Karachi, October 15, 2024 – The Federal Board of Revenue (FBR) has made it clear that incomplete income tax returns will now be treated as invalid, ushering in a stricter regime to ensure compliance. This move aligns with Section 120 of the Income Tax Ordinance, 2001, which outlines the criteria for submitting and accepting tax returns.
According to FBR, a tax return will only be accepted if it meets the stringent requirements detailed in Section 120. These stipulations emphasize the need for taxpayers to submit a complete and accurate return of income. The consequences of failing to do so are severe, with the FBR reiterating that any return deemed incomplete will be rendered invalid, as though it had never been submitted.
Legal Provisions Under Section 120
The FBR’s directive is grounded in the provisions of Section 120 of the Income Tax Ordinance, which mandates that a return must be complete for it to be assessed. Once a valid return is submitted, it is considered an official assessment of the taxpayer’s income and the tax due, with the Commissioner automatically issuing an assessment order on the day the return is filed.
However, Section 120 also introduces a crucial clause: if a taxpayer fails to meet the full requirements of the ordinance, including any deficiencies or omissions, their return will be rejected. This invalidation carries significant repercussions, as the taxpayer will be considered non-compliant, subjecting them to potential penalties and additional scrutiny.
The ordinance empowers the Commissioner to audit the tax affairs of individuals under Section 177, even after the submission of a complete return. This additional oversight ensures that even after compliance, taxpayers remain subject to detailed reviews.
The Role of Automation in Tax Return Processing
To further streamline the process and ensure accuracy, Section 120(2A) mandates that all tax returns are processed through an automated system. This system makes adjustments for:
1. Arithmetic errors – Incorrect calculations of taxable income or tax payable.
2. Incorrect claims – Errors or inconsistencies evident from the information in the return.
3. Disallowance of losses and deductions – Under specific parts of the ordinance, including any tax credits or carryforward losses.
Before making any adjustments, however, the system will generate a notice to the taxpayer, providing them with 30 days to address the discrepancies. In the absence of a response, the system will automatically make the adjustments and notify the taxpayer through the IRIS online system.
Addressing Incomplete Returns
If a taxpayer submits an incomplete return, the Commissioner is required to issue a notice highlighting the deficiencies. This notice gives the taxpayer an opportunity to rectify the errors by submitting the missing information by the date specified. Should the taxpayer fail to comply within the prescribed timeframe, the return will be invalidated, essentially nullifying the submission.
Moreover, no notices can be issued after 180 days from the end of the financial year in which the return was furnished. If no adjustments are made within this period, the amounts declared by the taxpayer will be deemed final.
Implications for Taxpayers
This move by the FBR represents a significant tightening of tax enforcement, aimed at increasing transparency and compliance. The automated systems ensure that errors are detected and corrected swiftly, leaving little room for mistakes or intentional underreporting.
For taxpayers, it underscores the importance of ensuring their returns are complete and accurate from the outset. Any misstep or failure to comply could result in their returns being declared invalid, leading to audits, penalties, and further legal action.
With the FBR’s emphasis on precision and accountability, taxpayers must now exercise greater diligence in meeting their obligations, ensuring that all aspects of their returns align with the stringent requirements set forth in the Income Tax Ordinance.