ITR Filing: Income tax department shortens time limit for condonation of delay – What it means for taxpayers

The Income Tax Department has recently made important changes in its refund claim procedures which have led to the reduction of the period when taxpayers could claim old income tax refunds. According to the provisions of the recent directions, individuals and entities enjoy a much lesser period within which to file their refund claims and this underlines the need to submit accurate tax documents within the specified time.

"However, the period within which they can submit their applications has been shortened significantly, and therefore the revised guidelines have emphasized on timely action and strict compliance from taxpayers. On the other hand under the past procedures, a long and reasonable time frame was allowed to the applicants for revision and submission of refund claims. But, the department intends to reform the tax administration and reduce pendency of such old refund claims. The onus has shifted now to the taxpayers to keep all the required documents amidst the transactions in future and submit them before the tax authorities at the prescribed time or else they will lose their tax refund to which they are otherwise entitled by law," said Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited

"This policy change demonstrates the Government’s determination to enhance tax collection method, improve operational efficiencies, and push for on time payment of taxes. The speed up processes require increased aggressiveness from taxpayers to be able to keep detailed records and comply with filing timelines. The speed up also implies the need for sophisticated tax record management and the utilization of tax advisory services due to the evolving complexities of the regulatory environment," Gaurav Singh Parmar, Associate Director, Fincorpit Consulting.

The Central Board of Direct Taxes (CBDT) has issued a new circular regarding the condonation of delays in filing Income Tax Returns (ITRs), superseding all previous instructions, circulars, and guidelines on this matter. Under Section 119(2)(b) of the Income-tax Act, 1961, the circular offers comprehensive instructions for managing applications about late filing of returns seeking refunds or carrying forward losses. It describes the guidelines that income-tax authorities must adhere to when processing such applications and the circumstances in which delays may be excused. Furthermore, depending on the size of the claims, the CBDT has given certain authority to different income-tax authorities to guarantee effective processing.

According to the most recent circular, the deadline for applying for a delay condonation has been shortened to five years from the end of the fiscal year in which the ITR was due. As a result, taxpayers will have one less year to submit requests for delay condonation. CBDT released the circular on October 1, 2024.

Two specific scenarios where condonation of delay can be applied:

If you miss an ITR filing deadline, you can ask the tax authorities for mercy by requesting a condonation. It is applicable in two situations:

Late Electronic Verification: You may request a condonation if, within 30 days of electronic filing, you cannot verify your ITR, as long as you have a good basis for the delay.

Late ITR Filing: You may ask for a pardon if you fail to file your taxes by the annual deadline, which is typically July 31. However, a late fee can be based on your income and the delay. When determining whether to approve the request, the tax department will consider your justifications for the delay.

"To avail of this benefit, taxpayers must submit a request for condonation of delay via the e-filing portal. The approval of such requests is at the discretion of income tax authorities. The Central Board of Direct Taxes (CBDT) has recently revised the time limit for submitting condonation of delay applications. While the earlier 2015 circular allowed up to six years from the end of the financial year in which the ITR was due, the latest circular has reduced this limit to five years.

This mechanism is especially helpful for taxpayers in scenarios such as:

Claiming unutilized refunds from previous years.

Carrying forward and setting off losses to reduce future tax liabilities," said Abhishek Soni, CEO and Co-founder Tax2win

Time limit for applying for condonation

You have five years from the end of the relevant assessment year to submit an application for a condonation of a delay in claiming refunds or carry forward of losses. All authorities that have been given the authority to excuse delays are subject to this five-year limit. Within six months of the end of the month in which they are received, applications must be processed.

Court-related income tax refund claims

The time frame during which the case was ongoing in court will not be considered for calculating the five-year limit for refund claims resulting from a court order. Within six months of the court order date or the end of the fiscal year, whichever comes first, the condonation application must be submitted.

Supplementary income tax refund claims

If other requirements are satisfied, late applications for supplementary refund claims (extra reimbursement following assessment) may be accepted. No interest will be paid on late refund requests, and the income must not be taxable in another person's name. The refund must result from self-assessment tax, advance tax, or excess tax that was withheld or collected at the source.

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