Explained: What is Income Tax Rule 132 and why is it important for taxpayers?

The Central Board of Direct Taxes (CBDT) has amended the Income Tax Act to include Rule 132. The new calculation of income under Subsection 18 of Section 155 of the Income Tax Act 1961 income tax is dealt with in Rule 132 of the Income Tax Act. Tax Rules, 1962, which came into effect on October 1, 2022. It is essential that anyone responsible for running businesses is aware of Rule 132 recently added to the Income Tax Act. Income Tax Act 132 CBDT Regulation discusses whether businesses must deduct surtax payments when determining their taxable income. To request the recalculation of total income under Section 155(18), Form 69 has been made available by the Department of Income Tax under Rule 132 of the Income Tax Act on income. For those with income from a business or profession that also benefited from the surtax deduction, Rule 132 was enacted. Therefore, Form 69 should be used by taxpayers who have claimed a deduction for a tax or surcharge and submitted to the electronic income tax portal with properly filed information such as taxable income, tax paid and the deduction claimed as tax or surcharge.

Nidhi Manchanda, Certified Financial Planner, Head of Training, Research and Development at Fintoo, said: “It is very important that taxpayers who are professionals or who run businesses are aware of Rule 132 recently added to the law. income tax. Prior to the introduction of this Rule 132, taxpayers were not permitted to deduct income tax paid when calculating the net profit of a business. However, there was not much clarity as to whether the tax or surcharge is allowed as a deduction or not. And so, some companies had taken advantage of this loophole in the income tax law and claimed the tax and surcharge as an allowable deduction due to the lack of clarity.”

Nidhi Manchanda said: “Now with the introduction of Rule 132, the government has provided a one-time window until March 31, 2023 to recalculate taxable profits without surrender or surcharge as a deduction and file the additional tax on such underreported income from retroactive effect from 2005. It is suggested to comply with the regulations and make a claim in Form 69. No penalty would be due on such payment until March 31, 2023. »

Dr Suresh Surana, Founder of RSM India, said: “A assessed person is liable to pay income tax at the applicable tax rates on total taxable income, which includes the basic tax rate, the surtax and the health and education (“cess”) levy Income tax paid on income is not deductible under section 40(a)(ii) of the Act of 1961 Income Tax (“the Act”) for purposes of calculating total income.However, virtually various assessees had claimed a deduction of cess, claiming that income tax does not include cess to purposes of denial under Section 40(a)(ii) of the Act and relying on certain court precedents in this regard.Some taxpayers may have applied the same analogy to claim even the surcharge as a deduction on the ground that it is not of the nature of income tax.”

Dr Suresh Surana said: “Particularly to ensure that the surcharge and levy are not claimed as a deduction by taxpayers, the Finance Act 2022 has made clarifications by way of retroactive amendment (with effect from 1 April 2005) Pursuant to the Clarifying Retrospective Amendment, the surtax and deductible would form part of the definition of income tax and must be disallowed under section 40(a)(ii) of the Act. In addition, it also amended Section 270A of the Act to impose a penalty for under-reporting income in cases where such a deduction is claimed by the assessee.In order to provide one-time penalty relief, the assessee is authorized to recalculate its total taxable income for all such previous years in accordance with section 155 (18) of the Act.In this respect, the Central Board of Direct Taxes (CBDT) has inserted rule 132 of 1 October 2022 in the Income Tax Rules (Thirty-Second Amendment), 2022 to provide a procedure for recalculating total taxable income under section 155(18) of the Act. The procedure is summarized below –

a. The assessee must apply on Form 69 providing details of the amount claimed as surtax/cess and total income; on the tax portal no later than March 31, 2023

b. Upon receipt of the application, the assessment officer must recalculate the total income and issue a notice of formal notice under section 156 of the Act (Note: the assessment officer may even issue a notice of demand for the following tax year if the aforementioned claim results in a loss and the same amount is carried forward and offset in the following tax year)

vs. The appraise must make payment in accordance with the notice of demand and indicate payment details in Form 70 within 30 days of payment.

He further added that “the above-mentioned rule is important for assessees who have claimed the deduction of surtax and tax when calculating total taxable income. Such assessee must identify the assessment year in which they claimed said deduction and file a single claim (for all assessment years) in Form 69 no later than March 31, 2023. Upon receipt of assessment officer’s notice of claim, the assessee shall make payment of the claim raised therein, if any, and shall notify the assessment officer in Form 70. If the assessee fails to file said application within the prescribed time, the assessment officer may issue a rectification order under section 154 of the Act on or before March 31, 2026. Further, the assessee assessor may additionally impose a penalty amounting to 50% of the amount of the tax on the amount of the surcharge and the tax claimed as a deduction by the assessee.”

Gopal Bohra, Partner, NA Shah Associates, said in the second quarter: “Until the amendment made by the 2022 budget, taxpayers were claiming the payment of education tax as a deductible expense based on the various rulings of the High Court who ruled that the education tax is not a tax. While the tax authorities disputed that the education tax is an income tax and not deductible as an expense when calculating taxable income. The 2022 budget amended section 40(a)(ii) retroactively from AY 2005-06 by providing that income tax must include education tax and therefore not a deductible expense .”

“Since many taxpayers claimed the education tax as a deductible expense in previous years, the 2022 budget also provided that such taxpayers may file a claim with the tax officer in a prescribed form requesting the recalculation of total taxable income. Now, the Commission has issued Rule 132 along with Form 69 allowing taxpayers to file the online request for recalculation of taxable income without allowing the education tax deduction that is claimed earlier. In the event of non-filing of the request for recalculation of income on form 69 by 31.3.2023 at the latest, the taxpayer will be liable to a penalty for under-declaration of income excluding tax and interest on the denial of education tax,” said Gopal Bohra.

Mr. Shravan Shetty, Managing Director of Primus Partners, said: “CBDT Rule 132 falls under the Income Tax Act which indicates whether companies should consider paying surcharges as a deduction when calculating taxable income. . To clarify matters and prevent companies from claiming tax deductions, this amendment was introduced as part of the 2022 Finance Law. Companies should note that the government has granted a single window for taxpayers to recalculate their taxable profits . This is an important step as businesses will be able to electronically submit Form 69, make necessary payments with respect to Forms 69 and 70. All businesses should take this opportunity to reassess their records from 2005 onwards in order to s ensure that no penalty is imposed on them. by the authorities.”

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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