Budget makes tax compliance easier, gives relief in penalties and timelines

Budget signals a shift toward a less adversarial tax regime by extending return-filing deadlines to March, halving the mandatory litigation deposit to 10%, and decriminalising minor procedural lapses

 

The Union Budget on Sunday introduced changes in rules for income tax rules (ITR) that will make compliance processes simpler, give people more time for corrections and soften action for mild offences.

ITR flexibility

Finance Minister Nirmala Sitharaman proposed extending the window to revise income tax returns up to March 31 in an assessment year — instead of the December 31 deadline — with payment of a nominal fee. This is expected to help taxpayers with foreign income and foreign tax credit claims, where global tax timelines often do not align with Indian deadlines. 

“Rationalising the return-filing timelines by permitting non-audit business income taxpayers to file original returns up to August 31, and allowing revised returns to be filed up to March 31, of the relevant assessment year for all taxpayers, will significantly ease compliance,” said Priyal Shah, partner at law firm NPV & Associates LLP. It will improve accuracy of disclosures and reduce disputes arising from unintended errors.

Assessment and penalty orders to be merged

“Multiplicity of proceedings is a hindrance to the ease of doing business. I propose to integrate assessment and penalty proceedings by way of a common order for both,” said Sitharaman. 

No interest will apply on the penalty amount during the appeal period before the first appellate authority, regardless of the appeal outcome. The pre-deposit required during litigation is proposed to be cut from 20 per cent to 10 per cent of core tax demand. 

“The reduction of advance deposit of tax, in case of litigation, from 20 per cent to 10 per cent is a welcome move and will help taxpayers not block their working capital to some extent,” said Dipesh Jain, partner, Economic Laws Practice.  ALSO READ | Income Tax Act 2025 to be implemented from April 1: FM Sitharaman

Relief on penalties and prosecution

Penalties for failures such as not getting accounts audited or not furnishing certain reports will be converted into fees. Some offences are proposed to be decriminalised. 

“Non-production of books of account and documents, and requirement of TDS payment, where payment is made in kind, are being decriminalised. Further, minor offences will attract a fine only,” said Sitharaman. 

She added that remaining prosecutions will be graded by severity, with maximum imprisonment reduced to two years and courts allowed to convert sentences into fines. Small foreign asset non-disclosures below Rs 20 lakh will get immunity from prosecution retrospectively from October 1, 2024.

Updated returns even after reassessment start

Taxpayers will be allowed to file updated returns even after reassessment begins, by paying an additional 10 per cent tax over the applicable rate. In misreporting cases, immunity from prosecution can apply if the taxpayer pays 100 per cent additional tax over and above tax and interest due. 

“This Budget has proposed several path-breaking measures towards making tax administration less litigative and less adversarial,” said Suresh Surana, a chartered accountant. However, he cautioned that earlier penalty action may increase in some cases, raising contingent liabilities for taxpayers.