Block Assessment Scheme for Income Tax Search Cases

Key Changes in Tax Filing for Search Cases

• Single Consolidated Return
  • Taxpayers will now file one return covering six years plus the part-year of investigation.
  • Replaces the need for separate filings for each year under scrutiny.
  • Aligns with the block assessment scheme introduced on September 1, 2024.
• Unified Income Assessment
  • All undisclosed income from the block period will be assessed together, rather than year-wise reassessments.
  • Aims to reduce duplication, legal disputes, and reassessments of already disclosed income.

Expected Benefits

• For Taxpayers:
  • Faster resolution of search cases.
  • Lower compliance burden due to fewer filings.
  • Reduced legal disputes as income is assessed holistically.
• For Tax Authorities:
  • More efficient tax administration with streamlined assessments.
  • Prevents reassessment issues that arise in multi-year investigations.

Unresolved Issues

• Concerns on Timing of Income Recognition
  • If tax authorities insist on taxing certain income in Year 1, but the taxpayer reports it in Year 3, will the consolidated return resolve this timing mismatch?
• Treatment of Losses & Refunds
  • Will taxpayers be able to set off losses in a later year against income from an earlier year?
  • Current tax laws do not provide for such adjustments, limiting potential benefits.
• Administrative Convenience vs. Substantive Relief
  • If the scheme does not address timing differences or loss set-offs, it may merely be a procedural simplification rather than a significant tax relief measure.

Way Forward

• Positive Move: The new system simplifies tax compliance and speeds up assessments.
• Areas for Improvement: Addressing income recognition mismatches, loss adjustments, and refund claims will enhance its effectiveness.
• Next Steps: The government may need to clarify how losses, refunds, and tax adjustments across multiple years will be handled under this new system.