Last Updated on 8 months by Anoob P T
Section 154 of Income Tax Act is used to deal with the correction of any error that may or may not have occurred in the income tax records of a person. It also provides an opportunity for the assessing officer to rectify any mistakes or error on his part.
Section 154 of Income Tax Act, 1961, is nothing but the rectification order issued by the tax department in response to a rectification request filed by you or Suo-moto by the tax department if they notice any disparity in the return processed by them.
Under Section 154, orders issued under the Income Tax Act, sections 143(1), 200A(1) and 206CB(1) can be amended.
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Features of Section 154 of Income Tax Act
The main features of interest in Section 154 are:
- The tax authority can send an order under Section 154 either about their own mistake or based on dissonance noticed by the Income Tax Department. This could be about an order requesting additional details, a mistake in gender, tax credit mismatch, refund mismatch or advance tax disparity, among others.
- The taxpayer has to be informed officially before taking any action under this section, mainly if the action results in “enhancing the assessment or reducing a refund or otherwise increasing the liability of the of the taxpayer or the deductor”. This implies that if any revision under Section 154 would result in higher taxes on the taxpayer, or increase the income or lower the tax exemptions, then the Department is liable to send a written notice, before taking an action. This notice will either be sent by post or via email.
- If an action under Section 154 would result in a reduction in taxes or an increase in exemptions, then the I-T Department is liable to provide refunds to the payee.
- If a refund has already been issued by the department, but the amount of refund is reduced after the amendment, then the department will demand payment of the excess refund from the taxpayer.
- A notice under Section 154 can be ordered only up to 4 years after the end of a particular fiscal year in which a rectification order was passed.
- If the taxpayer puts up an amendment request, the department is bound to respond within 6 months of receipt of such a request.
How To Apply For Rectification of Section 154 of Income Tax Act?
Before filing a rectification request, you need to examine carefully the order against which you seek to file a rectification.
You need to verify that the calculations are accurate and that all exemptions and deductions have been considered.
It is quite possible that you may have miscalculated and the Centralised Processing Centre, Bengaluru, has made corrections to the tax statement.
To examine this, compare your Income Tax Return with Form 26AS. Get an advice from the tax consultant for certainty.
After cross checking, if you still find a mistake in the tax details, you can apply for a rectification under Section 154.
These errors cannot be additions or omissions in income or investment declaration.
The Income Tax Act has specified that the mistakes for which rectification can be sought should be “one that is clear from the records” and should not require any debate or investigation.
You can file a rectification application through the Income Tax e-filing website. In case of rectifications of intimation under Sections 200A(1) and 206CB, you will be required to file an online correction statement.
What to do when you receive section 154 Notice
It has been noticed that currently in many cases the I-T Department has been issuing suo-moto or self generated rectification orders, which has left many of the taxpayers stumped and confused about next steps to be taken to close the action initiated by the Department.
To clear the doubts, we have listed the actions that need to be undertaken by the concerned individuals.
Step 1
Check whether you have received the intimation of processing under section 143(1) of the Income Tax Act in your email.
This intimation, popularly known as 143(1) intimation is the document that states in columnar manner the amounts as filed in the tax return vis-à-vis that processed by the ITD.
Step 2
In case if you have not received the 143(1) intimation then you would first need to submit a request for resending the 143(1) intimation.
If you have already received the 143(1) intimation then you can check the reason for difference between what you have claimed and what the I-T Department has considered by going through the 143(1) intimation.
Generally the issue arises due to mismatch of tax credit i.e. the deductor of your tax may not have filed their TDS return correctly resulting in such mismatch.
Step 3
Check for Form 26AS (Tax Credit Statement) available on the Income Tax online portal w.r.t. the tax credits actually available to you.
If you find that certain tax credits are not available in this statement then you may first need to get the same corrected by asking the deductor to update their TDS return.
However, if the tax credit is available in Form 26AS and has the status marked as “F” then it means that the correct credit is indeed available to you but IT has mistakingly not given you the credit for the same.
Fourth Step : Once you have verified all the above mentioned steps then you would need to provide your acceptance or otherwise in the Response page of the section 154 notice.
If you are consenting to the rectification proposed by the Department, then you would need to place a “Tick” against the box “Rectification Proposal Agreed”.
If you do not agree with the proposed rectification by the IT then you would need to place a “Tick” against the box “Rectification Proposal not Agreed”.
However, in this case you will have to mention the reason for non acceptance in the box below “Reason for not agreeing to rectification proposal”.
Step 5
Finally, you need to sign and send it to the address provided at the top of the 154 notice on page 1 by an ordinary or speed post only.
It is very crucial that you respond to this notice as generally this suo-moto rectification orders are generally issued that result in reduction of refund or enhancement of your tax liability.
If no response is generated from your side, then it would be considered that you have accepted the rectification proposal from the I-T Department.
If you have any more doubts regarding Section 154 of Income Tax Act, please ping me using the chat window at the bottom.
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