Section 154 of the Income Tax Act is a section included in the Income Tax Act of 1961 that allows the rectification of errors in the ITR filed by a taxpayer. If you are an Indian citizen earning money, it is important that you file your taxes using the relevant ITR form. However, ITR forms can be extensive and may result in unintentional errors. In such a case, it is crucial that if you have identified any errors in your filed ITR form, you use the provisions mentioned under section 154 to rectify those errors and ensure effective taxation compliance.
As a taxpayer who files an ITR every year, you must know how you can rectify the errors in your filed ITR. This article will help you understand everything you need to know about section 154 of the Income Tax Act and how to utilise its provisions to ensure your filed ITR is free of errors.
Budget 2024 update - Key tax relief measures
Finance Minister Nirmala Sitharaman has announced significant tax benefits for individuals opting for the new tax regime.
Key changes:
- Enhanced standard deduction: The standard deduction for salaried individuals has been increased from Rs. 50,000 to Rs. 75,000.
- Increased deduction on family pension: The deduction on family pension for pensioners has been raised from Rs. 15,000 to Rs. 25,000.
- Revised tax rate structure: The new tax regime now offers a revised tax rate structure:
- Income up to Rs. 3 lakh: Nil tax
- Income between Rs. 3 lakh and Rs. 7 lakh: 5% tax
- Income between Rs. 7 lakh and Rs. 10 lakh: 10% tax
- Income between Rs. 10 lakh and Rs. 12 lakh: 15% tax
- Income between Rs. 12 lakh and Rs. 15 lakh: 20% tax
- Income above Rs. 15 lakh: 30% tax
Impact on salaried individuals: These changes are expected to provide substantial tax relief to salaried individuals under the new tax regime. On average, a salaried individual can anticipate savings of up to Rs. 17,500 in income tax.
What is section 154?
Section 154 of the Income Tax Act, 1961, provides taxpayers with the opportunity to correct errors or discrepancies in their income tax records. This provision is particularly useful for rectifying mistakes found in filed Income Tax Returns (ITR) or those made by the assessing officer. Taxpayers can file a rectification request under this section to address such issues, especially if they have received an intimation under Section 143(1), which highlights apparent mistakes in the ITR.
Common mistakes that may require rectification include calculation errors, omissions, or incorrect data entries. In such cases, taxpayers can utilise the rectification process under Section 154 to correct these errors. However, it is important to note that rectifications apply only to factual errors. If a more significant error or omission is found, a taxpayer must revise the ITR instead of using the rectification process.
Once the Income Tax Department reviews an ITR, if discrepancies are found, they send an intimation to the taxpayer. At this point, the provisions of Section 154 come into effect, allowing taxpayers to rectify the specific errors as mentioned by the department. This ensures accurate tax records and prevents further complications.
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Features of Section 154
Here are the salient features of section 154 of the Income Tax Act:
- An authorised officer is the only individual who can issue a notice under section 154 of the Income Tax Act.
- It is mandatory to provide a notice under the section if the rectifications result in an increase or decrease in the tax liability or a change in the tax refund.
- If excess funds through tax refunds have been credited to the bank account of the taxpayer, the same shall be demanded back through section 154.
- If a taxpayer applies for ITR rectification under section 154, the Income Tax Department is liable to respond and dispose of the application within 6 months from the date of receiving the application.
- A notice can be issued under section 154 within four years of the fiscal year for which an order has been passed.
- The IT department is liable to provide a refund to the taxpayers if a rectification creates an increase in exemptions or a reduction in the tax liability.
- An order which is a subject matter for a revision or appeal is not eligible for a rectification.
- If a commissioner has passed an order, they have the right to rectify it by acting upon their own application or the taxpayer’s application.
Applicability of Section 154
Section 154 of the relevant tax act applies under the following circumstances:
- Correction of errors in decisions: To rectify any inaccuracies or mistakes identified within decisions made by the Appellate Authority or Assessing Officer.
- Correction of clerical errors: To rectify any obvious mistakes or errors present in the official records.
It is important to note that the rectification process can be initiated by either the taxpayer or the tax authorities (Assessing Officer or Appellate Authority).
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Errors that can be rectified
Section 154 of the Income Tax Act allows you to request rectifications in the ITR you have already submitted to the Income Tax Department. The requests are generally for errors that are identifiable from the ITR records. Here are the errors that can be rectified in the ITR under section 154 of the Income Tax Act:
- Arithmetic mistakes with ITR
- Factual errors
- Clerical errors
- Errors made due to overlooking or omitting compulsory provisions of the law
Orders that can be rectified under Section 154
Section 154 empowers the tax authorities to rectify certain orders, beyond mere error correction. These include:
- Orders issued under the Income Tax Act
- Intimations or deemed intimations under Section 143(1)
- Intimations sent under Section 200A(1) related to TDS
- Intimations sent under Section 206CB(1) related to TCS
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When and who can file the rectification?
A rectification under Section 154 of the Income Tax Act can be filed when there is an apparent mistake in the records, such as miscalculations, incorrect data entries, or omissions in the filed Income Tax Return (ITR). This rectification is primarily used when errors are identified by either the taxpayer or the Income Tax Department after an intimation is issued under Section 143(1). These errors must be factual and not related to any changes in tax law or subjective interpretations.
Both taxpayers and the Income Tax Department have the authority to initiate a rectification request. Taxpayers can file the request if they identify mistakes in their ITR post-filing, particularly after receiving an intimation. Assessing officers can also initiate rectifications if they notice an error in assessing the taxpayer’s return. However, the rectification request must be limited to correcting apparent errors and cannot be used to dispute the outcome of an assessment or revisit the entire return.
It is important to note that if the mistake is substantial, such as an omission of income or incorrect claim of deductions, a revised return must be filed instead of using the rectification process. Rectifications help ensure accurate records and compliance with tax obligations.
Rectification of order - Subject to appeal or revision
If an order is included as the subject matter of an appeal, then the assessing officer has the right to rectify those orders that have not yet been decided upon in such a request.
Initiation of rectification
The income tax authority generally rectifies tax-related errors through their due course of action. The course of action for rectification of such errors can be started when the concerned taxpayer identifies errors and intimates the Income Tax Department about the errors through an application under section 154 of the Income Tax Act. Furthermore, when a commissioner or appealing officer passes the order, the errors brought to notice by the assessing officer or the taxpayer can be accordingly rectified.
The limit for rectification
The limit for rectification is a maximum of four years from the year the ITR was filed and the rectification application was submitted. If four years have passed since the request was submitted, the concerned authority cannot pass the rectification order. However, the four years in question are determined from the end of the fiscal year in which the individual submitted an order or rectification.
If the Income Tax Department has revised or set aside the rectification order, the four years are determined from the fresh order date and not the original order date. The concerned authority must amend or deny the rectification order within six months of receiving the application.
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Procedure to make an application of rectification
Here is the procedure to apply for rectification under section 154 of the Income Tax Act. However, when making an order, it is wise to become well-versed with the order and all the errors you want to rectify. Afterwards, you can follow the below process for filing a rectification application:
Step 1: Log in to the e-filing portal of the Income Tax Department using the same user ID and password you used while filing the ITR.'
Step 2: Click on the ‘Services’ option and select ‘Rectification’ from the drop-down menu.
Step 3: On the ‘Rectification’ page, click the ‘New Request’ option. Once done, your PAN number will be auto-filled and you will have to select between wealth tax and income tax.
Step 4: Select the relevant assessment year from the drop-down menu and click the ‘Continue’ button.
Step 5: The rectification requests will be as follows:
| Wealth tax rectification | Reprocess the Return |
| Tax Credit Mismatch Correction | |
| Return Data Correction (XML) | |
| Income tax rectification | Reprocess the return |
| Tax credit mismatch correction | |
| Additional information for 234C interest | |
| Status Correction | |
| Exemption section correction | |
| Return data correction (offline) | |
| Return data correction (online) | |
Step 6: For income tax ratification - Reprocess the return
- Select ‘Reprocess the return’ as the request type.
- Click on ‘Submit’ to submit the rectification request.
- You will be taken to an e-verification stage, and the request will be officially submitted.
Step 7: For income tax rectification - Tax credit mismatch correction
- Select ‘Tax credit mismatch correction’ as the request type.
- The schedules are auto-filled as per the records available in the processed returns.
- Select the relevant schedule and click the ‘Delete’ or ‘Edit’ button.
- Enter all the required details such as TDS on other than salary, TDS on salary, TCS, TDS on transferring immovable property, advance tax, or self-assessment details. Once done, click on ‘Save as draft.’
- Click on the ‘Continue’ button to submit the details.
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Prerequisites to file online rectification request under section 154
Here are the prerequisites to file an online rectification request under section 154:
- The income tax return for the corresponding assessment year must have been processed in CPC, Bengaluru.
- The taxpayer must have received an intimation from the Income Tax Department under section 143(1) or 154.
- In the absence of initiation under section 143 (1) or 154, you can apply for a new service request on the ITR e-filing portal.
- If you have uploaded the wrong documents, you can withdraw your rectification request by EOD on the same day you submit it.
- If the rectification rights are transferred to an assessing officer, submitting a rectification request is eligible.
- In the case of electronic returns, only online rectification requests are allowed.
- You can file a rectification request only when your previous rectification request has been processed (if any).
- If you are correcting tax credits, you do not need to upload the XML file.
- It is mandatory to register on the e-filing platform of the income tax for submitting a rectification request.
- If the refund is adjusted against the demand of any other assessment year apart from the current one, you must file the rectification request for the other assessment year and not the current one.
Benefits of Section 154
Section 154 of the Income Tax Act offers several benefits by providing a streamlined process for correcting errors in filed Income Tax Returns (ITR) and other tax-related records. One key advantage is that it allows taxpayers to rectify apparent mistakes such as calculation errors, data entry inaccuracies, or omissions without having to undergo a lengthy and complex legal process. This helps avoid penalties or further complications with the Income Tax Department.
Another benefit is the quick resolution it offers to taxpayers. Once a mistake is identified, either by the taxpayer or the assessing officer, the rectification process can be initiated. This saves time compared to more formal processes like filing an appeal, making it an efficient way to address issues with tax filings. Additionally, rectifying these errors ensures that the taxpayer’s records are accurate, reducing the risk of future disputes or assessments.
Moreover, Section 154 provides flexibility, as both taxpayers and tax authorities can request rectifications. This dual approach fosters a fair and transparent system where any discrepancies in the tax process can be corrected. Ultimately, this provision enhances compliance and ensures that taxpayers fulfil their obligations while maintaining accurate financial records.
Difference between rectification and revised return
Taxpayers file a revised return when they want to adjust or change the initial return. The changes and adjustments in a revised return may include incorrect statements or income omissions. Taxpayers filing a revised return have to file it before the conclusion of the assessment year. Taxpayers can file a revised return multiple times before the conclusion of the assessment year in question.
On the other hand, taxpayers can file a rectification return themselves, or the Income Tax Department can issue one. A rectification request seeks to rectify errors identified after the filing of the ITR. If the taxpayer has submitted a rectification request, the concerned authority must respond within six months from the date of receiving the application. Once accepted, the maximum time limit is four years from the end of the fiscal year in which the rectification order is to be passed.
Important highlights of Section 154
Section 154 empowers the tax authority to issue rectification orders under various circumstances, including:
- Inconsistencies: Identification of discrepancies or errors within the Income Tax Department's records.
- Discretionary authority: The tax authority's independent initiative to issue rectification orders.
Important considerations:
- Prior notification: Taxpayers will be informed before any action is taken under Section 154.
- Potential tax implications: Rectifications may lead to increased tax liabilities for the taxpayer.
- Refund eligibility: If a rectification results in a tax reduction or increased exemption, the IT Department is obligated to issue a refund.
- Excess refund recovery: In cases where a refund has already been processed and subsequently reduced due to reassessment, the department may claim the excess amount from the taxpayer.
- Time limit for rectification orders: The tax authority can issue a Section 154 notice up to four years after the end of the relevant financial year.
- Departmental response time: The IT Department is required to respond to taxpayer-initiated amendment requests within a six-month timeframe.
Conclusion
Section 154 of the Income Tax Act is an important section that allows taxpayers, assessing officers, or the Income Tax Department to rectify errors identified in the filed income tax return. Taxpayers can use the section to ensure there are no errors in their filed ITR for better taxation compliance and to ensure that their tax liability is not higher and refunds are not lower than the actual amount. Section 154 can save time and prevent long disputes, making it a useful tool for correcting tax records. Understanding this section can help taxpayers ensure accurate tax calculations, leading to a more transparent and efficient tax system.
