Among a plethora of tax-related provisions, one of the confusions which taxpayers face revolves around the time period during which these newly launched tax provisions come into effect.
And importantly – when exactly will those provisions come handy at the time of filing income tax return (ITR).
A taxpayer reports his/her income for a financial year and pays income tax during the following year, also known as assessment year.
Budget is announced on February 1 of a financial year and the Finance Act is passed in the Budget session right before the financial year kicks off.
This year, for instance, Finance Minister Nirmala Sitharaman announced the Budget on February 1, 2023. After a few amendments, the Finance Bill was passed on March 24, 2023.
This will be put in motion from April 1, 2023. This means all the provisions around new tax slab, marginal tax relief, removal of long-term capital gains (LTCG) tax benefit on debt mutual funds will come into force from April 1 onwards.
And taxpayers are meant to pay income tax on their income in the assessment year i.e., the year following the year for which income is being reported.
Let us understand this with an example.
Ms Anjali Chaturvedi works for an NGO and reports her income for year 2022-23. Her tax liability during this year ending March 31, 2023 will be taxable in the next year i.e., 2023-24.
The last date for filing tax returns is usually July 31, so she would be expected to file her tax return before July 31, 2023, unless the last date is extended this year.
Here is a timeline of tax filing process:
|Feb 1, 2023||Finance Minister presents the Budget|
|March-end||Finance Bill is passed in Lok Sabha|
|April 1, 2023||Budget provisions come into force.|
|Apr 1- Mar 31, 2024||Taxes paid during the year in form of advance tax and TDS etc.|
|Post April 1, 2024||File income tax return (ITR)|
|July 31, 2024||Last date of filing of tax return|
Let us take another example. Now, with the rollout of new tax regime that removes all tax exemptions and offers lower tax rates to the taxpayers, tax payers are now incentivised to opt for this new tax regime.
Consequently, she opts for the new tax regime rolled out in the Finance Act 2023.
She can calculate her income tax for her salary that she would stand to earn in the year ending March 31, 2024. For income she earns during this year, her tax return filing deadline will be July 2024.
In other words, the year 2023-24 for which she would report her income would be known as the ‘previous year’ and the next year, i.e., 2024-25 when she would file the taxes would be the ‘assessment year’.
In conclusion, we can highlight that when tax payers will file their income tax returns in July this year, it will be for the income earned during the year 2022-23.
And the same principle will continue to apply in the years to come.