Rule 132 of Income Tax Act

Before Rule 132 of the Income Tax Act came into effect, businesses were unclear whether they could deduct cess or surcharge payments. However, as various reports indicate, many companies and businesses were making income tax deductions.

According to the Finance Act of 2022, an income tax deduction for a surcharge or cess is not permitted from taxable income. Under Rule 132 of the Income Tax Act, taxpayers who have claimed the surcharge or cess deduction can disclose information about their tax liability, taxable income and remaining surcharge or cess that needs to be paid.

Form 69 is used to submit this information electronically. According to the CBDT notification on September 29, 2022, the assessee can request the recalculation of their total income from previous years without being allowed to claim a deduction for cess or surcharge.

In agreement with Rule 132 of the Income Tax Act, taxpayers who have earlier claimed a deduction for surcharge or cess can submit Form 69 online to recalculate their income for previous years and pay the resulting or due tax.

Also Read: Income Tax Return (ITR) - How to File ITR Return

Here are some of the benefits of Rule 132 of the Income Tax Act.

• One of the benefits of Rule 132 is that it enables the assesses to adhere to the provisions of Sect 155. Under this provision, assessing officers are allowed to recalculate the total income for prior years in which the assessee has claimed a deduction for surcharge and cess.
• This re-computation of total income activates Section 270A (3) provisions under which disallowed deductions are treated as unreported income. This unreported income is subject to taxes and penalties.
• As per the latest provision, the assessees can now submit an application for income recalculation without claiming a tax deduction for cess/surcharge upon payment of the applicable taxes, if any. In that case, the taxable income would not be determined under-reported, and no fine under Section 270A would be applicable.
• As per the Finance Act of 2022, to recalculate income under the new Income Tax Section 155(18), the assessor must submit Form 69 before March 31st. Taxes due after the re-computation must be separately reported under Form 70.

Also Read: Benefits of Filing ITR (Income Tax Return)

• This new Section 132 of the Income Tax Act amendment will affect businesses and professions that have previously claimed a cess or surcharge deduction.
• All assesses whose claim for education surcharge or cess has been filed and approved for any assessment year are subjected to a mandatory rectification process by the end of March 2026. Assesses can also voluntarily apply to the assessing officer to compute income.
• All individuals involved in business or profession who have taken advantage of cess or surcharge deduction may need to recalculate their income.

Form 69 is used to apply for submitting the re-computation of income for previous years under sub-Section (18) of Section 155 without authorising the claim for deduction of surcharge or cess. It needs to be submitted before March 31 of the financial year.

On the other hand, Form 70 is used to inform the Assessing Officer about the payment of tax on re-computed income under sub-Section 18 of Section 155.

Also Read: Form 16A of Income Tax

Based on the guidelines set forth in the income tax (Thirty-second Amendment), let us dive into a breakdown of the process:

• The assessee must apply for Form 69 and provide the relevant information regarding the claimed amount from the total income by visiting the official income tax portal before March 31.
• The assessing officer then recalibrates the overall income, following which they will issue a demand notice as per the guidelines outlined under Section 156.
• In 30 days following successful payment, Form no. 70 will have to be submitted by the taxpayer along with the payment details
• The Rule mentioned above is particularly crucial for individuals who have deducted cess and surcharge from their total taxable income.

Also Read: How to Calculate Income Tax on Salary?

• Search and seizure by the Income Tax Department (ITD) is a powerful tool for identifying hidden income and valuables and identifying tendencies of tax evasion to prevent the accumulation of black money.
• Search operations are carried out based on information with the ITD to unearth hidden wealth of taxpayers who have not disclosed their true financial state of affairs in the discharge of their tax obligations.
• Seizure, on the other hand, is taking possession of the assets that have not been disclosed to the ITD, along with documents containing details regarding wealth and income that have not been disclosed.
• Search and seizure is only done if there is sufficient reason to believe that an individual has not disclosed their income in the regular course of filing for return and assessment.
• Section 132 of the Income Tax Act amendment empowers income tax authorities to search and seize account books, jewellery, cash, etc. Additionally, Section 132A of the Income Tax Act empowers specific authorities to requisition documents, books of accounts, etc.
• Section 132A of the Income Tax Act is a prominent tool for uncovering hidden income and assets. However, the relevant authorities must adhere to legal procedures and procure the essential approvals before conducting such operations.

As mentioned above, Sec 132 of the Income Tax Act empowers tax officials or authorities to conduct searches and seizures on persons and properties without any prior judicial warrant. Considering this, there are many challenges associated with Section 132 of the Income Tax Act, which we are highlighting here:

1. Breach of the Proportionality Principle

One of the main concerns associated with Section 132 of the Income Tax Act is that it suggests a potential breach of the proportionality principle. This means that the actions allowed by the section might be too extreme compared to the goal they aim to achieve.
The government's power to search and seize is no longer seen just as a way to ensure security; it must now follow the principle of proportionality.

2. Violation of the Right to Privacy

Another challenge associated with Section 132 of the Income Tax Act is that it may violate individuals' right to privacy. The right to privacy is a fundamental right under the Indian constitution, which also includes protection from unwanted seizures and searches by tax authorities.

However, the income tax department, with its search and seizure powers, intrudes on individuals' privacy without consent. The lack of strong safeguards puts individuals at risk of potential abuse of power by tax authorities.

3. Duration and Conditions of Searches

Another significant challenge associated with Sec 132 of the Income Tax Act is the duration and conditions of these searches and seizures.

The rules around how long these actions can last and the circumstances under which they are carried out can lead to concerns about fairness and potential abuse.

Rule 132 of the Income Tax Act plays an important role in accurate tax compliance. It disallows improper tax deductions and enforces the rightful payment of taxes. If the income tax department finds anything suspicious, it can ask for valid documents and proof under Section 132A of the Income Tax Act.

Further, it also enhances transparency within the system by providing guidelines for Assessing Officers to recalibrate total income in specific circumstances, such as ineligible deductions for surcharges or cess.

Moreover, there are other legitimate ways to reduce your tax liabilities. One way to do this is by investing in a health insurance plan. As per Section 80D of the Income Tax Act, the premium paid for medical insurance is eligible for tax deduction.

Individuals who are under 60 years of age can claim a deduction up to ₹25 000 while elderly citizens who are above 60 years of age can claim a deduction up to ₹50,000.

TATA AIG offers health insurance plans that are customised to your unique health needs. For instance, our family medical insurance is designed to offer medical coverage to families. The sum insured by this medical insurance plan is distributed among all insured family members.

Furthermore, we also allow tax deduction benefits under Section 80D. Secure yourself and your loved ones with our medical insurance plan to enjoy comprehensive protection and tax benefits.