CBDT New Rule 132 for Recalculating Income U/S 155(18)

What is CBDT Rule 132?

Central Board of Direct Taxes (CBDT) has made Rule 132, which comes into force from October 1, 2022. It deals with the application for re-computation of income under Section 155(18). CBDT has also shown Form 69 that can be used to apply for re-computation of income.

Tax experts mentioned that “Finance Act 2022 had inserted Section 155(18). The Assessing Officer (AO) has been given the power to re-compute the total income of assessees who fall under Section 40(a)(ii) of the Income-Tax Act, 1961.”

Section 40 concerns the amounts that could not be claimed as a deduction calculating the profits made via business or profession during furnishing the ITR.

Problem Before New Rule 132

Before that, there was no transparency that whether the surcharge or cess could be permitted as an expenditure. In this case, contradictory legal pronouncements exist.

Tax expert mentioned that “The main issue of contention was whether cess is considered a tax and whether cess should also attract disallowance.”

Prior to revision to section 155, the amount furnished for the cess or surcharge was treated as an expenditure and the taxpayer claimed the same as a deduction “The insertion of subsection 18 to Section 155 disallowed this claim and with retrospective effect.”

CBDT Notification for Applying Re-computation Income

CBDT furnishes a notification dated September 29, 2022, “According to the notification, assessees can apply for re-computation of their total income of previous years without allowing the claim of deduction of surcharge or cess.” tax expert articulated.

The chances of all income of the taxpayer shall be higher on recomputation when these deductions would not be permitted. The other income hence computed would be acknowledged as under-reported income. Tax expert said that “The assessee will be required to pay tax on it as well as a penalty equal to 50 per cent of the tax due on the under-reported income.”

Due Date for Submit Form No.69

The taxpayer has been provided with relief. “According to the new rule, an assessee can submit an application requesting for re-computation of the total income of the previous year, nullifying the claim for deduction of surcharge or cess, without attracting penalties under Section 270A (3).” the tax expert specified.

The application for re-computation should be submitted through Form No. 69 on or before March 31, 2023.

The tax expert said that “On receipt of the application, the AO will re-compute the total income by amending the relevant order. He will then issue a notice specifying the time within which the amount of tax payable (if any) should be paid.”

Payment Information in Form No.70

Post furnishing the tax the taxpayer should file the information of the payment incurred in Form No. 70 to the AO. The same should be performed within 30 days of filing the payment.

If the conditions mentioned above would be satisfied then a surcharge or cess deduction claimed in the before years would not get penalized.

Read Also: Challan 280: Online & Offline Income Tax Payment for Self Assessment

What is Needed to Perform?

File for re-computation of income from FY 2004-05 (AY 2005–06) prior to the March 31, 2023 deadline.

Tax expert articulated that “In case the assessee has any pending litigation concerning a claim of deduction of surcharge and/or cess, he may apply Rule 132 to avoid a penalty of 50 per cent of the amount of tax payable on under-reported income.”

The total income specified in Form 69 is not as per the Income tax return furnished, the tax expert specified that “It should be the total income mentioned in the latest assessment, reassessment, or re-computation order, as the case may be.”

If the taxpayer is deceased Form 69 could be furnished on his behalf by the legal heir.

Tax experts mentioned that “Assessees should voluntarily come forward requesting for re-computation of the total income by disallowing the claim of education cess and surcharge and pay the amount due thereon within the specified date.” the same would prevent them from filing the penalty.

What Time the Revised Return is to be Filed

• An amended return would get furnished to revise the errors that were incurred during filing the original income tax return (ITR) the same could get furnished if you have obtained a tax refund
• Revised return could merely get furnished up to December 31, 2022, for ITR filed for FY 2021-22 (AY 2022-23)

What Time do You Apply for the Re-calculation

• On false claiming of the deduction of surcharge or cess in the former assessment year, the taxpayer is mandated to apply for re-computation of total income.
• The taxpayer could furnish for re-computation of income from FY 2004-05 (AY 2005–06) up to March 31, 2023.