How to Correct a Defective Income Tax Return

What is Defective Income Tax Return and How to correct a Defective ITR

If an individual's income tax return (ITR) is deemed "defective" by the Assessing Officer (AO), a notice may be issued under section 139(9) of the Income Tax Act, 1961. Consider the scenario where you submitted an ITR but your name is spelled differently on your PAN card than it is on the ITR form. Your ITR will be labeled as faulty as a result. The income tax agency will notify you once the ITR has been determined to be flawed.

Although receiving a letter from the income tax department may come as a shock, this notice is simple to correct. Here's how to resolve the problem with the flawed ITR.

A notice may be sent out in accordance with section 139(9) of the Income Tax Act of 1961 if the Assessing Officer (AO) finds a person's income tax return (ITR) to be "defective". If you filed an ITR but your name is written differently on your PAN card than it is on the ITR form, how would you respond? As a result, your ITR will be marked as flawed. Once it has been found that the ITR is incorrect, the income tax department will let you know.

Even though getting a letter from the income tax division may be unexpected, this notice is easy to fix. Here's how to fix the issue with the incorrect ITR.

Wrong information in AIS: 

It's possible that you entered the incorrect challan number when filing your ITR, that you paid your advance tax for the incorrect assessment year, or that your employer filed the incorrect TDS return, all of which could have caused your Form 26 AS, AIS, and TIS to automatically populate with the incorrect data, resulting in the error. Additionally, it might occasionally happen that the bank that deducted the TDS amount made a mistake in their TDS returns.

There are several different ways you could accidentally include incorrect tax information in your submitted ITR. Therefore, the ideal approach would be to consistently verify the challans accurately and match the TDS information in your AIS (Annual Information Statement) with your bank records. If you continue to believe that the data in your AIS needs to be corrected, you can ask the tax division to do so. Otherwise, it will be presumed that all of the information in the AIS is accurate if the AIS is inaccurate and you say nothing.

Income not stated but TDS deducted: 

"Mismatch in income and TDS reported in return with details reflected in Form 26AS of the taxpayer is a common reason for treating a return as defective," said Vijay Bharech from the tax, audit, and business consulting company Deloitte Haskin & Sells LLP.

Keep in mind that deducting TDS from income but not declaring it does not constitute income concealment, he said. According to Section 143, the taxpayer must be informed before any adjustments are made to account for income reported on Form 26AS. However, in actuality, the following are only a few scenarios when tax authorities will see a submitted tax return as being insufficient:

Credit for TDS has been claimed, but the accompanying income has not been included in the gross total income or given for taxation. However, the tax due has been calculated and paid.

The taxpayer's name in the ITR is different from their "Name" in the PAN database.

For instance, Indian cryptocurrency exchanges deduct TDS on each sale transaction. However, if for some reason someone failed to report this Virtual Digital Assets (VDA) cryptocurrency income or to include a "schedule VDA" when submitting their ITR, the ITR will be considered invalid.

Another illustration involves stock shares. Provided form 15G/H is not submitted, companies would deduct TDS on dividend payments that exceed Rs 5,000 in a fiscal year. In addition, stockholders must pay taxes on all dividends. Therefore, one must disclose these revenues in their submitted ITR, regardless of how little the dividend amount may be.

Tax audit was required but not completed: 

For FY 2022–23 (AY 2023–24), those with business income are expected to file their income tax audit report by September 30, 2023. "Even though a certified CA is required to conduct the audit, if they don't, the ITR will be marked as flawed. Furthermore, if he neglects to have his accounts audited or fails to submit a report of audit pursuant to Section 44AB in Form 3CA and Form 3CB or Form 3CD, as the case may be, by the deadline, a penalty under Section 271B may be imposed, according to Naveen Wadhwa, deputy general manager (DGM) of Taxmann, a Delhi-based book publishing company.

Partial tax payment: 

The ITR may be deemed to be faulty if the taxpayer makes a partial tax payment in comparison to the net tax due or if the tax payment amount is different from the amount reported as tax payable in the tax return.

The preceding list is not all-inclusive, and there may be more problems that contribute to a flawed ITR.

How may a flawed ITR be fixed?

If the deadline for completing an income tax return for a certain assessment year hasn't passed, the individual may file a new or updated return, according to Bharech.

"ITR filed (uploaded and validated) as a response to faulty notice would be treated as a fresh ITR and would replace the defective return filed earlier. This is true even if there is no change in gross total income or deduction claimed (such as section 80C, 80D, etc.). The replacement of the original ITR in response to the faulty notification would indicate this. However, a new ITR must be submitted if the person desires to alter the gross total income or deduction claimed. Here, the Original ITR number must be referenced in the Revision ITR form, according to Bharech.

Please be aware that the deadline for submitting an amended return is December 31, 2023 (AY 2023–24) for the fiscal year 2022–23. The taxpayer will not be permitted to submit a new or amended return if this deadline has past. At that point, responding to the notification would be the only choice left. 

Keep in mind that under certain conditions, an individual may file an amended ITR in accordance with the tax legislation.

"The Assessing Officer may provide the person a chance to fix the issue within 15 days of the day they received the notification. However, if the person requests an extension of time, the Assessing Officer is authorized to do so, according to Wadhwa.

A taxpayer's ITR will now be deemed invalid if they are unable to react to the notification. This would imply that a person has not submitted an ITR for the relevant assessment year.

"There are no penalties for submitting an ITR in response to a notice of a faulty ITR. However, the return will be regarded as invalid if the person doesn't file an amended return fixing the errors. In this case, the person can face fines for failing to file an ITR, according to Wadhwa.

Furthermore, it should be noted that interest may be charged on the outstanding sum if any extra tax liabilities arise as a result of the correction of an error in the flawed ITR.

For instance, suppose Mr. A reported filing income tax returns showing a tax liability of Rs. 1 lakh, but the tax department believes he has not revealed an income, causing his tax liability to be Rs. 1.2 lakh. If Mr. A admits his error and recognizes that his tax burden is actually Rs. 1.2 lakh rather than Rs. 1 lakh, he will need to file an amended ITR. Now, this will result in an extra tax of Rs 20,000, and the tax authority may levy penalties for this late tax payment interest.