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Published on:

October 20, 2024

Alankar Mishra

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Understanding Section 149 of the Income Tax Act, 1961

Section 149 of the Income Tax Act, 1961 deals with the time frame within which notice under section 148 can be issued. This section is operationalized in the course of carrying out the reassessment, and it is useful in knowing, where the Tax Department can unfurl (reopen) the old cases and do the re-assessment of the escaped income.

The provision of Section 149 also defines a time frame within which a notice for reassessment can be issued to the tax authorities. The purpose of this section is above all to allocate a reasonable period for the Taxation authorities to make proper assessments concerning time, while on the shoulders of the taxpaying citizen such worry as assurance against their tax assessments through the issuance of notices.

‍Purpose of Section 149

This is to state the time limit that the authority must adhere to in issuing a notice for assessment under Section 148. Reassessment proceedings in Cases of Misuse are carried out at the Judgment Assessment Function when the Assessing Officer (AO) presumes that some income has not been assessed. In this section, lay down the conditions within which the income tax authority will have to review the assessments made.

Key Provisions of Section 149

Section 149 provides guidelines on the specified time limits for issuing notices for any income that has been said to be escaped from assessment. The period within which the notice can be issued will depend on the amount of income that has escaped assessment and whether the taxpayer has reported this income to the Revenue authorities.

1. Time Limit for Issuance of Notice

The following are the limitations within which a notice for reassessing the income under section 148 can be issued:

‍Within 3 years from the end of the relevant assessment year: The Assessing Officer can issue a notice within 3 years if the escaped income exceeds ₹1 lakh.

‍Within 10 years from the end of the relevant assessment year: The time limit extends to 10 years if the Assessing Officer has reason to believe that the income chargeable to tax that has escaped assessment is more than ₹50 lakh in that assessment year.

‍2. Cases of Non-Disclosure of Income

If the taxpayer has not reported the total income earned or has reported only a part of the income which is of serious concern, then the above time limits will have to be adhered to. The authority responsible for mobilising revenue will have to demonstrate that such income has either absconded or escaped assessment before the notice is issued.

3. Income Involving Foreign Assets

In such situations, where the unaccounted-for income relates to foreign assets (for example, foreign property, foreign bank and savings accounts, and investments outside the country), the time limit is increased to 16 years from the end of the particular assessment year. This clause seeks to ensure that the tax authorities have enough time to investigate and make a reassessment of income that could have been placed beyond the jurisdiction because of foreign assets.

‍4. Specific Conditions for Issuing Notice After 3 Years

For issuing a notice beyond 3 years but before 10 years, the Assessing Officer must satisfy the following conditions:

The AO must have tangible evidence that income exceeding ₹50 lakh has escaped assessment in that assessment year.

The Assessing Officer must receive prior approval from the Principal Chief Commissioner or Principal Commissioner of Income Tax before issuing the notice.

Amendment to Section 149 (Finance Act, 2021)

The Finance Act, of 2021, brought significant amendments to the provisions of Section 149. The changes were aimed at reducing litigation and making the process of reassessment more transparent and time-bound.

1. Reduction in Time Limit

What was introduced, amongst others, was the reduction of the time limit for issuing reassessment notices. Before the amendment, the reassessment could be invoked within 4 to 6 years based on escaped income over and above ₹1 lakh. The amendment reduced the time limit to 3 years for the majority of cases, with a 10-year limit for cases involving income over and above 50 lakh rupees.

2. Approval Required for Notices Beyond 3 Years

About notices issued after the 3 years, if the notice is served after 3 years, it cannot be issued without the proper authorization of a Senior Head (Principal Chief Commissioner or Principal Commissioner). This allows for more proper monitoring and control over the discretionary power of the taxing department to avoid abuse of the powers.

3. Introduction of the 10-Year and 16-Year Time Limits

These changes included the introduction of a 10-year time limit for all types of escaped income over ₹50 lakh and a 16-year time limit for assets located outside the country. Such provisions enable tax authorities to go after high amounts of evaded tax or also undisclosed taxes on foreign assets for longer.

Impact of Section 149 on Taxpayers

1. Legal Certainty

Section 149 helps the taxpayers in knowing the exact period, during which, their income tax assessments can be spent. The reopening of Income Tax assessments is limited in time and once the period is over, the taxpayer can be free of either looking over his or her shoulder or having to worry because the tax authorities cannot overestimate the taxpayer’s income, with some few exceptions on this.‍

2. Increased Scrutiny for High-Value Cases

The setting of a longer time limit for high-value cases, the provision stipulates that people whose income exceeds ₹50 lakh or people who have undisclosed foreign assets are also going to be viewed by tax authorities with greater attention. This acts as a significant disincentive to evading taxes which is a vice that very many citizens of this country so easily cultivate.

3. Reduction in Unnecessary Litigation

Section 149 places restrictions on the time period that can be taken to carry out the exercise, relaxing the chances of long-winded and entirely needless spats in the courts. This saves taxpayer and tax authority resources by making the assessment and related processes more efficient.

4. Compliance with Global Tax Norms

The amendment on the extension of the period for handling foreign assets income is meant in such a way that the tax legislation in India conforms to its international expectations. This makes it possible for the tax authorities in India to pursue the use of foreign assets and aid containment and prevention of tax evasion about offshore assets.

Challenges and Criticisms

While section 149 forms the backbone of tax administration, it has its share of criticisms and challenges as well:

‍Extended Time Limits: The 10-and 16-year limitation for specified years might seem long, increasing the risk to taxpayers with substantial property or assets abroad.

‍Increased Compliance Burden: Taxpayers are likely to be beset with increased compliance and audit obligations, especially on high-value transactions or assets located abroad which would be tedious.

‍Interpretation of "Escaped Income": Disputes will arise on what can be regarded as escapable income, this calls for litigation on whether a reassessment should be undertaken.

Conclusion

Section 149 of the Income Tax Act, 1961, comes into action when it concerns the time limit as regards the issue of notice under Section 148. The provision extends the time limit within which taxing employees can seek to review previously closed cases of tax evaders, especially high-end cases or ones dealing with foreign assets. Reforms that have been introduced in the recent past have enhanced those procedures by shortening the net time frame of most cases while rules on the other hand have retained time limits for the biggest cases of non-disclosure.

FAQs

What is Section 149 of the Income Tax Act, of 1961?

Section 149 deals with the time limits within which the Income Tax Department can issue a notice for income escaping assessment.

What is the time limit for notice under Section 149?

The time limit for issuing a notice under Section 149 is up to 3 years from the end of the relevant assessment year. However, in certain cases involving larger amounts, this limit can be extended.

What is the time limit for the 149 notices?

Typically, the notice must be issued within 3 years, but in cases where income above ₹50 lakhs is involved, the limit can be extended to 10 years.

What are the exceptions to the time limit under Section 149?

In cases where escaped income exceeds ₹50 lakhs, the time limit for issuing the notice can be extended to 10 years from the end of the relevant assessment year.

How does Section 149 of Income Tax Act, 1961 apply to taxpayers?

Section 149 applies when the Income Tax Department believes income has escaped assessment and issues a notice within the prescribed time limit to reassess the income.

When does Section 149 of the Income Tax Act become applicable?

Section 149 becomes applicable when the tax authorities have reason to believe that taxable income has not been disclosed fully or correctly, and they issue a notice for reassessment.