Tax Returns and Assessment

The Indian fiscal year, as well as corporation tax year, runs from 1 April to 31 March. All listed companies (irrespective of having made a profit or loss) are required to file their tax returns electronically by 31 October each year. However, for those that have entered into international transactions with Associated Enterprises (AE) or Specified Domestic Transactions (SDT) (see Transfer Pricing), the due date to file tax returns electronically is 30 November.

Even foreign companies are required to file tax returns with respect to income earned in India, except in certain specified circumstances where income consists of dividends, specified interest, and due taxes have been withheld on the same. Tax returns must be digitally signed by the Managing Director of the company and, in case the company does not have one, then by any director. However, in the case of a foreign company, the tax return can be digitally signed by an individual holding a valid power of attorney.

It is mandatory for the company and the signatory (unless he is a non-resident) to get a PAN in India. The company is also required to obtain and furnish electronically, the report of a Chartered Accountant, concerning transactions with an AE.

Similarly, it must obtain and furnish electronically the report of a Chartered Accountant if its annual turnover exceeds INR 10 million.

In case of any error or omission in the tax returns, the same can be revised within one year from the end of the relevant fiscal year or before the completion of the tax assessment, whichever is earlier. Similarly, a belated tax return can be filed within a period of one year from the end of the relevant fiscal year or the completion of the tax assessment, whichever is earlier. In the case of a belated tax return, the company cannot carry forward its tax losses.

Revenue Audits

Tax returns filed by companies can be subjected to a revenue audit, popularly known as a scrutiny assessment in India. The tax authorities lay down specific parameters every year, and if a company fits those parameters, it would mandatorily be selected for an assessment. For other companies, the same is based on random selection through the Computer- Aided Scrutiny Selection (CASS) system.

In the assessment proceedings, the tax authorities could either accept the income as in the return if they are satisfied with the correctness of the income and expenditure or make adjustments to the income either by increasing revenues or disallowing the expenditure. A company can file an appeal against the adjustments made. There is an exhaustive and robust appeal mechanism and tax judiciary system in India.

The Finance Act, 2018 had introduced a new scheme to carry out the assessments electronically. Recently, the Central Board of Direct Taxes (CBDT), the apex policy-making body of the Income Tax Department, issued a notification proposing the E-assessment Scheme 2019 in connection with e-assessment for specified persons and territories. The Scheme lays down the setting up of various jurisdictional e-assessment centers to implement and facilitate the effective and smooth operation of the Scheme. The Scheme is a progressive step towards faceless assessment intending to achieve higher transparency and curb various malpractices. This path-breaking initiative would radically change the outlook in which Indian tax assessments are perceived and hopefully mitigate protracted litigation, thereby facilitating the ease of doing business in India.