Section 148A of the Income Tax Act
- Nimisha Panda
- Nov 12
- 8 min read
Income overlooked during assessments gets addressed in Sections 147 to 151 of the Income Tax Act. The assessing officer may still assess if they believe that some revenue was disregarded in the Income Tax Return (ITR), regardless of whether the returns were filed or the evaluation finalized for the same return. This situation is known as income escaping assessment. Section 148A allows taxpayers to present their case on whether an income escaping assessment is necessary. The taxpayer receives a show-cause notice and has seven to thirty days to respond.
Table of Contents
What is Section 148A?
In the 2021 Budget, the government rolled out Section 148A of the Income Tax Act. This provision states that if an income tax officer suspects that a taxpayer has undeclared income for any assessment year with outstanding taxes, they must allow the taxpayer to explain their situation before sending out a notice. Under Section 148A, the taxpayer gets the right to be heard by the officer. After the income tax officer evaluates the taxpayer's reply, they decide whether to initiate an income escaping assessment. If they opt to reopen the case, it's essential to send the taxpayer a copy of the order and a notice as per Section 148.
According to the time limitation clause, you can't issue a notice in typical situations if three years have passed since the end of the relevant assessment year. However, if there's proof that the taxpayer has dodged an assessment of taxable income of at least Rs 50 lakh, then a notice can be issued even after three years. Just remember, notices can only be sent out up to five years after the end of the relevant assessment year. Before the income tax officer can conduct any inquiries, they need to secure approval from the appropriate authority, ensuring the taxpayer has a chance to present their side or to issue any orders. However, this does not apply in search or requisition.
Impact of Section 148A on Taxpayers
After reviewing your response to the notice, if the income tax department still chooses to open your case for reassessment, you may need to:
Pay extra taxes, fines, and interest on income that wasn't subject to assessments in prior years.
You may have to go through a drawn-out, time-consuming assessment procedure that can be very inconvenient.
If the assessing officer determines that you have intentionally avoided paying taxes, you may also be subject to harsh penalties and even jail time.
Section 148A Time Limit
An assessment officer must give the assessee a minimum of seven days and a maximum of thirty days to explain.
Reopening Assessment Under Section 148A
Suppose the income tax department determines that the taxpayer has intentionally attempted to avoid paying taxes or that any income that should have been subject to taxation has evaded assessment. In that case, it may reopen the assessment under section 148. These could be the reasons behind this assumption.
If the person neglects to submit their income tax return.
Information or proof that the taxpayer's income has eluded assessment is available to the income tax department.
A third party has informed the income tax department that the taxpayer's income was not subject to taxation in any prior calendar year.
A notice typically can't be issued under normal circumstances due to the time limitation rule. However, if there's evidence that the taxpayer has been evading income, then such a notification might be granted.
Time Limit for Reopening Assessment Under Section 148A
The income tax department has the authority to reopen an assessment under section 148A within three years from the end of the relevant assessment year in typical situations. However, if there's evidence that a taxpayer has avoided an assessment of at least Rs 50 lakhs, the income tax officer can issue a notice. This notification opened within 10 years, although it can get unsealed after three years.
Update on the Budget for 2024
Reopening cases under Section 148A now has a shorter time limit. The revised window of opportunity for reopening cases with income:
Upto 50 lakhs: Reopening the cases within three years of the conclusion of the assessment year is prohibited up to Rs. 50 lakhs.
Above Rs. 50 lakhs: Cases under Section 148A may now get reopened within five years instead of the previous ten.
Cases | Existing Time limit | Proposed Time limit with effect from 1 September 2024 | - |
- | Notice under Section 148 | Notice under Section 148A | Notice under Section 148 |
Normal Case | Within 3 years from the end of AY | Within 3 years from the end of AY | Within 3 years 3 months from the end of AY |
Specific Case (Income escaping assessment exceeding Rs. 50,00,000) | Within 10 years from the end of AY | Within 5 years from the end of AY | Within 5 years 3 months from the end of AY |
The new regulations will take effect as of October 1, 2024.
What Taxpayers Must Know About Section 148A
The taxpayer may be subject to additional fines, taxes, and interest on income not stated if the income tax department agrees to perform a reassessment under section 148. All taxpayers must understand the following:
If the Income Tax Department believes that income has eluded assessment, it must have a good reason. It indicates that you can't just reopen an assessment case based solely on suspicion.
You need to make sure the notice gets delivered on time. If the department misses this deadline, the case will not get reviewed again.
The taxpayer can reply to the notification. If the income tax department is not satisfied with the response, they might reopen the assessment.
The taxpayer may contest the assessment if reopened.
The income tax department has the authority to prosecute a taxpayer for allegedly willfully failing to pay taxes, which may result in fines and even jail time.
A crucial clause in the Income Tax Act, Section 148A, allows taxpayers to explain any income that gets missed in assessments. It assures the security of taxpayers' rights and gives the assessing officer the authority to reopen cases as needed.
Difference Between Section 148 and Section 148A
Section 148 states that if the income tax officer has a ‘reason to believe’ that a taxpayer hasn’t reported all their income for a given assessment year, they must send a notice to that taxpayer. Once the notice is issued, the officer has the authority to assess, reassess, or recalculate the total income for that year under Section 147 of the Income Tax Act.
As of April 1, 2021, income tax officers must adhere to the new guidelines set out in Section 148A before issuing any notices. It means they need to conduct an inquiry or give taxpayers a chance to present their side regarding any information suggesting that that should have been taxed but wasn’t. Additionally, the officer must get approval from a designated authority before sending out such notices.
Latest Amendments in Section 148A
The recent Finance Bill 2024 suggests changes to section 148A of the Income Tax Act, introducing new timeframes for issuing notices. According to tax experts, if someone is trying to escape an income assessment of Rs 50 lakh or more, the Section 148A notice must be issued within five years from the end of the assessment year. Notices issued under Section 148, after a Section 148A notice, have a maximum time limit of five years and three months from the end of the assessment year. Starting September 1, 2024, these changes will take effect.
Types of Notices Individuals Can Receive from the Tax Department
The following table specifies the types of notices an individual can receive along with the corresponding sections of the Income Tax Act:
Income tax notice | Income tax provision |
Notice for defective ITR. | |
Notice for enquiry before assessment, where the officer may ask for documentary proof to verify your claim in the tax return. | |
ITR inspection notice (depth scrutiny). Such a notice may be issued by the Assessing Officer as a follow-up to the notice issued under Section 142(1) or to verify the validity and accuracy of various exemptions, deductions, and other claims made by the taxpayer in the income tax return. | |
If the income tax officer considers that the income has eluded the assessment and disagrees with the prior assessment of the taxpayer's ITR, they will issue a notice for reassessment. | Section 148 |
Notice of demand for tax, penalty, or other amounts due from the taxpayer. | |
This notice is given when the taxpayer's tax demand due from any prior year is subtracted from the income tax refund (full or partial) for an assessment year. |
Conclusion
Section 148A marks a significant leap in finding the right balance between the powers of tax authorities and the rights of taxpayers. By establishing a mandatory pre-assessment process, it ensures that any reassessments are justified and conducted with fairness, transparency, and accountability. This provision offers essential protection for taxpayers against arbitrary notices, while also helping the tax administration by streamlining operations to focus solely on cases backed by credible evidence. In the end, this measure enhances trust in the tax system and fosters a more equitable approach to compliance and enforcement.
FAQs
Q1. What is section 148A?
Before the assessing officer kicks off an income evasion assessment, Section 148A allows the assessee to explain their circumstances.
Q2. Why was Section 148A introduced?
To guarantee fairness by allowing taxpayers to present their case and to avoid arbitrary reassessment.
Q3. Does Section 148A apply in all cases of reassessment?
No. It is not relevant in situations involving searches, seizures, or information covered by special legislation such as the Black Money Act.
Q4. How to respond to a notice u/s 148A?
You can respond to the notice in one of two ways: either file a tax return or provide the Assessing Officer with a written answer that includes all relevant information and supporting documentation. Send in your tax return as soon as possible if you agree with the assessing officer's explanations.
Q5. What is an order under section 148A?
As per an order under section 148A, the assessing officer's choice about whether to send out a notice for initiating an income escape assessment under section 148 centres on the evidence at hand, which includes the assessee's reply.
Q6. Is a minimum income threshold applicable for reopening an assessment u/s 148A?
Actually, there's a minimum income level you need to meet to steer clear of a tax under Section 148A. If the income that went unassessed is less than Rs. 1 lakh, the Income Tax Department isn't permitted to review the evaluation.
Q7. What time limit is given for explanation for a notice u/s 148A?
As outlined in Section 148A, the assessee must obtain an explanation from the assessing officer within at least seven days and no more than thirty days.
Q8. What are the implications of not responding to a Section 148A notice within the timeline?
If the assessing officer does not receive a reply within the designated period, they may issue a notice under Section 148 for an income escape assessment.
Q9. What steps can I take to prevent problems that might lead to reopening of an assessment u/s 148A?
When taxpayers file their income returns correctly and on schedule, they can avoid any issues with Section 148A reassessments. Additionally, they must disclose all of their sources of income to the Income Tax Department and not withhold any information.
Q10. Can I challenge a Section 148A order?
Indeed. The taxpayer may contest the order in court or before higher authorities if it is unjustified.
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