Explained: What is Rule 132 of Income Tax and the way it’s important for taxpayers?

The Central Board of Direct Taxes (CBDT) has amended the Income Tax Act to incorporate Rule 132. The re-computation of revenue underneath sub-Section 18 of Section 155 of the Income Tax Act, 1961, is addressed in Rule 132 of the Income Tax Rules, 1962, which was applied on October 1, 2022. It is essential for anybody answerable for managing companies to pay attention to the lately added Rule 132 of the Income Tax Act. The revenue tax act’s CBDT regulation 132 considers whether or not companies ought to deduct surcharge funds when figuring out their taxable revenue. To search for the re-computation of whole revenue underneath Section 155(18), Form 69 has been made out there by the Income Tax Department underneath Rule 132 of the Income Tax Act. For these with revenue from a enterprise or career who’ve additionally taken benefit of the cess/surcharge deduction, Rule 132 has been adopted. Hence, Form 69 have to be utilized by taxpayers who’ve claimed a deduction for a cess or surcharge and submitted on the revenue tax portal electronically with the duly filed info like taxable revenue, tax paid, and deduction claimed as cess or surcharge.

Nidhi Manchanda, Certified Financial Planner, Head of Training, Research & Development at Fintoo stated “It may be very essential for the taxpayers who’re professionals or run companies to know in regards to the lately added Rule 132 of Income Tax Act. Before the introduction of this rule 132, taxpayers weren’t allowed to deduct revenue tax paid whereas calculating internet revenue of a enterprise. However, there was not a lot readability on whether or not cess or surcharge is allowed as a deduction or not. And thus, some companies had been taking the benefit of this loophole within the revenue tax act and have been claiming cess and surcharge as an allowable deduction due to lack of readability.”

Nidhi Manchanda stated “Now, with the introduction of Rule 132, the Government provided a one-time window till 31st March 2023 to recompute the taxable profits without cess or surcharge as deduction and deposit the additional tax on such under reported income from retrospective effect from 2005. It is suggested to comply with the regulations and make an application in Form 69. No penalty would be leviable on such payment till 31st March 2023.”

Dr. Suresh Surana, Founder, RSM India stated “An assessee is liable to pay Income-tax on the relevant tax charges on the full taxable revenue which incorporates fundamental tax fee, surcharge and well being & training cess (‘cess’). The Income-tax paid in respect of the revenue isn’t allowable as deduction underneath part 40(a)(ii) of the Income-tax Act, 1961 (‘the Act’) for the aim of computing whole revenue. However, virtually numerous assessees had claimed deduction of cess, contending that Income-tax don’t embody cess for the aim of disallowance underneath part 40(a)(ii) of the Act and counting on sure judicial precedents on this regard. Some taxpayers could have utilized the identical analogy to even declare the surcharge as deduction on the rivalry that it’s not within the nature of Income tax.”

Dr. Suresh Surana stated “Notably to make sure that the surcharge and cess usually are not claimed as deduction by the taxpayers, the Finance Act, 2022 introduced readability by means of retrospective modification (with impact from 1 April 2005). As per the clarificatory retrospective modification, surcharge and cess can be a part of the definition of income-tax and is to be disallowed underneath part 40(a)(ii) of the Act. Further, it additionally amended part 270A of the Act to levy penalty for under-reporting of revenue in circumstances the place such deduction is claimed by the assessee. In order to offer one-time reduction from penalty, the assessee is allowed to re-compute their whole taxable revenue for all such earlier years as per part 155(18) of the Act. In this regard, the Central Board of Direct Taxes (CBDT) has inserted Rule 132 w.e.f. 1 October 2022 vide Income-tax (Thirty-second Amendment) Rules, 2022 to offer process on re-computation of whole taxable revenue underneath part 155(18) of the Act. The process is summarised under –

a. Assessee to make software in Form 69 offering particulars of quantity claimed as surcharge / cess and whole revenue; on the income-tax portal on or earlier than 31 March 2023

b. On receipt of the appliance, the assessing officer shall re-compute the full revenue and concern demand discover underneath part 156 of the Act (Note – the assessing officer could even concern demand discover for subsequent evaluation yr if the aforesaid declare outcomes into loss and the identical is carried ahead and set-off in subsequent evaluation yr)

c. The assessee ought to make fee as per the demand discover and intimate the fee particulars in Form 70 inside 30 days of creating stated fee.

He additional added that “The aforesaid rule is necessary to these assessees who’ve claimed deduction of surcharge and cess whereas computing whole taxable revenue. Such assessee must determine the evaluation yr whereby they’ve claimed stated deduction and file single software (for all evaluation years) in Form 69 on or earlier than 31 March 2023. On receipt of demand discover from the assessing officer, the assessee must make fee of demand raised therein, if any and intimate the identical to the assessing officer in Form 70. If the assessee doesn’t file the stated software throughout the prescribed timeline, the assessing officer can suo-moto move rectification order underneath part 154 of the Act on or earlier than 31 March 2026. Further, the assessing officer may also levy penalty amounting to 50% of tax quantity on such quantity of surcharge and cess claimed as deduction by the assessee.”

Gopal Bohra, Partner, N.A. Shah Associates, in Q2 said “Until the amendment made by the Budget 2022, taxpayers were claiming payment of education cess as deductible expenditure based on the various high court decisions which held that education cess is not a tax. Whereas the tax department was contesting that the education cess is income tax and not deductible as an expenditure while computing the taxable income. Budget 2022 amended section 40(a)(ii) retrospectively from AY 2005-06 by providing that income tax shall include education cess and accordingly not a deductible expenditure.”

“Since many taxpayers have claimed the training cess as deductible expenditure in earlier years, the Budget 2022 has additionally supplied that such taxpayers can file an software to the tax officer in a prescribed type requesting for recomputation of the taxable whole revenue. Now the Board has issued Rule 132 along-with Form 69 enabling taxpayers to file the web software for recomputation of taxable revenue with out permitting deduction of training cess which is claimed earlier. On failure to file the appliance for recomputation of revenue in type 69 on or earlier than 31.3.2023, taxpayer will liable to a penalty for underreporting of revenue aside from tax and curiosity on the disallowance of training cess,” said Gopal Bohra.

Mr. Shravan Shetty, Managing Director, Primus Partners said “CBDT’s rule 132 comes under the income tax act which highlights whether businesses should consider paying surcharges as a deduction while calculating taxable income. To make things clear and to prevent businesses from claiming deductions from the cess, this amendment has been introduced under the Finance Act 2022. Businesses must note that the government has allowed a one-time window for taxpayers to recompute their taxable profits. This is an important step as businesses will be able to electronically submit Form 69, make the necessary payments with respect to Forms 69 and 70. All businesses must take the opportunity to revaluate their files 2005 onwards to ensure that they no penalty is levied upon them by authorities.”

Disclaimer: The views and proposals made above are these of particular person analysts or broking firms, and never of Mint. 

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