Situations where the income has escaped assessment from income tax laws are not uncommon. This causes direct loss to the exchequer as the government does not receive its portion of taxes. To tackle such situations, the government has placed reassessment provisions under the Income Tax Act, 1961 that bring such escaped income to assessment. However, these provisions have undergone significant changes, especially after the release of the Finance Act, 2021 and Finance Act, 2022. The government also started utilising the technology to make the reassessment process seamless and accurate.
One of the significant changes was the implementation of the Risk Management Strategy under Section 148 and the laying down of information under section 148 of the act. This signifies when a notice of reassessment can be issued under the income tax law and how the government will be identifying assesses whose income has escaped assessment. Let’s understand the risk assessment strategy and information under section 148 in detail.
While the income tax department has not clarified the risk management strategy in the entirety, we may refer to it as any strategy that can identify the non-compliant or doubtful assesses through the use of algorithms, technology and information available. This can also include flagging suspicious transactions.
As per Explanation 1 to Section 148 of the Income Tax Act, 1961, ‘Information’ means:
Thus, beginning from 1st April 2021, notice under Section 148 can be issued if the assessing officer is in possession of any information as per Explanation 1 to Section 148 that suggests that income has escaped assessment.
Further, in cases where –
the assessing officer shall be deemed to have information that suggests income escaping assessment in case of the assessee where the search is initiated, books or assets are requisitioned or a survey is conducted in case of the assessee or the specified assets, books and documents are requisitioned or seized in case of any other person.
The government has reduced the time limit for issuing notice under section 148 for income escaping assessment from 6 years previously to 3 years. It is only in case of serious tax evasions involving income escaping taxes of Rs. 50 lakhs or more that the reassessment can be opened up to 10 years. For that, the assessing officer should have evidence of concealment of income exceeding Rs. 50 lakhs.
The reassessment provisions have seen significant changes in the past 2-3 years. The government has expanded the scope of information and employed technology to identify the cases of income escaping assessment and bring such income to taxes. The risk management strategy could turn out to be a game changer in the coming years to curb tax evasion in India. In case you need any assistance in relation to taxation matters, feel free to contact the ASC Group.
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