuss the section and the impact of amendment made. According to this section, on filing Return of Income, Department will process the return of income after making following adjustments:

(i) any arithmetical error in the return;
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
But vide Finance Act 2017, another clause has been inserted which is as under:
(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return.
This is going to impact hard for Income Tax Returns filed after this amendment in following ways:
1. If assessee has claimed any allowance or deduction while filing return of income, which was not considered by employer in Form 16, then he/she must compulsorily face the Income Tax Notice enquiring the same. If assessee failed to response that notice within 30 days, then differential amount between Form 16 and Return of Income will be automatically added to his income and return would be processed accordingly. In simpler language, everyone will get notice unless Income shown in Return matches exactly or more than the Form 16/16A. So, before making any such claim now in return of income, ensure that you have valid evidences for same. Sample Notice image is produced below:

Part -A
Adjustments u/s 143(1)(a)
Additional of Income Appearing in form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return

2. If assessee has not shown Interest Income or other income in ITR as per Form 16A or Form 26AS, then it would also attract Income Tax Notice. This would cause problem for those also who shows Interest Income in their return of Income from Form 26AS only, the statement which gets updated time to time. For an example, It might happen that while filing return of Income it shows Rs.20,000/- amount and at the time of processing ITR it shows Rs.25,000/- as the Form 26AS gets updated by that time.

3. Unlike earlier year, you will not get your Income Tax Refund within one or two week, because of this prolonged process introduced right before processing the Income Tax Return. This would cause serious harassment for those genuine tax payers or assessee who was unable to file their genuine proofs of allowances and deduction to employer timely and now claiming refund. They will also face these notices and have to wait for disposal of their responses against this notices and subsequent action by the department.

These are the following sample instances for which one may receive a notice from department after filing return of Income:

• Deductions such as 80C or 80D or other claimed in return but not in Form 16 by employer.

• Exempt Allowances claimed in return but not in Form 16 such as HRA or LTA or Medical Allowances not claimed through employer but claimed in return.

• Interest Income accrued on Fixed Deposit not shown.

• Receipts considered under different head of income in the return as against the section under which it is deducted

How to respond these Notices?

Before responding these notices, carefully analyse the reason asked in notice and then submit the appropriate explanation as per the facts of your case under the tab “e-proceeding” after Login your Income Tax Account.
One should consult their CA or tax expert before proceeding or submitting any response to these notices. As in some cases I personally observed that Income Tax Website Considered Income twice or thrice of the amount proposed to be added.

So, this year beware before filing return of income with any such claims unless you don’t have sufficient evidence or proof. Though this kind of action will help government to eliminate few thousands tax evaders, but at the same time it would cost delay in Income Tax refunds for Lakhs of genuine tax payers also.
Source: Taxguru