Section 154 of Income Tax Act

Sometimes, due to discrepancies in tax reporting, an individual’s ensuing liability may increase or lead to a sharp decrease in tax refunds. Nonetheless, tax provisions like Section 154 of Income Tax Act 1961 allow taxpayers to get the mistakes rectified and avail applicable tax benefits accordingly. To streamline this entire process better, taxpayers must find out about this income tax section’s provisions in detail. 

What is Section 154?

Section 154 of Income Tax Act 1961 is concerned with rectifying discrepancies pertaining to official income tax records. It also deals with the inaccuracies that occur in IT records due to any mistake made by the assessing officer. 

Under this tax provision, orders issued under Sections 143(1), 200A(1), and 206CB(1) of Income Tax Act can be amended. One must note that it includes notices that are usually issued before a case is scrutinised and includes errors made in TCS statements and TDS. 

Salient Features of Section 154

These pointers highlight some salient features of Section 154 of Income Tax Act –

• When taxpayers raise an amendment request, the IT Department must respond within 6 months of receiving it.
• Usually, a notice can be issued under Sec 154 of income tax act within 4 years of the fiscal year for which an order is passed.  
• In case an amendment leads to an increase in exemptions or a reduction in tax liabilities, then the IT Department will provide a refund to concerned assessees. 
• In case the amount of refund has been paid, but post amendment, the approved sum decreases, the assessee has to repay the excess fund.
• When the Commissioner passes an order, he/she can rectify it either by acting upon the taxpayer’s applications or on his/her own. 

Nonetheless, taxpayers need to become familiar with the provision and process of rectifying errors in the tax report. It will help make the process less cumbersome and produce an accurate tax report as and when required.

Errors that can be Rectified

Section 154 allows you to request rectification. The request will be for the errors that are evident from the records in the income tax return. The following are some examples of inaccuracies that can be corrected by submitting a rectification request:

• Factual errors
• Arithmetical mistakes with ITR
• Clerical error
• Errors by omitting to consider the compulsory provisions of law

Rectification of Order – Subject to Appeal or Revision

In case an order emerges as the subject matter of an appeal, then the concerned assessing officer can rectify those matters that have not been decided in such a request. 

Initiation of Rectification 

Generally, the income tax authority can rectify tax record-related mistakes through their course of action. It can be initiated when the concerned taxpayer intimates that income tax authority about a specific error through an application. 

When the Appeals or Commissioner passes the order, the discrepancy brought into notice by the taxpayer or the assessing officer can be rectified accordingly.

Time-Limit for Rectification

Ideally, once 4 years have passed since the assessment year in question, the concerned authority cannot pass the order of rectification. However, one must note that 4 years is computed from the end of the fiscal year in which the taxpayer in question sought an order of rectification. 

If an order is set aside or revised, one should count the 4 years from the fresh order date and not necessarily from the original order’s date. Suppose at any time a taxpayer makes an application for rectifying a mistake in a tax record. In that case, the concerned authority can either amend such an order or deny the claim within 6 months of receiving such an appeal. 

Procedure to Make an Application of Rectification

A taxpayer must keep these following pointers in mind before making an application for rectification of tax records under Section 154 income tax-

• Taxpayers must make it a point to become well versed with the order against which they want to apply for rectification.
• At times the taxpayers may feel that there are certain mistakes in the IT department’s orders. However, such doubts emerge in most such cases due to inaccurate calculations made on the assessee’s part.  
• To ensure that one does not file for a rectification application on the ground as prompted by incorrect calculation, taxpayers must confirm the presence of such mistakes and account for them accurately. 
• If a taxpayer notices any mistakes in their tax record, he/she should apply for rectification under Income tax U S 154. 
• Taxpayers should ensure that the discrepancy in question is apparent from the tax records and does not require involvement in the form of investigation, debate, elaboration, etc. 
• One can easily file for an application to rectify mistakes in tax records online. Nevertheless, it is often recommended to become familiar with the ITA application on their online portal. 

Regardless, taxpayers must note that any potential rectification that may enhance assessment, increase tax liability or reduce tax refund can only be made after the concerned authority issues a notice to the deductor or the taxpayer about its intention. Other than that, it may also provide a reasonable opportunity to present their view. 

To streamline this process better, taxpayers must find out more about the procedure to apply for rectification in tax records beforehand. They should also be aware of Section 154 of Income Tax Act‘s provisions in detail to make the most of them accordingly when it comes to enhancing their tax assessment. 

Difference Between Rectification and Revised Return

To make adjustments to the initial return, a taxpayer files a revised return. This can include any income omission or incorrect statement. They can file an amended return at any point before the conclusion of the assessment year in question. Within the time limit, an amended return can be filed multiple times.

The taxpayer can file the rectification request, or the department can take it up on its own. A rectification request seeks to correct a discrepancy in the records. The department must respond to the assessee’s rectification request within 6 months of the end of the month in which the application is submitted. If the department accepts the rectification, it can be done for up to four years from the end of the fiscal year in which the order is to be passed.