Amendment to Section 80AC – the confusion clarified

The Finance Bill 2018 has proposed an amendment to Section 80AC which includes the deductions available to the tax payer under Chapter VIA.

This amendment has created a widespread confusion that the entire deduction allowed under Chapter VIA which includes the deduction for certain payments made covered under Section 80C to Section 80GGC like Investment in PF, Life Insurance Premium paid etc. shall be disallowed if the return of income is not filed within the due date.

Let us understand the factual position to clear this ambiguity.

The provisions of Section 80AC prior to 1st April, 2018:

“80AC. Deduction not to be allowed unless return furnished.—Where in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction is admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC, no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.”.

Amendment in Finance Act 2017:

In section 80AC of the Income-tax Act, after the word, figures and letters “section 80-IC”, the words, figures and letters “or section 80-ID or section 80-IE” shall be inserted with effect from the 1st day of April, 2008.

Amendment proposed in Finance Bill 2018:

Clause 23 of the Bill seeks to amend section 80AC of the Income-tax Act relating to deduction not to be allowed unless return furnished.

The said section provides that where, in computing the total income of an assessee of the previous year relevant to the assessment year commencing on the 1st day of April, 2006 or any subsequent assessment year, any deduction admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, shall be allowed to him only if he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.

It is proposed to substitute the said section so as to provide that in computing the total income of an assessee of the previous year relevant to the assessment year commencing on or after the 1st day of April, 2018, deduction under any other provisions of Chapter VIA under the heading “C.—Deductions in respect of certain incomes” shall be allowed only if the return is filed within the due date specified under sub-section (1) of section 139.

This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 201 8-2019 and subsequent years.

The effect of this amendment:

As per existing provisions of Section 80AC of the Act, no deduction would be admissible under section 80-IA or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, unless the return of income by the assessee is furnished on or before the due date specified under Section 139(1). This burden of filing of return on time is not casted on other assesses who are claiming deductions under other similar provisions.

Therefore, to bring uniformity in all income-based deduction, it is now proposed that the scope of section 80AC shall be extended to all similar deductions which are covered in heading “C.—Deductions in respect of certain incomes” in Chapter VIA (sections 80 H to 80RRB). The impact of such amendment shall be that no deduction would be allowed to a taxpayer under these provisions if income-tax return is not filled on or before the due date.

 The confusion created:

The above amendment proposed has created a widespread confusion among the common man and individual tax payers that the entire deduction allowed under Chapter VIA which includes the deduction for certain payments made covered under Section 80C to Section 80GGC like Investment in PF, Life Insurance Premium paid etc. shall be disallowed if the return of income is not filed within the due date.

 The confusion clarified:

Chapter VIA covers all deductions from gross total income which can be availed to arrive at the taxable income for computing the tax liability.

The said chapter is divided into three headings; Heading – A covers general deductions covering Section 80A and Section 80B; Heading – B covers deductions for certain payments which includes Section 80C to Section 80GGC; Heading – C covers deductions for certain income which includes Section 80H to Section 80TTA; while Heading – D covers other deduction covering Section 80U.

The amendment proposed to Section 80AC affectng Chapter VIA in the Finance Bill 2018 covers only Heading – C and hence the deduction for certain payments which fall under Heading – B are not affected. The individual tax payers who were eligible to claim deduction for such payments would continue to get the benefit of this deduction even if the return of income is filed after the due date.

An important point, however to be noted is that the deduction for interest on savings bank account available under Section 80TTA would now be available only if the return of income is filed on or before the due date with effect from assessment year 2018-19.

 

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