Section 154 of Income Tax Act

What is Section 154?

ection 154 of the Income Tax Act allows taxpayers to rectify errors in their tax assessments. These errors are typically computational mistakes or clerical errors that occur either during the processing of tax returns or in the assessment order. When such mistakes are identified, the taxpayer or the assessing officer can file for rectification to correct these errors. The correction process under this section does not involve the filing of a fresh return, making it a convenient and less cumbersome method of addressing errors that affect the tax calculation.

This section primarily focuses on errors that are apparent from the record and not on errors of judgment. This means that Section 154 is designed to fix mistakes that are obvious and easily identifiable rather than errors requiring complex interpretation or analysis.
 

Features of Section 154

Correction of Apparent Errors: Section 154 allows for the correction of errors that are apparent from the record. This includes arithmetic mistakes, wrong entries, and other similar clerical errors.

No Fresh Return Filing: Rectification under Section 154 can be done without filing a fresh tax return. The error is corrected in the existing return, making it more convenient for taxpayers.

Time-Limited: Rectification must be filed within a prescribed time frame, which is usually four years from the end of the assessment year in which the error occurred.

Correction by Assessing Officer: An assessing officer can also file for rectification on their own, especially when they identify errors while reviewing the taxpayer’s assessment.

Discretion of the Assessing Officer: The Assessing Officer has the discretion to accept or reject the rectification application depending on whether the error is apparent from the record.

No Reopening of the Case: The rectification process does not result in the reopening of the case but aims to correct errors in the already filed return.

No Reconsideration of Facts: Section 154 does not allow a complete re-assessment of facts. It only applies to errors that are evident in the records.

Automatic Rectification for Some Errors: In some cases, such as for discrepancies in tax calculations, the tax department may automatically rectify the error and issue a revised notice.
 

How To File Rectification Under Section 154(1)?

Filing rectification under Section 154(1) of the Income Tax Act involves a straightforward process. The taxpayer needs to submit an application requesting the correction of errors in their tax return. The application can be filed online through the Income Tax Department's official portal.

Here is a quick guide on how to file the rectification:

• Log in to the Income Tax e-filing portal.
• Go to the “Rectification” option under the “My Account” menu.
• Choose the relevant assessment year and the type of error that needs to be rectified.
• Submit the rectification request after selecting the relevant correction details.

This process can be done electronically, providing a hassle-free solution for taxpayers.

What Errors Can Be Corrected By Filing Rectification?

Here is a list of errors that can be corrected under Section 154:

• Arithmetic Mistakes: Errors in simple addition or subtraction of figures leading to incorrect tax calculation.
• Incorrect Tax Calculation: Errors in the calculation of tax payable, such as incorrect application of tax rates.
• Incorrect Personal Information: Mistakes in the name, PAN number, or other personal details mentioned in the tax return.
• TDS/Advance Tax Errors: Incorrect credit of TDS or advance tax, resulting in incorrect tax liability.
• Incorrect Exemption/Deductions: Errors related to exemptions or deductions under sections like 80C, 80D, etc.
• Incorrect Assessment Year: Filing for the wrong assessment year.
• Underreporting of Income: Omission of income, leading to incorrect tax filing.

When Can Rectification Be Filed?

Rectification under Section 154 can be filed when errors are apparent in the record and need to be corrected. There are specific situations where rectification can be sought, including:

Error in Tax Calculation: If the taxpayer notices that there is a mistake in the tax calculation, rectification can be filed to correct the mistake.

Mistake in TDS: Errors in the TDS amount credited can be corrected under Section 154.

Incorrect Entry of Details: If personal or financial details like income, deductions, exemptions, etc., are incorrectly entered in the tax return, rectification can be filed.

Clerical or Typographical Errors: Simple clerical or typographical mistakes, such as spelling mistakes in names or incorrect addresses, can be rectified under Section 154.

Discrepancy in Tax Paid: When there is a mismatch in the tax paid and the tax credit reflected, rectification can be requested to correct the discrepancy.

Change in Status: If there’s a mistake in filing tax due to incorrect residential status (for example, treating a resident as non-resident), this can be corrected through rectification.

Inaccurate Interest Computation: Mistakes in the calculation of interest on tax liabilities (under sections 234A, 234B, or 234C) can be rectified under Section 154.

The rectification application must be filed within four years from the end of the assessment year in which the mistake occurred. The taxpayer can only correct errors related to taxes for the previous four years.
 

Who Can File Rectification?

Taxpayers: Individuals, Hindu Undivided Families (HUFs), companies, and other assesses can file rectification requests if they notice an error in their tax returns.

Assessing Officer: The Assessing Officer can also initiate a rectification process on their own if they identify any clerical errors or mistakes during the review process.
 

How To File Rectification Online?

Filing rectification online is simple and involves the following steps:

• Login: Visit the Income Tax e-filing portal (https://incometaxindiaefiling.gov.in) and log in using your credentials.
• Rectification Request: Go to the “Rectification” option under the “My Account” tab.
• Select Assessment Year: Choose the assessment year for which the rectification is required.
• Specify Error Type: Choose the type of error you wish to correct, such as an incorrect calculation or personal detail.
• Submit Application: Once you have selected the error type and the correction required, submit the application for rectification.
• You will receive a confirmation notification from the tax department regarding the status of your rectification.
   

Procedure to Make an Application of Rectification

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Navigate to Rectification Section: Under the "My Account" menu, click on the “Rectification” option.

Select Assessment Year: Choose the assessment year for which you are filing the rectification request.

Choose the Error Type: Select the type of error, whether it’s an arithmetic error, incorrect tax paid, or other discrepancies.

Rectify the Error: Make the necessary corrections in the application form and submit it online.

Acknowledge Receipt: Once submitted, the Income Tax department will process your application and inform you of the status.

This streamlined process helps taxpayers ensure that their tax records are accurate without needing to file an entirely new return.
 

Difference Between Rectification and Revised Return

Rectification: This is a process to correct apparent errors like clerical or computational mistakes in the original return. It is applicable only for mistakes that are obvious from the records.

Revised Return: A revised return is filed when the taxpayer realizes that the original return filed was incomplete or contains substantial errors. This includes missed income, deductions, or exemptions. A revised return allows taxpayers to correct these errors by submitting a fresh return.

Unlike rectification, a revised return can address more substantial discrepancies, such as underreporting income or incorrect deductions. However, it does not involve correcting simple clerical errors.
 

Conclusion

Section 154 of the Income Tax Act provides a simple and effective method for rectifying clerical and computational mistakes in the tax returns. By utilizing this provision, taxpayers can ensure that their tax obligations are accurate without going through the hassle of filing a new return. As mistakes happen, understanding the provisions of Section 154 can provide peace of mind, allowing individuals and businesses to correct errors efficiently.