Section 148 Income Tax Notices in 2025: Complete Guide with Law, Process & FAQs for Taxpayers

 Receiving an Income Tax notice under Section 148 can be unsettling for any taxpayer. With the 2021 amendments and the ongoing use of faceless assessments, the Income-tax Department has strengthened its powers to reopen assessments where income has escaped taxation.

But does every Section 148 notice mean tax liability? What are your rights, time limits, and remedies? This post provides a taxpayer-friendly yet legally grounded guide—covering the law, practical process, and a comprehensive set of FAQs for residents and NRIs alike.

The Legal Framework of Section 148

1. Relevant Provisions

   • Section 147 empowers the Assessing Officer (AO) to assess or reassess income that has escaped assessment.

   • Section 148 deals with the issuance of notice to taxpayers for reassessment.

   • Section 148A (inserted by Finance Act, 2021) makes it mandatory for the AO to conduct an enquiry, provide an opportunity of being heard, and pass an order (u/s 148A(d)) before issuing a notice u/s 148.

2. Time Limits (Section 149)

   • Up to 3 years from the end of the relevant assessment year in normal cases.

   • Up to 10 years if escaped income is ₹50 lakhs or more (represented in the form of asset, expenditure, or entries in books).

3. Sanction Requirement (Section 151)

   • Prior approval of specified authority is required before issuing notice u/s 148.

Why You May Receive a Section 148 Notice

• High-value transactions not disclosed in ITR (property purchase, shares, cash deposits).

• Information flagged by AIS/TIS, banks, or other reporting entities.

• Non-filing of ITR despite taxable income.

• Mismatch between reported income and third-party data.

• Cases flagged in NRI remittances, property sales, or offshore transactions.

Taxpayer’s Rights and Obligations

• Right to be Heard: You must be given an opportunity under Section 148A before reopening.

• Right to Reasons: You can demand reasons recorded for reopening.

• Obligation to Respond: Ignoring a notice may lead to ex parte reassessment and penalties.

• Right to Appeal: Orders can be challenged before CIT(A), ITAT, and higher courts.

 Taxpayer-Friendly FAQs

1. Can I ignore a Section 148 notice?

No. Ignoring the notice will result in reassessment without your side being heard, along with possible penalties and prosecution. Always respond within the given timeline.

2. What should NRIs do if they get a Section 148 notice?

NRIs should:

• Verify whether they had taxable Indian income.

• Check if tax was already deducted (TDS).

• File a proper response with DTAA relief documents (Form 10F, TRC, etc.) if applicable.

• Authorize a representative in India, if abroad.

3. How much time can the Income Tax Department go back?

• Up to 3 years in most cases.

• Up to 10 years if escaped income is above ₹50 lakhs.

4. Is approval required before issuing a Section 148 notice?

Yes. The AO needs prior approval from the specified authority under Section 151.

5. What if I never filed my ITR for that year?

The AO can still issue a Section 148 notice. You will have to file the return in response and explain the income and transactions.

6. Can reassessment be challenged in court?

Yes. If procedure under Section 148A is not followed, or if notice is beyond limitation, courts have quashed such notices.

7. What documents should I keep ready?

• Original ITR and computation.

• Form 26AS, AIS, and TIS reports.

• Bank statements, property documents, share transaction records.

• For NRIs: TRC, Form 10F, proof of remittances, NRO/NRE bank details.

8. What happens after I file a response?

• The AO will pass an order u/s 148A(d).

• If satisfied with your explanation → No reassessment.

• If not satisfied → Reassessment proceedings start under Section 147.

9. What if I disagree with reassessment findings?

You can:

• File an appeal before CIT(A).

• Approach ITAT, High Court, or Supreme Court depending on the matter.

10. Can penalty or prosecution follow a Section 148 notice?

Yes, if concealment or misreporting is established. Penalty under Section 270A and prosecution in extreme cases may apply.

Practical Tips for Taxpayers

• Always cross-check AIS/TIS vs ITR before filing.

• Keep documentary evidence for high-value transactions.

• For NRIs: Ensure DTAA compliance and maintain tax records both in India and abroad.

• Seek professional help immediately upon receipt of notice.

Conclusion

Section 148 notices are not meant to harass but to ensure that escaped income is correctly taxed. The law has built-in checks like Section 148A enquiry and approvals to safeguard taxpayer rights.

 The key is timely response, proper documentation, and professional handling. A well-prepared reply often prevents prolonged litigation and reassessment.

Section 44ADA – Presumptive Taxation for Professionals (AY 2025–26)

 

Legal Framework

• Introduced by Finance Act, 2016, Section 44ADA provides a simplified scheme of presumptive taxation for specified professionals.

• Applicable for Resident Individuals, HUFs, and Partnership Firms (excl. LLPs).

• Based on Section 44AA(1) professions.

Threshold Limits

• Normal Limit: ₹50 lakh gross receipts.

• Enhanced Limit (AY 2024–25 onwards):

  • Increased to ₹75 lakh only if at least 95% of receipts are in non-cash mode (bank transfers, UPI, digital payments, account payee cheque/draft).

  • If cash receipts exceed 5%, limit rolls back to ₹50 lakh.

Presumptive Income Rate

• 50% of gross receipts deemed as income.

• Assessee may declare higher income if actually earned.

• No further deductions allowed for expenses u/s 30–38.

• Depreciation deemed allowed → WDV adjusted automatically.

Who Can Opt? – Eligible Professions

Section 44AA(1) read with CBDT’s updated Nature of Business/Profession Codes (effective AY 2025–26):

Eligible Professions (Illustrative)

• Legal, medical, engineering, architectural, accountancy, interior decoration, technical consultancy.

• Film artists, company secretaries, information technology professionals.

• Finance Act 2023 clarification & CBDT Notification (ITR-3/4 AY 2025–26):

  • Social Media Influencers

  • Online Content Creators / YouTubers

  • Digital marketing professionals

  • Freelance IT consultants & coders

  • E-learning/EdTech tutors on digital platforms

Note: These are mapped under new “professional codes” introduced in AY 2025–26 ITR forms. CBDT has clarified that influencers, bloggers, YouTubers, etc., qualify as “professional services” (not business), hence covered under 44ADA if receipts ≤ ₹75 lakh with 95% digital.

Exclusions & Grey Areas

• Not eligible:

  • LLPs.

  • Non-residents.

  • Businesses (trading, manufacturing, commission agency, brokerage).

• Grey zone clarified:

  • Influencers & YouTubers → treated as professionals (eligible).

  • E-commerce resellers / affiliate marketers → treated as business (eligible only under 44AD, not 44ADA).

Compliance & Audit Checkpoints

• If declare ≥ 50% → no books/audit required.

• If declare < 50% → books u/s 44AA + audit u/s 44AB mandatory (if income > basic exemption).

• Audit threshold linked to digital receipts:

  • If >95% digital receipts, audit only if income < 50% and total income > exemption limit.

  • Otherwise, audit triggered earlier.

Tax-Saving & Benefit Scenarios

• Scenario A – Consultant earning ₹45 lakh (all digital)

  • Presumptive income = ₹22.5 lakh.

  • Taxable after slab deductions (standard deduction not available, but 80C, 80D, etc., apply).

• Scenario B – Influencer earning ₹70 lakh (97% digital)

  • Eligible under enhanced limit.

  • Presumptive income = ₹35 lakh.

  • Audit not required if ≥ 50% declared.

• Scenario C – Lawyer earning ₹65 lakh (10% cash)

  • Cash >5% → eligible limit only ₹50 lakh.

  • Needs regular books & audit if exceeding.

Salient Features / Quick Checklist

✅ Applicable to resident professionals only.
✅ Receipts ≤ ₹75 lakh if 95%+ digital, else ₹50 lakh.
✅ Presumptive income = 50% of receipts (higher allowed).
✅ No separate expense claim (rent, staff, internet, etc. deemed allowed).
✅ WDV adjusted for depreciation automatically.
✅ Influencers, digital creators, freelancers now expressly included.
✅ If income shown <50% and taxable above exemption → audit mandatory.
✅ Switching allowed year-to-year (no 5-year lock-in like 44AD).

Practical Tax Planning

• Best suited for: Influencers, doctors, lawyers, designers, IT freelancers, consultants with moderate expenses (<50%).

• Not suited for: High-expense professionals (e.g., hospitals, studios, ad agencies with big overheads).

• Combine with:

  • Deductions u/s 80C, 80D, 80G.

  • Regime choice (Old vs New) each year for optimal tax outflow.

• Record-keeping tip: Even if not mandatory, maintain invoices & digital payment proofs to support the 95% digital condition.

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ITR & Tax Audit Due Date Extension – GCCI’s Case for FY 2024–25 Gains Urgency

 On 11 August 2025, the Gujarat Chamber of Commerce and Industry (GCCI) submitted a formal representation to the Central Board of Direct Taxes (CBDT), urging an extension of due dates for Income Tax Returns (ITRs) and Tax Audit Reports for FY 2024–25 (AY 2025–26).

This is not a routine plea. The Chamber has based its request on concrete operational and systemic constraints that, if unaddressed, could compromise filing accuracy and increase compliance risk.

Why the Extension Matters This Year

The 2025 compliance cycle has been disrupted by four converging factors:

1. Late Utility Release – Core ITR utilities, normally available in April, were released only in late July or early August; ITR-6 and ITR-7 remain pending.

2. First-Year Adoption of ICAI’s New Financial Statement Format – Non-corporate entities must now follow a vertical format with enhanced disclosures, demanding more preparation and review time.

3. Persistent E-Filing Portal Bottlenecks – Upload failures, AIS/TIS mismatches, and system slowdowns continue, especially under peak loads.

4. Festive Season Overlap – The August–November window sees reduced working days and resource availability across businesses and professional firms.

The combined impact is a severely compressed effective working period for accurate compliance.

Key Grounds Presented by GCCI

• ITR Utility Delays:

  • ITR-1 to ITR-4: Released 30 July 2025

  • ITR-5: Released 8 August 2025

  • ITR-6, ITR-7: Pending

  • Tax Audit Utilities (3CA/3CB–3CD): 29 July 2025

• Technical Disruptions:

  • Upload errors and repeated submission failures.

  • Discrepancies and incomplete data in Form 26AS, AIS, and TIS.

  • Multiple revisions to utilities before stable versions are usable.

• ICAI Format Transition:

  • Additional time required for reclassification, comparative figures, and expanded notes.

• Festive Calendar Constraints:

  • Overlaps with Raksha Bandhan, Janmashtami, Ganesh Chaturthi, Onam, Eid-e-Milad, Navratri, Durga Puja, Dussehra, and Diwali.

GCCI’s Proposed Revised Timelines

Compliance	Current Due Date	Proposed Due Date
ITR – Non-Audit Cases	15 Sept 2025	30 Oct 2025
Tax Audit Report	30 Sept 2025	30 Nov 2025
ITR – Audit Cases	31 Oct 2025	31 Dec 2025
Belated ITR	31 Dec 2025	31 Mar 2026

The Analytical Case for Extension

• Accuracy over Speed – Short windows heighten the risk of errors, mismatches, and defective returns.

• Equity for All Stakeholders – Smaller firms and rural taxpayers are disproportionately affected by delayed utility releases and connectivity issues.

• Operational Practicality – Aligning deadlines with actual preparation capacity reduces last-minute congestion and portal failures.

• System Health – Staggered filings spread portal load, improving stability.

If approved, the extension would enable smoother adoption of new reporting formats, allow thorough reconciliations, and ease compliance pressures—benefiting both taxpayers and the administration.

If not, the coming months could see compressed, high-pressure filing cycles with elevated risk of inaccuracies, notices, and litigation.

Conclusion:
In a year marked by structural delays, new compliance norms, and technological bottlenecks, GCCI’s request is not a relaxation—it is a necessary recalibration to safeguard compliance quality, fairness, and administrative efficiency.

Income from Other Sources (IFOS) – Legal and Procedural Guide for AY 2025–26

With Interpretation of Section 56, Supporting Provisions, and Accurate Filing Practices

Statutory Basis and Interpretation

Section 56(1) – The Residual Head

As per Section 56(1) of the Income-tax Act, 1961:

“Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head ‘Income from other sources’, if it is not chargeable to income-tax under any of the heads specified in clause (A) to (E) of section 14.”

Thus, Income from Other Sources is a residuary head of income that applies when income is not taxable under the following heads:

• Salaries (Section 15)

• Income from House Property (Section 22)

• Profits and Gains of Business or Profession (Section 28)

• Capital Gains (Section 45)

This ensures that no taxable receipt escapes assessment merely because it does not fall within a specific head.

Section 2(13) – Relevance of Business Definition

The term "business" under Section 2(13) includes:

“Any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.”

If an activity lacks systematic structure, continuity, or intent to carry on commercial operations, then income arising from such activity cannot be brought under the head “Profits and Gains of Business or Profession.” It would fall under “Income from Other Sources.”

Judicial Principles

• In CIT v. Govinda Choudhury & Sons (1993) 203 ITR 881 (SC), the Supreme Court held that when income is not taxable under any specific head, it must be taxed under IFOS.

• In S.G. Mercantile Corp. v. CIT (1972) 83 ITR 700, it was clarified that casual or isolated transactions lacking a business framework are not business income.

Classification of Income under Section 56(2)

Various types of income specifically taxable under the head IFOS are outlined in Section 56(2), including:

1. Dividend income

2. Interest on securities, bonds, savings, fixed deposits, recurring deposits

3. Family pension (not covered under salary)

4. Winnings from lotteries, races, games, betting

5. Letting of plant, machinery or furniture not forming part of business assets

6. Forfeiture of advance received against capital asset transfer (post 01.04.2014 amendment)

7. Gift of money or property where aggregate value exceeds fifty thousand rupees, subject to exceptions

8. Interest received on enhanced compensation (in the year of receipt)

Each type of income must be carefully examined for its nature and correct legal head.

Deductions Allowed under Section 57

Deductions from IFOS are limited to those specifically allowed under Section 57:

1. In case of family pension, deduction under Section 57(iia) is allowed to the extent of fifteen thousand rupees or one-third of the pension, whichever is lower.

2. In case of dividend income, deduction for interest expense incurred to earn such income is allowed, subject to a maximum of twenty per cent of such dividend income.

3. In case of letting of plant and machinery, deductions for insurance, repairs and depreciation are allowed if the conditions are met.

4. No deduction is allowed in respect of casual incomes such as winnings from lotteries, games, etc., as per Section 58(4).

Claims under Section 57 must be directly attributable to the income offered and not general expenses.

Selection of ITR Form and Reporting Procedure

Appropriate Form Selection

• ITR-1 may be used only if total income includes income from other sources up to five thousand rupees, and only if the source is interest or dividend.

• ITR-2 is suitable for individuals with income from other sources above five thousand rupees or other types of IFOS (e.g., gifts, winnings).

• ITR-3 is required if the assessee also has income from business or profession.

• ITR-4 (presumptive taxation) can be used only if IFOS does not exceed five thousand rupees.

Schedule OS – Reporting Details

In ITR-2 and ITR-3, income from other sources must be reported in Schedule OS, as follows:

• Interest income: Reported under the relevant clause (savings, deposits, etc.)

• Dividend income: Disclosed separately from interest

• Family pension: Reported with deduction under Section 57(iia)

• Other income: Honorarium, gifts, referral commission, etc.

• Deduction under Section 57 must be separately shown

• Net income under IFOS must be accurately calculated and matched with TDS credits

TDS Reporting and Reconciliation

Most IFOS incomes are subject to tax deduction at source (TDS). Some key TDS provisions include:

• Section 194A: TDS on interest other than securities

• Section 194: TDS on dividend

• Section 194B: TDS on lottery or game winnings

• Section 194H: TDS on commission

• Section 194J: TDS on professional fees and honorarium

The total income offered under IFOS must match the gross amount reported in Form 26AS, AIS and TIS. TDS must be claimed under the correct schedule in the ITR form.

Mismatch between reported income and TDS can result in demand notices or processing issues under Section 143(1).

Practical Scenarios and Tax Head Determination

Situation	Head of Income	Reasoning
Interest on fixed deposit or savings	IFOS	Passive receipt; not business-linked
Gift received from non-relative exceeding fifty thousand	IFOS	Taxable under Section 56(2)(x)
Honorarium for one-time university lecture	IFOS	Not professional income; no continuity
Winnings from online gaming	IFOS	Taxable at flat rate; Section 56(2)(ib)
Referral commission earned occasionally	IFOS	No regular activity or set-up
Professional receiving recurring commission	Business Income	Continuity, commercial intent evident

Each case must be judged based on frequency, structure, and underlying activity.

Procedural Compliance and Filing Checklist

• Collect Form 26AS, AIS and TIS for the financial year 2024–25

• Reconcile all interest, dividend, and other receipts

• Confirm if income is covered under business or capital gains; if not, classify under IFOS

• Use appropriate ITR form based on complexity and income size

• Disclose income accurately in Schedule OS

• Link TDS in the relevant schedule and match with reported income

• Claim deductions under Section 57 only if specifically eligible

• Submit return within the due date to avoid fees under Section 234F

Key Compliance Risks and Avoidance

1. Reporting business or commission income under IFOS when it qualifies as professional income may lead to misclassification penalties or audit selection.

2. Claiming excessive deductions under Section 57 without proof may result in disallowance.

3. Using ITR-1 despite having gifts or other IFOS above five thousand rupees renders the return defective under Section 139(9).

4. Not reconciling Form 26AS or AIS with income declared in the return may result in underreporting notices or incorrect TDS credit.

Conclusion

Income from Other Sources under the Income-tax Act is not merely a catch-all category. It is governed by specific statutory provisions under Section 56 and Section 57 and subject to judicial interpretation. Careful classification, correct deduction claims, and appropriate ITR form usage are essential for legally compliant and risk-free return filing.

Any income which is not specifically chargeable under salary, house property, business, or capital gains and does not fall under exclusions must be examined under Section 56 for IFOS treatment.

Old Tax Regime vs. New Tax Regime: A Comprehensive Guide to Choosing the Best Option for FY 2025-26

With the revised income tax slabs set to take effect from April 1, 2025, taxpayers are now presented with a critical choice: stick with the old tax regime or switch to the new tax regime. The Union Budget 2025 introduced significant changes, especially aimed at middle-income earners, including tax exemptions and reduced tax rates for income up to ₹24 lakh. However, choosing the right regime depends on a variety of factors, including deductions, exemptions, and individual financial circumstances. In this blog, we’ll break down both regimes and help you make an informed decision.

Key Features of the New Tax Regime (2025-26)

The new tax regime offers simplified taxation by reducing the number of tax slabs and removing deductions, allowing taxpayers to benefit from lower tax rates. The notable highlights of the new tax regime include:

• No Tax Up to ₹12 Lakh: The most striking change is that individuals earning up to ₹12 lakh are not required to pay any tax, which offers substantial relief to those in the middle-income group.

• Lower Slab Rates: The tax rates have been significantly reduced for income up to ₹24 lakh, making the new regime potentially more attractive for individuals with lower to middle incomes.

• Standard Deduction: A ₹75,000 standard deduction is applicable to salary income, making the new regime more straightforward.

• Simplified Filing: The new regime eliminates the need for tracking various deductions and exemptions, providing a hassle-free filing experience for taxpayers.

Deductions and Exemptions Under the Old Tax Regime

In contrast to the new regime, the old tax regime allows taxpayers to claim various deductions and exemptions, which can significantly lower their taxable income. Some of the most important deductions include:

• Section 80C: Taxpayers can claim up to ₹1.5 lakh in deductions for EPF, PPF, life insurance premiums, and other approved investments.

• House Rent Allowance (HRA): Individuals living in rented accommodations can claim HRA exemptions, which can reduce taxable income, especially for those in high-rent cities.

• Leave Travel Allowance (LTA): Taxpayers can claim LTA exemptions for travel expenses, which can further reduce tax liability.

• National Pension Scheme (NPS): Contributions to NPS are eligible for deductions, with an additional ₹50,000 under Section 80CCD(1b), apart from the 10% of salary available under Section 80CCD(2) for employer contributions.

• Health Insurance Premiums (Section 80D): Premiums paid for health insurance can be deducted under Section 80D for the taxpayer, family, and parents.

• Interest from Savings Accounts (Section 80TTA): Taxpayers can claim up to ₹10,000 in deductions on interest earned from savings accounts.

These deductions make the old tax regime more attractive for individuals who have substantial investments or eligible expenses to claim.

Deductions in the New Tax Regime

The new tax regime, while offering lower tax rates, significantly limits the ability to claim deductions. Key available deductions include:

• Standard Deduction: A ₹75,000 standard deduction for salary income.

• NPS Contributions: Employer contributions to the National Pension Scheme (NPS) are deductible under Section 80CCD(2), but there is no provision for individual contributions under the new regime.

• Telephone and Conveyance Reimbursements: These remain exempt from tax under both regimes.

Beyond these, the new regime does not allow for most other deductions such as HRA, LTA, or investments under Section 80C. This makes it a simpler but less flexible option.

Choosing the Best Tax Regime: Factors to Consider

The decision between the old and new tax regime depends on multiple factors. Here’s a breakdown of what to consider:

1. Deductions and Exemptions

• If you are someone who regularly claims deductions for NPS, HRA, LTA, or health insurance premiums, the old tax regime may be better suited for you as it offers a range of deductions that can significantly reduce your taxable income.

2. Tax Simplicity

• If you prefer a hassle-free filing experience and don’t have substantial deductions to claim, the new tax regime might be more beneficial. It simplifies the filing process, making it ideal for individuals who don’t want to keep track of receipts and documents.

3. Taxable Income and Tax Savings

• For individuals earning up to ₹12 lakh, the new tax regime offers a tax exemption, which makes it a clear choice.

• For those earning higher incomes or those with significant deductions, the old tax regime could still be more beneficial.

4. NPS Contributions

• The old tax regime allows for greater flexibility in NPS deductions (up to 10% of basic salary for employee contributions), compared to the 14% allowed under the new tax regime. This is important for employees contributing significantly to NPS.

Consider Switching to the New Tax Regime

The new tax regime should be considered if you:

• Have minimal deductions and prefer a simplified filing process.

• Have income up to ₹12 lakh, as it offers tax exemption.

• Want to avoid the hassle of maintaining proofs for claiming deductions.

Stick with the Old Tax Regime

The old tax regime remains a better choice if you:

• Have substantial deductions available (e.g., HRA, NPS, health insurance premiums).

• Prefer a customized tax-saving strategy to maximize savings.

• Have a higher income and want to reduce your taxable income significantly using deductions and exemptions.

Make the Right Tax Choice for 2025-26

Choosing between the old and new tax regimes requires a careful evaluation of your income and the deductions you can claim. If your goal is simplicity and you do not have significant deductions, the new tax regime will likely offer better tax savings with less paperwork. However, if you have substantial deductions (such as for NPS or HRA), the old tax regime could result in greater tax relief.

Actionable Tip: Utilize online tax calculators to compare both regimes and see how they affect your overall tax liability. This will help you make an informed decision based on your financial situation and tax-saving needs for FY 2025-26.

Guidance Note on Foreign Asset Disclosure Under the Black Money Act

 Transparency Today, Security Tomorrow

"अविद्या हि सर्वविनाशाय" – Ignorance leads to destruction. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ("Black Money Act") was enacted to curb undisclosed foreign assets and income, ensuring tax compliance and preventing money laundering. Given the stringent penalties and prosecution risks, full compliance is imperative. This guidance note provides a detailed professional overview of disclosure requirements, penalties, liability of legal heirs, and remedial actions available as of March 2025, with references to recent amendments, judicial precedents, and official circulars.

Disclosure Requirements in ITR

Under the Black Money Act and Income Tax Act, resident individuals, Hindu Undivided Families (HUFs), and entities such as companies, firms, and trusts must disclose foreign assets and income in their Income Tax Returns (ITR) under the "Schedule FA" section. Legal heirs and executors must ensure compliance if the deceased had undisclosed foreign assets, as they may inherit tax liabilities associated with such assets.

Types of Foreign Assets to be Disclosed

Taxpayers are required to disclose the following categories of foreign assets:

• Bank Accounts: Including dormant accounts, joint accounts, and any offshore deposits.

• Investments: Shares, bonds, mutual funds, or any other securities held abroad.

• Real Estate: Properties owned, either directly or through a foreign entity.

• Beneficial Interests: Holding assets indirectly through foreign trusts, foundations, or companies.

• Foreign Insurance Policies: Any life or general insurance policies held outside India.

Non-disclosure of any of the above, even inadvertently, can attract severe penalties under the Black Money Act.

Penalties for Non-Disclosure

Under the Black Money Act

Failure to disclose foreign assets or income in ITR attracts the following penalties:

• Penalty of ₹10 lakh per undisclosed asset.

• Penalty up to 300% of the tax due for misreporting foreign income.

• Tax at 30% plus a 90% penalty, totaling 120% of the value of undisclosed assets.

• Failure to file ITR despite holding foreign assets: ₹10 lakh penalty plus possible prosecution.

• Prosecution risk: Imprisonment of 3 to 10 years for deliberate tax evasion on foreign assets.

For Legal Heirs & Executors

Legal heirs are not penalized for inheriting disclosed foreign assets, but if assets were undisclosed, they inherit the tax liability associated with them. While prosecution may not apply to legal heirs for non-disclosure by the deceased, active concealment of such assets can lead to penalties and legal consequences. If a deceased taxpayer was penalized before passing, no additional penalties apply to the heirs.

Remedial Actions Available 

If non-disclosure of foreign assets was unintentional, taxpayers can file an Updated ITR (ITR-U) under Section 139(8A) within 24 months of the relevant assessment year’s end. Filing within 12 months incurs an additional 25% tax, increasing to 50% if filed after 12 months. Legal heirs can also use ITR-U to rectify non-disclosures of deceased taxpayers.

Taxpayers can voluntarily disclose foreign assets before receiving any notice, reducing penalties and avoiding prosecution risks. This ensures lower interest charges. Legal heirs inheriting undisclosed foreign assets can also voluntarily disclose them to limit liability.

If penalized, appeals can be filed under the Income Tax Act or Black Money Act before CIT(A), ITAT, or the High Court. Courts have provided relief where taxpayers demonstrated bona fide intent, incorrect classification, or procedural lapses. Recent case law in 2024 has highlighted instances where taxpayers successfully challenged excessive penalties.

Legal heirs facing tax liabilities from inherited foreign assets can approach the Income Tax Settlement Commission for a one-time settlement, avoiding prolonged litigation and prosecution risks. In a 2024 ruling, the Commission allowed a deceased taxpayer’s estate to settle offshore asset disclosures with a reduced penalty.

First-time offenders may seek compounding of offenses under Section 279 of the Income Tax Act, requiring full disclosure, payment of outstanding dues, and a formal application. A 2025 CBDT circular has introduced updated guidelines allowing faster processing of compounding applications.

For taxpayers who have already paid tax on foreign income abroad, Double Taxation Avoidance Agreements (DTAA) allow claiming Foreign Tax Credit (FTC) to prevent double taxation. Maintaining foreign tax payment proof and submitting Form 67 within the due date is crucial. The 2025 Budget introduced clarifications for FTC claims by taxpayers holding multiple foreign assets.

Precautionary Measures to Avoid Future Non-Compliance

• Maintain Records: Retain account statements, property deeds, investment documents for a minimum of 10 years.

• Timely ITR Filing: Ensure annual disclosure of foreign assets in ITR to avoid penalties.

• Track Compliance Obligations: Monitor reporting requirements under FEMA, RBI, and the Income Tax Act.

• Use Legal Channels for Remittances: Avoid using offshore structures or shell companies to hold foreign assets.

Conclusion

"सत्यं वद, धर्मं चर" – Speak the truth, follow the law. The Black Money Act enforces stringent compliance measures on undisclosed foreign income and assets, making voluntary disclosure and corrective actions essential. Taxpayers, including legal heirs, must proactively comply with tax laws to avoid penalties and prosecution. With remedial mechanisms such as ITR-U, voluntary disclosure, and compounding, individuals can rectify past non-compliance and ensure lawful financial transactions in 2025 and beyond.

CBDT Circular No. 3/2025: Clarifications on TDS and Taxation Amendments

Guidelines for Income Tax Deduction from Salaries for Financial Year 2024-25 under Section 192 of the Income-tax Act, 1961

The Central Board of Direct Taxes (CBDT) has issued Circular No. 3/2025 to provide updated guidelines on tax deduction from salaries for FY 2024-25. These guidelines incorporate changes made by Finance Acts of 2023 and 2024, ensuring compliance with the latest tax laws.

Key Updates and Amendments

1. Definition of Salary (Section 17(1))

   • The term "salary" now includes contributions made by the Central Government to the Agniveer Corpus Fund under the Agnipath Scheme.

2. Definition of Perquisites (Section 17(2))

   • The value of rent-free and concessional accommodation provided by employers has been revised in computation methods.

3. Surcharge Rates Under Old Tax Regime

   • The revised surcharge rates for individuals under the old tax regime are:

     Total Income	Surcharge Rate
     ₹50 lakh - ₹1 crore	10%
     ₹1 crore - ₹2 crore	15%
     ₹2 crore - ₹5 crore (excluding dividends and capital gains under sections 111A, 112, 112A)	25%
     Above ₹5 crore (excluding dividends and capital gains under sections 111A, 112, 112A)	37%
     ₹2 crore+ (including dividends and capital gains under sections 111A, 112, 112A)	15%

4. Income Tax Rates Under New Tax Regime (Section 115BAC)

   • The tax rates for individuals opting for the new tax regime in FY 2024-25 are:

     Total Income	Tax Rate
     Up to ₹3 lakh	Nil
     ₹3,00,001 - ₹7 lakh	5%
     ₹7,00,001 - ₹10 lakh	10%
     ₹10,00,001 - ₹12 lakh	15%
     ₹12,00,001 - ₹15 lakh	20%
     Above ₹15 lakh	30%

   • Deductions & exemptions NOT allowed under the new regime, except for NPS employer contributions under Section 80CCD(2) and certain specified deductions.

5. Reporting of Additional Income (Section 192(2B))

   • Employees with other income sources (except capital losses) can report these to their employer for accurate TDS deduction.

6. Changes to Form 16 and Form 24Q

   • Form 16 has been revised under the Income-tax (Fifth and Eighth Amendment) Rules, 2024.

   • Form 24Q modifications include:

     • Replacement of "Education Cess" with "Health and Education Cess."

     • New reporting column for additional tax deducted/collected under various tax provisions.

7. Revised Rules for Perquisites and Remote Areas

   • The definition of "remote areas" has been updated, limiting exemptions for accommodations provided within 30 km of municipalities with populations over 1 lakh.

   • Employer-provided meal vouchers are now taxable under the new tax regime if an employee opts for Section 115BAC.

8. Enhanced Leave Encashment Exemption

   • The maximum exempted leave encashment for non-government employees has increased to ₹25 lakh.

   • Employees claiming this exemption in multiple years will have their cumulative exemption limited to ₹25 lakh.

9. Tax Exemption for Agniveer Corpus Fund Payments

   • Any payment from the Agniveer Corpus Fund to an Agniveer or their nominee is fully exempt from tax under Section 10(12C).

Employer Responsibilities

• Employers must ensure correct TDS deduction and compliance based on the latest tax rates and reporting requirements.

• Updated forms and cess changes must be incorporated in payroll processes.

Navigating Tax Challan Corrections with Ease: A Step-by-Step Guide

“Mistakes are proof that you are trying.” – Unknown

Errors in tax payments, especially in challans, can be daunting. However, the e-Filing portal of the Income Tax Department has simplified the process for correcting such mistakes. Whether it's an incorrect Assessment Year, Tax Applicable (Major Head), or Type of Payment (Minor Head), this guide provides a professional and comprehensive walkthrough for rectifying errors in your tax challans.

Understanding the Importance of Correcting Challan Errors

Errors in tax challans can lead to mismatches in tax records, potential penalties, or delays in processing returns. The e-Filing portal offers a seamless way to correct these errors, ensuring that your tax records remain accurate and up-to-date.

Pre-requisites for Challan Correction

Before you proceed with a correction request, ensure that:

• You are a registered user on the e-Filing portal.
• The challan in question has not been processed.
• There are no pending correction requests with any authority.

Note: Only challans from Assessment Year 2020-21 onwards are eligible for correction through the portal. For earlier years or multiple corrections, approach your Jurisdictional Assessing Officer.

Types of Errors You Can Correct

1. Assessment Year (A.Y.)
2. Tax Applicable (Major Head)
3. Type of Payment (Minor Head)

Time Limits for Correction Requests

• Major Head (Tax Applicable): Within 30 days of the Challan Deposit Date.
• Minor Head (Type of Payment): Within 30 days of the Challan Deposit Date.
• Assessment Year: Within 7 days of the Challan Deposit Date.

Step-by-Step Guide to Correcting Tax Challans

1. Logging in to the e-Filing Portal

• Visit the e-Filing portal and log in using your PAN and password.
• If your PAN is not linked with Aadhaar, you will see a prompt to link them. Ensure this is done to avoid disruptions.

2. Accessing the Challan Correction Service

• Navigate to the Services tab on the dashboard and select Challan Correction.

3. Initiating a Challan Correction Request

• Click + Create Challan Correction Request to begin.
• Select the attribute you wish to correct (Assessment Year, Tax Applicable, or Type of Payment).

4. Selecting the Relevant Challan

• Choose the Assessment Year or Challan Identification Number (CIN) associated with the challan you wish to correct.

5. Making the Corrections

• On the correction page, update the required details and submit your request.

6. Tracking Your Correction Request

• You can check the status of your correction request in the Challan Correction section under Services.

Conclusion

Errors in tax challans are not uncommon, but they are manageable. The e-Filing portal empowers taxpayers to make necessary corrections efficiently. By following this guide, you can ensure that your tax records are accurate, preventing any future complications.

“Success is the sum of small efforts, repeated day in and day out.” – Robert Collier

Correcting a tax challan might seem like a small effort, but it is a vital step towards maintaining financial accuracy and compliance. Let this guide be your trusted companion in navigating through the correction process with confidence and ease.

CBDT extends due date for filing belated/revised ITR for AY 2024-25 to 15-01-2025 for resident individuals

The Central Board of Direct Taxes (CBDT) has issued Circular No. 21/2024, extending the due date for filing belated and revised income tax returns for Assessment Year 2024-25.

Key Details of the Extension:

• Applicability: Resident individuals filing:
  • Belated Returns under Section 139(4) of the Income-tax Act, 1961.
  • Revised Returns under Section 139(5) of the Income-tax Act, 1961.
• Original Deadline: 31st December 2024
• Extended Deadline: 15th January 2025

Statutory Compliance Calendar for September 2024

As we enter September 2024, it's crucial to stay on top of statutory compliance deadlines to avoid penalties and ensure smooth business operations. Below is a comprehensive compliance calendar for the month, highlighting key dates and obligations for businesses.

Key Compliance Dates

Due Date	Compliance	Period	Description
5th September	FEMA	August 2024	AD Category – I Banks to upload data for LRS on XBRL System.
7th September	Income Tax	August 2024	Deposit TDS/TCS for August 2024. Submission of Form-27C for no TCS.
7th September	FEMA	August 2024	Report actual ECB transactions through Form ECB-2 return.
7th September	Equalization Levy	August 2024	Deposit equalization levy deducted on specified services for August 2024.
10th September	Professional Tax (PT) Payment	August 2024	Payment of Professional Tax on Salaries (Due date varies by state; contact us for details.)
10th September	GST	August 2024	GSTR-7 by TDS Deductor and GSTR-8 by TCS Collector (E-Commerce Operator).
11th September	GST	August 2024	GSTR-1 (Monthly) Filing for outward supplies.
13th September	GST	August 2024	GSTR-5 by Non-Resident Taxpayers. GSTR-6 by Input Service Distributor. GSTR-IFF for QRMP scheme.
14th September	Income Tax	July 2024	Issuance of TDS Certificates (Forms 16B, 16C, 16D) for tax deducted under specific sections.
15th September	Provident Fund (PF) Payment	August 2024	Deposit of Provident Fund contributions.
15th September	ESI	August 2024	Deposit of Employees' State Insurance contributions.
15th September	Income Tax	FY 2024-25	Second Advance Tax Instalment (45% of total estimated tax liability).
20th September	GST	August 2024	GSTR-3B Filing for inward and outward supplies. GSTR-5A for OIDAR services.
25th September	GST	August 2024	GST Challan Payment (Quarterly Filers) if ITC is insufficient.
27th September	MCA	FY 2023-24	AOC-4 Filing (One Person Companies) for FY 2023-24.
29th September	Income Tax	FY 2023-24	Filing of Form 10DA and Form 29B for specific deductions and book profits.
30th September	MCA	FY 2023-24	Conduct Annual General Meeting (AGM). File Form FC-3, DIR-3 KYC. Obtain ISIN for share dematerialization.
30th September	Income Tax	August 2024	Furnish Challan-cum-Statement for TDS. Tax Audit Report Filing (Form 3CA/3CB-3CD).

Key Compliance Highlights

• TDS Payment: Ensure TDS/TCS for August 2024 is deposited by 7th September.
• Advance Tax: The second installment for FY 2024-25 is due on 15th September. Calculate and pay 45% of the total estimated tax liability.
• GSTR Filings: GSTR-1 due on 11th September, GSTR-3B on 20th September.
• Tax Audit: Tax Audit Report for FY 2023-24 must be filed by 30th September.
• AGM: Conduct by 30th September to remain compliant.

For assistance or expert guidance, please reach out to Sandeep Ahuja & Co. We are here to support all your statutory compliance needs.

Ensuring Procedural Accuracy in Faceless Tax Assessments: A Landmark Ruling by the Madras High Court

In the case of GE Power Conversion India (P.) Ltd. vs. National Faceless Assessment Centre (Madras, 2024), the petitioner challenged an order issued under Section 143(3) read with Section 144C(1) of the Income Tax Act, 1961. The petitioner contended that the order, which proposed a transfer pricing adjustment to the total income, was improperly labeled as a Draft Assessment Order. They argued that it was, in fact, an Assessment Order passed under Section 143(3) read with Section 144B of the Act.

Court's Decision:

The Madras High Court held that the order should have been correctly formatted as a Draft Assessment Order under Section 144B(1). However, it was formatted as an order under Section 143 r.w.s 144B. Despite this formatting error, the court ruled that the order was still a Draft Assessment Order and valid in law.

Key Points and Reasoning:

1. Incorrect Formatting:

   • The order issued by the National Faceless Assessment Centre (NFAC), New Delhi, was electronically formatted using a template meant for orders under Section 143(3) and Section 144B.
   • This led to a mistake in the preamble of the order, causing confusion about its nature as a Draft Assessment Order.

2. Validity of Assessment:

   • The court emphasized that such a formatting error is not fatal to the validity of the assessment proceedings.
   • The intent of the order was clear from its content, and the label "Draft Assessment Order" was evident from the document itself.
   • The procedural mistake did not affect the substantive rights of the petitioner or the overall integrity of the assessment process.

3. Parliamentary Intent and Faceless Assessment:

   • The court recognized Parliament's attempt to modernize and streamline the tax assessment process through the faceless assessment scheme.
   • The faceless assessment mechanism aims to reduce human interface, enhance transparency, and improve efficiency in tax administration.
   • Minor technical glitches in the system-generated orders should not derail the overarching goal of a faceless assessment process.

Impact of the Ruling:

1. Clarity on Procedural Errors:

   • The judgment clarifies that minor procedural errors, such as incorrect formatting of orders, do not invalidate the assessment.
   • This provides reassurance to taxpayers and the tax administration that the substantive aspects of the assessment take precedence over technical glitches.

2. Reinforcement of Faceless Assessment Scheme:

   • The ruling supports the continued implementation of the faceless assessment scheme, reinforcing the legislative intent to make tax assessments more transparent and efficient.
   • It underscores the judiciary's recognition of the need to adapt to technological advancements in tax administration.

3. Guidance for Tax Authorities:

   • The judgment serves as a guideline for tax authorities to ensure accuracy in formatting and procedural adherence in system-generated orders.
   • It also highlights the importance of addressing any technical issues promptly to avoid similar disputes in the future.

Conclusion:

The Madras High Court's decision in GE Power Conversion India (P.) Ltd. vs. National Faceless Assessment Centre (Madras, 2024) underscores the importance of procedural accuracy in tax assessments while reaffirming the validity of the faceless assessment mechanism. By ruling that minor formatting errors do not invalidate an assessment, the court has reinforced the legislative intent to streamline tax administration through technology. This judgment serves as a crucial precedent for the handling of technical errors in the evolving landscape of faceless assessments.

Guide to Getting Your Income Tax Refund for AY 2024-25

Introduction

If you are expecting a refund on your Income Tax Return (ITR) for the assessment year (AY) 2024-25, you need to make sure your bank account is validated on the Income Tax Portal. This guide will show you the simple steps to validate your bank account so you can get your tax refund easily.

Changes in the Refund Process

Before AY 2024-25, you had to select a bank account in your ITR to get the refund, and this account needed to be pre-validated on the portal. From AY 2024-25, you can no longer choose a bank account for refund in the ITR. Instead, refunds will be sent to any pre-validated bank account on the portal. If you have several pre-validated accounts, the refund will go to one of them where the option to receive a refund is selected.

Refunds can be sent to these types of accounts:

• Savings Accounts
• Current Accounts
• Cash Credit Accounts
• Over Draft Accounts
• Non-Resident Ordinary (NRO) Accounts

Other types of accounts will not work and will show an “Invalid Account” error. Refunds cannot go to bank accounts that are closed, dormant, invalid, under litigation, or blocked.

Steps to Validate Your Bank Account

To validate your bank account on the portal, you need:

1. To be registered on the e-Filing portal.
2. Your PAN must be linked with the bank account.

What to Do if Validation Fails

If validation fails, here’s what you can do:

Reason for Failure	Action to be Taken
PAN not linked with bank account	- For a single account, contact your bank branch to link your bank account with your PAN, then re-validate it. - For a joint account, the portal checks the first account holder. If you are the second account holder, validate your single bank account or the bank account where you are the first account holder.
Name mismatch	- If your name on PAN is correct, contact your bank branch to update your name in the bank account to match the PAN. - If your name on the bank account is correct, correct your name on the PAN. Then re-validate your bank account once the names match.
Bank Account Number mismatch	Enter the correct bank account number and then re-validate your bank account.
Account number does not exist	Enter the correct bank account number and then re-validate your bank account.
Invalid IFSC	Get the correct IFSC Code from your cheque book, passbook, or bank, and enter the correct IFSC. Then re-validate your bank account.
Bank account closed / inactive / dormant / litigated account / account frozen or blocked	- If your bank account is dormant/closed/inactive/litigated/frozen/blocked, use a different bank account for validation. - If your bank account is active, contact your branch to find out the problem. Once your bank updates the details, re-validate your bank account.

Important Points to Remember

1. Only a pre-validated bank account can get the Income Tax refund.
2. You can pre-validate multiple bank accounts and nominate more than one for the refund.
3. You can nominate one bank account for the refund and another for EVC (Electronic Verification Code).
4. EVC can only be enabled for one bank account at a time. If you enable EVC for another account, the portal will ask to disable EVC for the existing account.
   • Note: EVC can be enabled only for banks that are integrated with e-Filing. You can find the list of these banks on the Income Tax Portal.
5. The pre-validation process is automatic. After you submit your request, it is sent to your bank for validation. The account should be validated and updated in your e-Filing account within 10–12 working days.

Conclusion

Validating your bank account on the Income Tax Portal is crucial to get your tax refund smoothly. Follow the steps and fix any issues as mentioned to avoid delays and get your refund without any delays and promptly.

The impact of the Amendment to Section 43B of the Income Tax Act, 1961

"The devil is in the details."

This saying suggests that seemingly well-intentioned actions or provisions may contain hidden challenges or unintended consequences, much like the stringent provisions introduced by the amendment to Section 43B. While the aim is noble—to ensure timely payments to MSMEs—the intricate details and immediate implications may lead to unforeseen difficulties for businesses and the broader economy.

The amendment proposed to Section 43B of the Income Tax Act, 1961, targets the enhancement of payment timelines and financial stability for Micro and Small Enterprises (MSMEs). It mandates that businesses can only claim tax deductions for purchases or services from MSMEs upon actual payment, ensuring that MSMEs receive timely compensation.

Detailed Features of the Amendment

1. Deduction Criteria: Businesses are permitted tax deductions for purchases or services from MSMEs only in the financial year during which the payments are actually made.
2. Alignment with MSMED Act: Ensures compliance with payment timelines set under the Micro, Small and Medium Enterprises Development Act, which typically stipulate 15 to 45 days for settling invoices.
3. Restriction on Provisos: Regular benefits under Section 43B, allowing deductions if payments are made by the tax filing deadline, will not apply to dues to MSMEs, emphasizing immediate settlement.

Financial Impact and Scenario Comparison

Description	Scenario Without Amendment	Scenario With Amendment
Net Profit Before Tax	₹20,00,000	₹20,00,000
Disallowance under Section 43B	-	₹3,80,00,000
Adjusted Taxable Income	₹20,00,000	₹4,00,00,000
Tax Liability (@ 30% + 4% cess)	₹6,24,000	₹1,39,77,600
Increase in Tax Liability	-	₹1,33,53,600

At-a-Glance Summary Before Concluding Remarks

• Immediate Fiscal Pressure: Businesses may incur severe tax liabilities if payments to MSMEs are not cleared by the end of the fiscal year, irrespective of external factors like delayed receivables.
• Ripple Effects: Large tax payments may restrict a business's ability to make future payments on time, potentially leading to a cycle of delayed payments and increased tax liabilities.
• Potential Negative Impact on MSMEs: The amendment, while designed to protect MSMEs, might unintentionally cause businesses to delay payments further to manage their tax positions.
• Broader Economic Implications: This change could have a cascading effect, where delayed payments and increased tax burdens propagate through the supply chain, potentially destabilizing multiple sectors.

Concluding Remarks

The amendment to Section 43B is crafted with the intention to support MSMEs by ensuring they are paid promptly. However, this regulation could introduce significant financial strains for businesses, potentially exacerbating the very issues it aims to resolve. The likely unintended consequences of increased tax burdens and delayed payments call for a reevaluation of the amendment or the introduction of additional supportive measures to truly benefit the MSME sector without destabilizing other businesses.