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HomeTaxKey Takeaways from the Income Tax Department's New Action Plan

Key Takeaways from the Income Tax Department’s New Action Plan

This article delves into recent updates from the Tax Department on TDS and refunds, offering insights into taxpayer strategies and the impact of choosing tax regimes on ITR processing

Prioritizing Dispute Resolution and Faster Refunds

A central focus of the action plan is the identification of potential cases involving prosecution for non-compliance with tax laws, particularly those related to underpayment of TDS (Tax Deducted at Source). The tax department will be scrutinizing these cases closely, with potential legal action against offenders. This initiative aims to deter tax evasion and ensure a level playing field for compliant taxpayers.

Additionally, the plan emphasizes expediting the approval process for tax refunds, offering much-needed relief to taxpayers. For instance, by June 30, 2024, the department aims to resolve cases involving seized assets that are due for release. This timeline-driven approach indicates a commitment to improving efficiency in asset management and expediting refunds.

Faster Resolution of Appeals and Proposals

The action plan also places emphasis on finalizing proposals pending as of March 31, 2024, and resolving a significant number of tax-related appeals by June 30, 2024. Notably, priority will be given to appeals filed before April 1, 2020, demonstrating a systematic approach to clearing long-standing cases and streamlining the appeals process. Furthermore, the plan addresses the resolution of audit objections, aiming to settle a substantial portion by June 30, 2024.

Measures to Benefit Taxpayers

Tax experts recommend that taxpayers file applications for pending refunds directly with the assessing officer to expedite the process. This proactive approach can help taxpayers receive their refunds faster.

Another important development is the tax department’s commitment to resolving applications for Nil/Lower TDS or TCS (Tax Collected at Source) certificates within a month of receipt, starting from April 1, 2024. This quicker turnaround time for processing requests for lower TDS or TCS deductions can improve taxpayers’ cash flow management.

Impact of Tax Regime Selection on ITR Processing

While taxpayers can switch between the old and new tax regimes at the time of filing their ITRs, regardless of the regime chosen for TDS on salary, opting for different regimes can impact ITR processing.

At the beginning of the financial year, salaried individuals were required to inform their employers of their chosen tax regime (old or new). This decision determines the tax bracket applied to their salary income. If an individual opts for the old tax regime for TDS on salary and claims various deductions allowed under this regime, the amount of deductions claimed will be reflected in Form 16, assuming the necessary proofs are submitted to the employer on time.

However, under the new tax regime, only standard deductions and Section 80CCD (2) deductions (if applicable) are reflected in Form 16. Some taxpayers might choose the new tax regime for TDS on salary initially but later decide to file their ITR under the old regime if it proves more beneficial in their specific situation. In such cases, taxpayers would need to calculate the deductions themselves to claim them and reduce their tax liability. Additionally, the tax department is more likely to scrutinize such ITRs and request supporting documents for the claimed deductions compared to scenarios where deductions are claimed via the employer and reflected in Form 16.

On the other hand, switching from the old tax regime (chosen for TDS on salary) to the new tax regime at the time of ITR filing is less problematic. This is because the two main deductions allowed under the new regime are also permitted under the old regime. As a result, these deductions would still be included in Form 16 prepared by the employer based on the old tax regime.

Choosing the Right Tax Regime for a Smooth ITR Filing Experience

Experts advise that taxpayers who anticipate claiming many deductions should consider opting for the old tax regime for TDS on salary from the beginning. This approach can minimize discrepancies between Form 16 and the ITR, potentially leading to smoother processing. However, this also means submitting more documentation to the employer for claiming deductions under the old regime, even if they might not be used while filing the ITR under the new regime.

Ideally, for a seamless ITR processing experience, taxpayers should choose the same tax regime for both TDS on salary and ITR filing. The new tax regime is the default option; if employees do not inform their employers of their choice, tax will be deducted based on the new regime. It’s also important to note that most employers don’t allow changes to the chosen tax regime during the financial year

Conclusion:

The Income Tax Department’s new action plan streamlines tax administration and benefits taxpayers with faster refunds, appeals, and clearances. To optimize ITR processing, consider claiming deductions under the chosen tax regime. Aligning TDS and ITR filing under the same regime (old or new) can further simplify the process. Remember, the new regime is the default, so inform your employer if you prefer the old regime. Explore your employer’s policy on mid-year tax regime changes. By staying informed, taxpayers can navigate tax filing more confidently.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.

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