India

Corporate - Tax administration

Last reviewed - 28 June 2021

Taxable period

In India, the tax year begins on 1 April and ends on 31 March.

Tax returns

Accounts for tax purposes must be made up to 31 March. For persons having business/professional income, the income tax return is required to be filed electronically on or before 31 October of the succeeding tax year. In case the transfer pricing provisions are applicable, the due date for filing of the tax return is on or before 30 November.

These due dates have been extended for FY 2019-20 owing to the pandemic such that persons having business/professional income, the income tax return is required to be filed electronically on or before 15 January 2021 (in case tax audit is not applicable). In case the transfer pricing provisions are applicable/tax audit report was required to be furnished, the due date for filing of the tax return is on or before 15 February 2021.

In case a taxpayer desires to revise its filed return of income, it would be eligible to do so only up to 31 March of the year following the tax year or before the completion of assessment, whichever is earlier. However, the Finance Act 2021, has reduced such time limit to file the revised return to 31 December of the year following the tax year or before the completion of assessment, whichever is earlier.

A statement of financial transaction needs to be furnished electronically under Form 61A for the tax year on or before 31 May of the year following the tax year.

Further, in order to claim the tax incentives/deductions, taxpayers have to furnish their tax returns on or before the due date specified for filing the tax returns.

Quarterly WHT returns

Quarterly statements of taxes withheld are required to be filed electronically with the tax authorities on or before 31 July, 31 October, and 31 January for the first three quarters of the tax year and on or before 31 May following the last quarter of the tax year.

Obligation to submit tax return for assets located outside India

A resident taxpayer having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India is mandatorily required to furnish a tax return.

In cases where taxpayers have assets outside India, the extant time limits of four and six years for reopening tax assessments (where income has escaped assessment) has been increased to 16 years. In cases where a person is treated as an agent of a non-resident, the time limit for issuing reassessment notice has been extended from two years to six years.

Exempting non-resident from filing tax returns in certain conditions

The Finance Act 2020 has granted a relief to non-resident taxpayers/foreign companies by exempting them from filing a return of income in India whose total income consists of royalty or fees for technical services. Earlier it was available only to non-residents whose total income consisted of only dividend or interest income.

With this amendment, non-resident taxpayer companies will not be required to furnish their tax returns in India if the following conditions are satisfied:

  • Their total income consists only of dividend or interest, or royalty or fees for technical services.
  • Taxes have been deducted at the rates prescribed under the Income-tax Act from such incomes.

However, relief may not be available to non-residents whose taxes will be deducted at the beneficial rates provided under the respective tax treaties. The same will be effective from 1 April 2020 and will accordingly apply to tax year 2020/21 onwards

Payment of tax

Tax is payable in advance (if tax payable for the year exceeds INR 10,000) in specified instalments for every quarter on or before 15 June, 15 September, and 15 December for the first three quarters of the tax year and on or before 15 March for the last quarter of the tax year. Any balance of tax due on the basis of the return must be paid on a self-assessment basis before the return is filed. A tax return will be treated as defective if the tax liability along with interest is not paid on or before the date of submission of the tax return. Interest levied for default in payment of advance tax is computed beginning from the first day of the year following the tax year to the date of the assessment order.

Tax Assessment – Timelines

Curtailment of Timelines

The Finance Act 2021, has curtailed various timelines for issuance of notice and passing order under the Indian Income-tax Act which are as follows

Compliance

Existing Timelines

Amendment

Processing of tax return (intimation)

12 months from end of relevant FY

From 12 months to 9 months from end of relevant FY

Selection of tax return for assessment

6 months from end of FY in which tax return is filed

From 6 months to 3 months from end of FY in which tax return is filed

Completion of assessment for tax year 2021-22 and onwards

12 months from end of relevant tax year

From 12 months to 9 months from end of relevant tax year

Reassessment timelines curtailed

  • Curtailed to three years from the end of the relevant tax year (vis-a-vis current four/six years).
  • Curtailed to ten years from the end of the relevant tax year where the Tax Officer has evidence of income escaping assessment, represented in the form of assets, amounting to INR 5 million or more.
  • Notice for reopening to be issued only where Tax Officer has ‘information’ suggesting that the income chargeable to tax has escaped assessment and after obtaining prior approval of specified authority.

Vivad se Vishwas Scheme (a scheme to resolve pending direct tax litigation)

The Direct Tax Vivad se Vishwas Act, 2020 (Scheme) has been introduced with an intent to settle existing direct tax litigation. Under the Scheme, it is proposed that taxpayers would be required to pay the amount of the disputed taxes only. Further, there will be complete waiver of interest and penalty where payment of disputed taxes is made by 31 March 2021. Subsequently, the date of payment under the Scheme was extended to 30 April 2021[1] and further extended to 30 June 2021[2].

In cases where the dispute relates to penalty, or interest or fee not connected with the disputed tax, taxpayers would be required to pay only 25% of the same by 30 June 2021 for settling the dispute. If the payment is made on or before 30 June 2021, no additional tax of 10% (as provided earlier) is required to be paid in view of relief measures announced from time-to-time. Rules and FAQs under the Scheme have been issued for effective implementation.

[1] vide notification no 09/2021 dated 26 February 2021

[2] vide notification no 39/2021 dated 27 April 2021

Tax audit process

Audit for income tax purposes

Persons carrying on business are required to get their books of account audited for income tax purposes if the business turnover exceeds INR 100 million, provided the aggregate of all receipts, including sales, turnover, and gross receipts, in cash do not exceed 5% of total receipts and all payments, including expenditure, in cash do not exceed 5% of total payments.

For persons opting for the presumptive taxation scheme, one shall not be required to get one’s accounts audited if the total turnover or gross receipts of the relevant previous year do not exceed INR 20 million. This has been effective from tax year 2017/18 onwards. For persons carrying on a profession, crossing the turnover threshold of INR 5 million would attract the requirement to have its books of accounts audited from 1 April 2017. The penalty for non-compliance with this audit requirement is INR 0.15 million, subject to 1% of total turnover/gross receipts.

Special audit

Tax authorities, at any stage of proceedings, having regard to nature, complexity, and volume of accounts or doubts on correctness of accounts or other reasons, may, after taking necessary approval of the Chief Commissioner, direct a taxpayer to get its accounts audited and to furnish the report.

Statute of limitations

The statute of limitations under the Income-tax Act in the case of submission of returns is one year from the end of the relevant tax year, and for assessment of returns filed is 12 months (24 months in case transfer pricing provisions are applicable) from the end of the relevant tax year for which the return is filed. The statute of limitations for reassessment ranges from five years to 17 years from the end of the relevant tax year.

Topics of focus for tax authorities

E-assessment

With a view to roll out e-assessment across the country so as to impart greater transparency and accountability, the Central Government has been empowered to notify a new scheme for scrutiny assessments to achieve the desired purpose. In the Union Budget 2019, faceless e-assessment scheme was introduced with intent that it would enable the assessment to be carried out without any personal interface between the taxpayer and the revenue authorities. The scope of e-assessment has been extended to include best judgement assessment as well. Further, similar e-proceedings have been introduced in respect of:

  • Proceedings before Commissioner (Appeals).
  • Imposition of penalty under the Income-tax Act.

In addition to above, in the Budget 2021 an intent has been expressed to introduce faceless appeals for Income-tax Appellate Tribunal proceedings to bring in increased efficiency, transparency and accountability by 31 March 2023.

General Anti Avoidance Rule (GAAR)

GAAR provisions were introduced by the Finance Act, 2017 and have been applicable since 1 April 2017. These provisions empower the tax department to declare an ‘arrangement’, or any part or step thereof, entered into by a taxpayer with the main purpose of obtaining tax benefit to be an 'Impermissible Avoidance Agreement' (IAA), the consequence of which would be denial of tax benefit under the Income-tax Act or under the applicable tax treaty.

For GAAR provisions, an IAA means the main purpose of which is to obtain a tax benefit, and it:

  • creates rights and obligations not at arm’s length
  • results in abuse/misuse of provisions of this Income-tax Act (directly/indirectly)
  • lacks/is deemed to lack commercial substance, or
  • is carried out in a manner that is not ordinarily employed for bona fide purposes.

The following are consequences if an arrangement is regarded as an IAA:

  • Disregard/re-characterise the arrangement.
  • Disregard corporate structure.
  • Deny treaty benefit.
  • Reassign place of residence/situs of assets or transactions.
  • Reallocate income, expenses, relief etc.
  • Re-characterise equity-debt, income-expense, relief, etc.