[ad_1]
In Budget 2021, the time for filing revised ITR was reduced by 3 months, i.e. from the end of an assessment year (March 31) to December 31 of the year. In the Budget speech, Finance Minister Nirmala Sitharaman stated that with technological upgrade in the income tax department, the processes are becoming extremely efficient and hence, the last date for filing of belated or revised returns of income was being reduced by three months.
While the advancement of these deadlines helps in processing and closing tax assessment for taxpayers, clearing of cases and also aids faster processing of tax refunds, it does create challenges for some taxpayers.
Residents liable to tax in more than one jurisdiction
India has a significant number of employees going overseas on projects and assignments. As a result of working in a foreign country, they would be liable to pay tax in that foreign country. Such employees would be subject to tax in India as well on foreign income, if they continue to qualify as resident and ordinarily resident (ROR) in India. These individuals would need to file tax return in the foreign country and also in India to claim tax credit for taxes paid in the foreign country.
In India, ITR filing deadline is July 31 but the full data on the foreign tax credit of the individual would be available to him/her only by say April-end of the following year. It is important to note that in most foreign countries, the financial year and calendar year are the same. However, in India financial year runs from April to March whereas calendar year runs from January to December.
This issue also impacts individuals who have invested in shares of a foreign company, sold them later and had tax deducted on it. Also, individuals earning rental income from a house in a foreign country will also be impacted if they had taxes deducted on their rental incomes.
Let us clarify this further with the help of an illustration. – Let us assume that Rahul has been deputed to the US for a project by his employer for a period of 8 months from December 2022 to July 2023. During this period, Rahul would be rendering services in the US and would also be liable to tax in the US and be subjected to TDS there. For FY2022-23 (April 1, 2022 – March 31, 2023), Rahul will qualify to be an ROR in India as he has spent more than 182 days during the fiscal year in India and more than 720 days in India in the previous 7 tax years.
Hence, he would need to offer the US income to tax in India for the period December 2022 to March 2023, when he would have filed his ITR in India in July 2023. When filing his ITR in India, Rahul would have to report his income earned from the US during December 2022 to March 2023.However, he would struggle to accurately estimate the tax credit for the US income as his US tax return for January-March 2023 would be filed only in 2024 (US tax filing deadline is April 2024).He would not have the information of foreign tax credit for Jan-Mar 2023 while filing Indian tax return by July 31, 2023. This is because for US, the tax return is filed for calendar year 2022 (January -December 2022) by April 2023. So, the Jan-March 2023 foreign tax credit information would be available to him only when ITR for Jan 2023-Dec 2023 is filed in the US which would be by April 2024.
The only option before Rahul is to use his salary slips from his employer in the US to know the TDS deducted on his income during January-March 2023. However, that may not be the final tax amount as he may land up with a refund or a tax payable in his US tax return. The ITR that Rahul files in July 2023 in India will be based on TDS as per the salary slips which may either be excess or short. Further, the deadline to file revised ITR in India ends by December 31, 2023, for FY 2022-23. However, the correct numbers for foreign tax credit – available for income earned from US in January-March 2023 – will be available after December 2023
Hence, due to the reduction in the time limit to file ITR from March 31 to December 31, Rahul will lose the opportunity to report the foreign income and taxes paid on it for January-March 2023. . Though, now Rahul has an option to file an updated tax return, with a penalty, to correct the tax credit taken in case excess tax credit is availed. An updated tax return, however, cannot be filed if the taxpayer wants to increase the tax credit and claim a higher refund, thus resulting in a permanent loss to the taxpayer.
Conclusion
The income tax laws permit a revision of ITR to ensure accurate income and tax paid are reported in the ITR. However, the advancement of the revised ITR deadline creates a challenge for cases where accurate information is not easily available within the time limit given. Taxpayers would get penalized with interest and penalties for inaccurate reporting of taxes or income, for no fault of theirs or may need to forego the tax credit. Hence, to address these situations the Interim Budget 2024, should reinstate the revised ITR deadline to March 31.
(The article is written by Aarti Raote, Partner, Deloitte India.)
[ad_2]