Have you filed your Income Tax Return (ITR) for Assessment Year (AY) 2021-22? The deadline to file an updated return (ITR-U) is fast approaching – March 31, 2024. This blog post explains recent developments from the Income Tax Department (ITD) regarding high-risk assessments and the importance of filing an updated return if needed.

High-Risk Assessments: What You Need to Know

The ITD has recently finalized guidelines for assessing high-risk ITRs filed for AY 2020-21 (FY 2019-20). Here’s a breakdown:

  • E-Verification Scheme: The ITD uses an e-verification scheme to identify potentially high-risk ITRs based on factors like large financial transactions and high tax dues.
  • Scrutiny Selection: ITRs flagged as high-risk for AY 2020-21 were further examined, and a report estimating potential untaxed income was prepared.
  • Value at Risk (VaR): Based on this report, a final assessment identified the VaR, which is essentially the estimated amount of taxable income that may have been missed.
  • Reopening Assessments: Some high-risk cases with significant VaR may be reopened for scrutiny under Section 147 of the Income Tax Act. This allows the ITD to reassess income and adjust tax dues.

ITD Offers Additional Guidance for Updated ITRs:

The ITD acknowledges that some assessing officers faced challenges in determining the exact income escapement amount for updated ITRs. Here’s the key takeaway:

  • Non-updated ITRs: For these cases, the VaR directly reflects the estimated untaxed income identified earlier.
  • Updated ITRs: The VaR considers any additional income declared in the updated return. This means the ITD will account for income you reported in your updated ITR while calculating the potential tax liability.

Why Updating Your ITR Matters

The e-verification scheme helps identify mismatches between your ITR and your Annual Information Statement (AIS). If you receive a notice about a mismatch, you can:

  • Explain the Discrepancy: Reply to the ITD clarifying any misunderstandings.
  • File an Updated Return: If the e-verification notice is correct, you can file an updated ITR (ITR-U) to rectify any errors or omissions in your original return.

Benefits of e-Verification:

  • Non-Intrusive: The scheme encourages voluntary compliance without unnecessary intervention.
  • Transparency: The process is automated, reducing human bias.
  • Reduced Litigation: By addressing discrepancies early on, the scheme aims to minimize disputes.

Key Points:

  • The Income Tax Department has finalized guidelines for assessing high-risk ITRs filed for Assessment Year 2020-21 (Tax Year 2019-20).
  • High-Risk ITRs are identified based on factors like significant financial transactions and higher tax dues.
  • The department may use a Preliminary Verification Report (PVR) to estimate income not declared in the ITR.
  • Based on the Value at Risk (VaR), some cases may be reopened for scrutiny under Section 147 of the Income Tax Act.
  • The deadline to file an Updated Income Tax Return (ITR-U) for Assessment Year 2021-22 is March 31, 2024. This allows taxpayers to rectify errors or disclose additional income in their original ITR.

Tips to Avoid Scrutiny:

  • Regularly review your Annual Information Statement (AIS) to ensure it matches the income reported in your ITR.
  • If you discover any mismatch, promptly respond to the Income Tax Department’s inquiries.
  • Consider filing an Updated ITR (ITR-U) to rectify errors or report additional income before the deadline.

Remember: The deadline to file an updated ITR for AY 2021-22 is March 31, 2024. efiletax can help you file your updated return easily and efficiently. Visit our website or contact us today!