Taxpayers get relief for income mismatch

However, CBDT has said if any item hasn't been reported, there will be an adjustment

In a major relief to individual taxpayers, the Central Board of Direct Taxes (CBDT) has clarified 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 to 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.  

Several taxpayers had 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 (ITR) versus that reported in the tax deductible at source (TDS) certificates of Form 16/16A. 

Chapter VI A deductions under section 80C, 80D and 80TTA were proposed to be denied on the ground that the same were not reflected in the Form 16. Deductions under section 24 for home loans and Section 10 exemptions such as house rent allowance were also proposed to be rejected. 

Let’s say an employee is receiving house rent allowance (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 ITR-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 ITR Form. Moreover, information about a particular head of income is available on net basis in the return form which makes the comparison intricate,” said Amit Maheshwari, partner, Ashok Maheshwary and Associates.

“The CBDT has probably realised the grievances raised by taxpayers and has now clarified that the adjustments will not apply in cases where taxpayers have reported their revenues from all payers in their ITR-1 and the difference has arisen due to method of computing taxable income (say, due to permitted deductions) or omissions by employees at the time of tax declarations to their employers,” said Suraj Nangia, Partner, Nangia & Co.  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 26AS.   

According to Nangia, in cases where adjustments have already been made by Central Processing Centre (CPC) while processing ITRs before issuance of this circular and tax demands have been raised, respective taxpayers would need to login into their income tax e-filing and file an on-line request for rectification of intimation issued under section 143(1).  In the justification, the taxpayers may give a reference to the circular now issued by the CBDT.

A recent representation made  by  the Bombay Chartered Accountant’s Society had pointed out that Form 16 cannot be made 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 s/he is entitled to do so under the Income-tax 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 employee’s total income,” the representation stated. 

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 tax deducted at source. The former is issued yearly for tax deduction in income from salary while the latter is issued quarterly for tax deduction on incomes other than salary. These three forms help to file ITR. 

Key Sections

• Section 80C: Deductions for PPF, life insurance, tax saving fixed deposits, senior citizen savings schemes, etc
   
• Section 24: Interest benefits on home loans 
   
• Section 80CCD: Contribution to National Pension Scheme
   
• Section 80E: Deduction for education loan
   
• Section 80TTA: Deduction for interest on savings account
   
• Section 10: Exemptions on house rent allowance, leave travel allowance, etc