Section 154 Income Tax Act

Section 154 Income Tax Act: Overview

Section 154 under the IT Act of India, 1961 deals with the rectification of the mistakes that might have happened in the official records of income tax or because of any mistakes occurred in any order that is passed by the Assessing Officer. The rectification order that is issued by the tax department is either because one has filed a rectification request and the Income Tax department is responding to that or the tax department has taken action on its own motion when a discrepancy has been identified by them for the processing of income tax that they did for any tax payer.

Provisions under Section 154

Any apparent mistake that could be rectified under Section 154, an authority from Income Tax may do that by any of the following ways:

1) Any order could be amended that passed under the provisions (any of them) of Income Tax Act, 1961
2) Either a deemed intimation or an intimation that was sent under the Section 143(1), could be amended
3) Any intimation that was sent under the Section 200A (1), could be amended (Note: Section 200A is meant to deal with the processing of ‘Tax Deducted at Source’ cases i.e. TDS Returns). Any correction required for calculation error in TDS form is done or correction of any incorrect claim in TDS statement is processed under Section 200A.
4) Any intimation that are sent under the Section 206CB could be amended (Section 206CB of the Finance Act, 1995 is meant to process the errors in TCS statements)
Please note that after rectification of the mistake(s), if the taxpayer’s tax liability is increased or the amount of refund is reduced, the taxpayer will get an opportunity to express his/her points.

Errors which could be rectified under Section 154

Following mistakes are under the scope of Section 154 processing:

  • Factual error
  • Arithmetic mistake in the calculation
  • Minor clerical errors
  • An error due to failing to notice the mandatory provisions of the law 

Examples of such errors are – mismatch in advance tax, tax credit mismatch, incorrect mention of gender or while filing the return, the tax payer missed to submit the additional details for capital gains.

Features of the Section 154 of Income Tax Act

Some of the salient features of Section 154 include the following:

  • Under Section 154, the income tax authority is eligible to send an order to the tax payer. This could be either because of their own decision or may be due to some inappropriateness that has been observed by the Department of Income Tax. This order could be for requesting some additional details, an error in gender, mismatch of tax credit, mismatch in refund or discrepancy regarding advance tax, and so on.
  • It is imperative that the taxpayer is notified before any action taken under this specific section 154. This is of more importance in case the action leads to  the increase in assessment amount or decrease in refund amount or increase the tax liability of either the tax payer (or the assesse) or the tax deductor. In other words, if the rectification under Section 154 would cause higher taxes for the assessee, or enhance the income or lower the tax exemptions, then prior taking any action, the Income Tax Department is responsible for sending a written notice and give the taxpayers a chance to explain themselves,. This notice will be sent to the taxpayer via email or by post.
  • If any action taken under the Section 154 results in a decrease in tax deduction or causes an increase in the exemptions, then the Income Tax Department is accountable to provide the balance refunds to the tax payer.
  • If the Income Tax Department has already made the refund, but after the reassessment, it is found that the amount of refund needs to be reduced, in those cases the department will demand the taxpayer to pay the excess amount that was erroneously computed and paid in the refund.
  • The notice under the Section 154 could be issued for a particular financial year in which the rectification order was passed, up to 4 years only after that particular financial year ended. Notice cannot be issued if 4 years are gone by after the specified financial year where rectification was ordered.
  • If a request for amendment is done by the tax payer, then the IT department compulsively has to respond within a period of 6 months after receiving such a request. The authority has to either do the amendment of the order or refuse to allow the claim within this period of 6 months starting from the end of the month in which the authority has received the application.

Initiation of Rectification

  • The mistake could be rectified by the Income Tax authority in a motion by the authority itself.
  • The mistake can be initiated by the tax payer to the IT authority. In such cases, tax payer has to make an application for rectifying the mistake.
  • If the commissioner (appeal) has passed the order, in that case the mistake could be rectified by the commissioner. The mistake could have been brought either by the tax payer or by the Assessing officer

Procedure to Apply for Rectification

Under the Section 154 and Section 143(1), the procedure to file an online request for rectification is similar to the procedure of rectifying the return on the Income Tax.

Prior to applying for the rectification, one has to scrutinize the order carefully against which one is seeking to file the rectification request. It needs to be ensured that all the calculations shown are correct as well as all deductions and exemptions are taken into consideration. It might so happen that the calculations done are wrong and the corrections in the tax statement are done at the Centralised Processing Centre located in Bengaluru. One has to do a cross check this by comparing the income tax returns with the numbers on Form 26AS. Get help and explanation from a tax professional to clarify any doubt.

After thorough check, if there is still any mistake found in the tax details, then one can proceed towards applying for a rectification under the Section 154. These mistakes are not errors but additions or omissions in earning neither in investment declaration. The mistakes should be as per those specified in Income Tax Act for which rectification could be sought. These mistakes should be “one that is apparent from the records” and need no elaboration, dispute or investigation.
Online filing of rectification application could be done through e-filing on the website of Income Tax Department. Rectifications for the intimation under the Sections 200A (1) and 206CB will need to file an online correction statement.

After rectifying a ‘mistake’ if there is any change in the Income – then one should not file a rectification. In such case, a revised income tax return must be filed by the tax payer. No additional deductions or exemptions could be claimed in the rectification request.
A rectification request could be filed for tax returns that are already processed in CPC, Bangalore. If the filing of the Income Tax Return was done online – then the rectification is allowed through online only. Rectification request cannot be used for changing address or bank account details on the Income Tax Return.
In the standard form to apply rectification under Section 154, the reasons of mistakes are mentioned as the following:

  • Non consideration of investment made u/s 88 in PPF/LIC/NSC Infrastructure Bonds/Principal repayment or payment towards house Loan.
  • Non consideration/denial of rebate u/s 88B, being a senior citizen
  • Denial of rebate u/s 88C, being a women below 65 years
  • Non consideration of TDS certificate(s)
  • Incorrect surcharge applied

Online Procedure to File Request for Rectification under Section 154 (1)

The steps to file for rectification are as follows:
Step 1 – Login to the e-Filing application site: . Then go to ‘My Account.
Step 2 –Under that ‘Rectification request,’ select the Year of Assessment for which e-filing of rectification is being made, enter the Latest Communication Reference Number (mentioned in CPC order). In case of multiple orders, the latest order number should be used.
Step 3 – Click ‘Submit’.

Step 4 – Select: ‘Rectification Request Type’ and the following appear. Select as needed.

  • ‘Taxpayer Correcting Data for Tax Credit mismatch only’ – If this option is selected, three check boxes: TCS, TDS and IT are displayed. You need to select the right one. A maximum of 10 entries could be made for each selections. It does not require upload of an xml file.
  • ‘Taxpayer is correcting the Data in Rectification’ − Select the reason to seek rectification (up to 4 reasons are allowed), details for donation and capital gain (if applicable), change of schedules, upload xml and digital signature certificate (DSC), as applicable
  • ‘No further data correction required. Reprocess the case’ − in this option, three check-boxes: tax credit mismatch, gender mismatch, tax/ interest mismatch are displayed. Select the applicable one. Income Tax Return need not be uploaded. 

Step 5 – Click on ‘Submit’ button
Step 6 – Once submitted successfully, an acknowledgment number is generated and sent to CPC, Bangalore for processing. The rectification order is issued subsequent to the processing.

Steps to follow when Section 154 Notice is received

The actions to be followed by an individual are as below: 

Step 1 – Check if the intimation of processing under section 143(1) of the Income Tax Act is received. This comes in e-mail of the tax payer. This intimation is commonly known as 143(1) intimation. This document states the amount as filed in the tax return in relation to those processed by ITD, in columnar fashion 

Step 2 – In case the 143(1) intimation is not received then first need to submit a request for resending the 143(1) intimation
If the 143(1) intimation is already received then check the reason for difference between the claimed and what is considered by ITD has considered by going through the 143(1) intimation. Usually the mismatch is regarding tax credit i.e. the tax deductor might not have filed their TDS return correctly which resulted in such mismatch.

Step 3 – Tax payer needs to check the Tax Credit Statement which is also known as Form 26AS. This is available on the ITD portal where the tax credits are actually available. In case of unavailability of certain tax credits in this statement, the first thing to do is to approach the deductor to correct the same and update the TDS return. However, in case the tax credit is available in Form 26AS and if the status is marked as “F” then it indicates that the correct credit is actually available to the tax payer but ITD has not given the credit for the same erroneously.

Step 4 – Once all the above-mentioned necessary steps are completed, then tax payer needs to give acceptance in the response page of the Section 154 notice. If the rectification proposed by the ITD is agreed then place a “tick” against the “Rectification Proposal Agreed” box. In case of non-agreement to the rectification proposed by the ITD, the tax payer has to place a “tick” against the “Rectification Proposal not agreed” box. But, in this case they would need to indicate the reason for not accepting in the box below “Reason for not agreeing to rectification proposal”.

Step 5 – Then the tax payer need to sign the rectification and send it to the address as mentioned at the top of the 154 notice on page 1. This is to be sent to IT Department by ordinary or speed post only.
It is imperative for the tax payer to respond to this notice because when this sub-moto rectification orders are issued generally, it results in reduction of the refund or increase of tax liability. If no response is made, Income Tax department assumes that the tax payer has accepted their rectification proposal.
A professional help is advisable, in case the tax payer thinks this process of rectification under Section 154 is complicated.

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