I-T assessees get relief from income mismatch notices

Source: The Hitavada      Date: 26 Oct 2017 09:37:49


By Julfesh Shah,

Many Income-Tax (I-T) assessees especially salaried class have received notices for the Assessment Year 2017-18 under Section 143 (1) (a) seeking clarification regarding the mismatch between the amount of total taxable income as reported in their income tax returns (I-TR) versus that reported in the tax deductible at source (TDS) certificates of Form 16/16A.

Chapter VI A deductions U/s 80C, 80D and 80 TTA were proposed to be denied on the ground that the same were not reflected in Form 16. Deductions U/s 24 for home loans and section 10 exemptions such as house rent allowances (HRA) were also proposed to be rejected. Let us assume that an employee is receiving HRA. This HRA will be reported as an exemption in Form 16 but often taxpayers report only net taxable income and do not show the gross income and exemptions separately in the tax return.

Similarly rental income received from house property can be shown after allowing for a standard deduction of 30 per cent in I-TR-1, whereas Form 26AS will show the gross rental income received from house property. It is not practically possible to compare data contained in Form 26AS, Form 16 and Form 16A with the data shown in the I-TR Form.

Moreover, information about a particular head of income is available on the net basis in the return form which makes the comparison intricate. Form 26 AS is an annual consolidated tax statement containing details of taxes paid and refunds received.

Form 16 and Form 16A are tax credit statements that showcase the TDS. The former is issued yearly for tax deduction in income from salary while the latter is issued quarterly for tax deductions on income other than salary. These three forms help to file I-TR.

In a major relief to individual taxpayers, the Central Board of Direct Taxes (CBDT) has clarified vide circular/ order instructions No. 9/2017 dated October 11, 2017 that the provisions of section 143 (1) (a) (vi) would not be invoked to issue intimation for any mismatches between the income and deduction in Form 16/16A and Form 26AS. This circular provides relief to individual taxpayers who did not report some of their permitted deductions of their employer while making their annual tax declarations for the purpose of Form 16 or claim certain other permitted deductions while reporting income from house property, income from other sources, etc.

CBDT has probably realised the grievances raised by taxpayers and has now clarified that the adjustment will not apply in cases where tax payers have reported their revenues from all payers in their I-TR-1 and the differences has arisen due to method of computing taxable income (say due to permitted deductions) or omission by employees at the time of tax declarations to their employers. However, the adjustment would still apply in case a taxpayer has not reported any head/ item of income which is otherwise reported in his TDS certificate/ Form 26 AS.

In some cases where adjustments have already been made by Central Processing Centre (CPC) while processing I-TRs before issuance of this circular and tax demands have been raised, respective taxpayers would need to login into their I-T e-filling dashboard and file an on-line request for rectification of intimation issued U/s 143(1) . in the justification, the taxpayers may give a reference to the above mentioned circular.

Various representations made by several forums had pointed out that Form 16 cannot be made on the basis for computing the total income of an assessee. At best, the salary income can be verified with the Form 16. An assessee has every right to claim deductions and/or exemptions if she/he entitled to do so under the I-T Act even if the same are not reflected in the Form 16. Form 16 is not in the control of a salaried person.

An employer making a mistake or an employer providing incomplete information in the Form 16 cannot be taken as the basis for making upward adjustments in an employees total income.

(The author is Member of PR and Corporate Social Responsibility Commitee of ICAI, New Delhi)