What is Income Tax Rule 132?
Rule 132 was implemented by the Central Board of Direct Taxes (CBDT) on October 1, 2022. Anyone who earns income from a company or profession and has filed for a cess/surcharge deduction is impacted by the new regulation.
Importance of Rule 132 in this Situation Must be Understood
The regulation was created as a result of some ambiguity over whether a cess or surcharge on income tax can be claimed as a deduction or not, according to an online income tax filing portal.
“Taxpayers are not allowed to claim deductions on income tax paid when calculating net profit. However, there was no clarity on whether the cess/surcharge paid could be claimed as a deduction. Many businesses were taking advantage of this loophole and were claiming a deduction on cess/surcharge paid,” he says.
The government made it clear in Finance Act 2022 that such a cess or surcharge cannot be deducted from lucrative income when determining income tax. The judgment is effective retroactively as of April 1, 2005. This indicates that a firm that has taken such deductions has paid less tax overall throughout the years.
If a person has been claiming these deductions while underreporting their income tax, they must pay the taxes due in addition to a penalty of 50% of the taxes payable.
However, taxpayers who qualify for these deductions have been given a one-time window through March 31, 2023, during which they may recalculate their income taxes without claiming any deductions and then pay the necessary taxes.
Additionally, by the end of March 2026, all assesses whose request for such a deduction has been submitted and authorized for any assessment year will be required to make the necessary corrections. They might voluntarily seek the assessing officer for a reassessment of their income.
An obligatory rectification procedure must be completed by the end of March 2026 for all assessees whose claim for the education cess and surcharge has been submitted and accepted for any assessment year, or they may voluntarily request the assessing officer recalculate their income.
Additionally, the Process for Re-calculating Such Revenue is Outlined in Rule 132
- Taxpayers who have claimed a deduction for a cess or a surcharge must first disclose their taxable income, taxes paid, and the amount of the deduction they are claiming.
- Form 69 must be used to electronically submit the data on the income tax portal.
- The income tax officer will recalculate the taxpayer’s taxable income after obtaining this information.
- The assessee post-filing the tax shall be needed to inform the tax officer in form 70 in 30 days of filing these payments. The assessee shall not be obligated to file any penalty.
