Budget 2024 Marked by Key Changes in Income Tax Return (ITR) Reopening Provisions
The recently announced Budget 2024 has brought about a significant change in the realm of income tax returns (ITR), particularly concerning the reopening of old returns. Finance Minister Nirmala Sitharaman, in her budget presentation, revealed a noteworthy update: tax authorities can no longer reopen old income tax returns beyond specific time limits.
“I propose to thoroughly simplify the provisions for reopening and reassessment. An assessment hereinafter can be reopened beyond three years from the end of the assessment year only if the escaped income is Rs 50 lakh or more, up to a maximum period of five years from the end of the assessment year. Even in search cases, a time limit of six years before the year of search, as against the existing time limit of ten years, is proposed. This will reduce tax-uncertainty and disputes,” stated the Finance Minister.
Notably, the reduction in time limits for reopening assessments has been highlighted as a far-reaching change. According to Suresh Surana, a Chartered Accountant, “One of the far-reaching changes is the reduction in time limit for re-opening of the assessments.”
In practical terms, if the escaped income in the financial year 2023-24 is below Rs 50 lakh, and the ITR has been filed in AY 2024-25, tax authorities are barred from reopening the case or reassessing the ITR after 31 March 2028. Even in cases where the escaped income exceeds Rs 50 lakh, the reopening or reassessment of the case cannot occur beyond 5 years from the end of the assessment year in which the ITR was filed. Therefore, in the latter case, if the income surpasses Rs 50 lakh, the case cannot be reopened or reassessed after 31 March 2030.
Additionally, the re-haul of reopening proceedings by reducing the time limit to reopen assessments where the income escaping assessment is more than 50 lakhs, from 10 years to 5 years, has been emphasized as a measure towards avoiding prolonged litigations, according to Sanjay Sanghvi, Partner at Khaitan & Co.
It is worth noting that even in search-related ITR cases, the time limit for reassessment or reopening of the case cannot extend beyond 6 years from the end of the assessment year in which the ITR was filed. These changes are anticipated to bring increased clarity and stability to the tax assessment process, ultimately reducing uncertainty and potential disputes.
The alterations in the time limits for reopening and reassessment of income tax returns mark a progressive step towards a more streamlined and efficient tax regime, aiming to facilitate ease of compliance and minimize unnecessary conflict.
