In recent times, many so-called “finfluencers” and “fraudcasters” have been spreading a misleading narrative about taxation. According to them, if your taxable income exceeds ₹12,00,000—even by ₹1—you will lose the rebate and suddenly have to pay ₹62,400+ in taxes. This claim sounds alarming, but it is entirely false.

The above myths emerged immediately after the Budget 2025 without proper interpretation. The summary of personal taxes slabs as per Budget 2025 can be read by clicking here.

Thankfully, the Income Tax Act provides for Marginal Relief, ensuring that an additional ₹1 in income does not create an unfair tax burden. Let’s break this down in simple terms.

The Finfluencer & Fraudcast Myth

They claim that if your income is ₹12,00,001, your tax liability will jump to ₹62,400+. The idea of suddenly losing the rebate sounds frightening and discouraging for taxpayers. However, this is a misinterpretation of tax laws and how rebates work under the new tax regime.

The Truth: Marginal Relief Applies

Under the new tax regime, taxpayers earning up to ₹12,00,000 get a rebate under Section 87A, effectively making their tax liability zero. But what happens if your income is ₹12,00,001?

Instead of immediately paying ₹62,400+ in tax, Marginal Relief ensures that you pay only ₹1 in tax!

Yes, you read that right! If your taxable income is just ₹1 above ₹12,00,000, you will not face a sudden, steep tax burden. Instead, the tax amount is adjusted in such a way that you only pay the additional tax corresponding to the extra income.

What Is the Maximum Income for Marginal Relief?

Marginal relief is available until your income reaches approximately ₹12,73,934.

• If your taxable income is between ₹12,00,001 and ₹12,73,934, marginal relief ensures you only pay tax on the excess amount above ₹12,00,000.
• Once your income exceeds ₹12,73,934, the tax liability surpasses the additional income over ₹12,00,000, and marginal relief no longer applies.

Key Takeaways

✅ Marginal Relief exists to prevent unfair tax jumps.
✅ If your taxable income is between ₹12,00,001 and ₹12,73,934, tax is adjusted fairly.
✅ You do NOT suddenly lose all benefits or pay ₹62,400+ in tax for earning ₹1 more.
✅ Don’t believe misleading financial myths—always check official tax laws!

Frequently Asked Questions (FAQs)

1. What is Marginal Relief?

Marginal Relief is a provision in the Income Tax Act that ensures taxpayers do not face a sudden jump in tax liability when their taxable income slightly exceeds ₹12,00,000 under the new tax regime.

2. How does Marginal Relief work?

If your taxable income exceeds ₹12,00,000 by a small margin, Marginal Relief ensures that you only pay tax on the excess amount instead of facing a sudden, steep tax liability.

3. Does Marginal Relief apply to all taxpayers?

Marginal Relief applies to taxpayers under the new tax regime whose taxable income is between ₹12,00,001 and ₹12,73,934.

4. What happens if my income exceeds ₹12,73,934?

If your taxable income crosses ₹12,73,934, your tax liability exceeds the additional income over ₹12,00,000, and Marginal Relief no longer applies.

5. Is it true that earning ₹1 more than ₹12,00,000 leads to ₹62,400+ in taxes?

No, this is a myth. Marginal Relief prevents such an unfair tax burden. If your income is ₹12,00,001, your actual tax liability is just ₹1, not ₹62,400+.

6. How can I ensure I am calculating my tax correctly?

It is always best to consult a qualified Chartered Accountant (CA) to understand your tax liability and Marginal Relief calculations accurately.

7. Where can I get more reliable tax information?

Always refer to official government resources or consult a professional CA instead of relying on misinformation spread by unverified sources online.

Final Thoughts

The idea that a ₹1 increase in taxable income can create a huge tax burden is a misconception spread by those who don’t understand taxation properly. Marginal relief is a critical feature in our tax system that ensures fairness and prevents sudden financial shocks. So, the next time someone tells you that earning slightly more will lead to a massive tax jump, you’ll know the truth!

For professional tax guidance, always consult a qualified Chartered Accountant (CA) instead of relying on misleading online advice!

 

 

 

 

The Finance Bill, 2025, has introduced changes in personal income tax rates for the Assessment Year (AY) 2026-27. This article provides a detailed overview of the tax slabs under both the new tax regime (default) and the old tax regime (optional) while comparing tax liabilities at different income levels.

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Personal Income Tax Rates for AY 2026-27

New Tax Regime (Default) – Section 115BAC

Total Income (₹)	Tax Rate
Upto ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
Above ₹24,00,000	30%

• Health & Education Cess: 4% applies to the total tax liability.
• Surcharge: Additional tax for income exceeding ₹50 lakh.
• No deductions or exemptions allowed.

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Old Tax Regime (Optional) – No Change in Rates

Category	Income up to ₹2.5L	₹2.5L – ₹5L	₹5L – ₹10L	Above ₹10L
Individuals (<60 yrs)	Nil	5%	20%	30%
Senior Citizens (60-79 yrs)	Nil (₹3L limit)	5%	20%	30%
Super Senior Citizens (80+ yrs)	Nil (₹5L limit)	–	20%	30%

• Rebate under Section 87A: Available for income up to ₹5 lakh (maximum rebate ₹12,500).
• Allows deductions under 80C, 80D, HRA, LTA, etc.

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Comparison of Tax Liability under Both Regimes

To understand the impact of these tax rates, let’s compare tax liability for incomes of ₹20 lakh, ₹30 lakh, and ₹40 lakh under both regimes.

Tax Calculation for Different Income Levels

Total Income (₹)	New Regime (₹)	Old Regime (₹) (After ₹2L deductions)
₹20,00,000	₹2,08,000	₹3,66,600
₹30,00,000	₹4,99,200	₹6,78,600
₹40,00,000	₹8,11,200	₹9,90,600

Tax Breakdown for ₹20,00,000

✅ New Regime:

• Tax on first ₹4,00,000 – Nil
• ₹4,00,001 – ₹8,00,000 @ 5% = ₹20,000
• ₹8,00,001 – ₹12,00,000 @ 10% = ₹40,000
• ₹12,00,001 – ₹16,00,000 @ 15% = ₹60,000
• ₹16,00,001 – ₹20,00,000 @ 20% = ₹80,000
• Total Tax = ₹2,00,000 + 4% Cess (₹8,000) = ₹2,08,000

✅ Old Regime (After ₹2L Deductions – Net Income ₹18,00,000):

• ₹2.5L – ₹5L @ 5% = ₹12,500
• ₹5L – ₹10L @ 20% = ₹1,00,000
• ₹10L – ₹18L @ 30% = ₹2,40,000
• Total Tax = ₹3,52,500 + 4% Cess (₹14,100) = ₹3,66,600

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Disclaimer:

This article is for informational purposes only and should not be considered as professional tax advice. While every effort has been made to ensure accuracy, tax laws are subject to change, and individual circumstances may vary. Readers are advised to consult with a qualified Chartered Accountant or tax professional before making any tax-related decisions. The author and publisher disclaim any liability for any decisions made based on the content of this article.

 

Here’s a table of the new TDS rates as per the Finance Bill, 2025:

Section	Nature of Payment	Current TDS Rate	Proposed TDS Rate
194D	Insurance Commission	5%	2%
194LBC	Income from Securitisation Trust	25% (Individuals/HUF), 30% (Others)	10% (for all)
194LBA	Income from Business Trust	No change	No change
193	Interest on Securities	No threshold	Exempt up to ₹10,000
194A	Interest (other than on securities)	₹40,000 (General) / ₹50,000 (Senior Citizens)	₹50,000 (General) / ₹1,00,000 (Senior Citizens)
194B	Winnings from Lottery	₹10,000 aggregate in FY	₹10,000 per transaction
194BB	Winnings from Horse Race	₹10,000 aggregate in FY	₹10,000 per transaction
194G	Commission on Lottery	₹15,000	₹20,000
194H	Commission/Brokerage	₹15,000	₹20,000
194-I	Rent	₹2,40,000 per FY	₹50,000 per month
194J	Professional/Technical Fees	₹30,000	₹50,000
194LA	Compensation for Land Acquisition	₹2,50,000	₹5,00,000

These changes will be effective from April 1, 2025 or any date as notified by the goverment

Introduction

Tax Deducted at Source (TDS) on rent paid to a Non-Resident Indian (NRI) landlord is governed by Section 195 of the Income Tax Act, 1961. If you are paying rent to an NRI landlord, it is essential to comply with TDS deduction regulations to avoid penalties. This article explains the applicable TDS rate, lower TDS deduction process, Form 15CA & 15CB requirements, determination of NRI status, impact of DTAA, Budget 2017 amendments, and consequences of non-compliance, with an example for clarity.

How to Determine Whether a Landlord is an NRI

Before deducting TDS, the tenant must verify if the landlord qualifies as an NRI under the Income Tax Act, 1961. A landlord is considered an NRI if:

1. Stay in India: The landlord stays in India for less than 182 days in the relevant financial year.
2. Past Stay Record: If the landlord was in India for less than 365 days in the preceding four years and less than 60 days in the current financial year, they are considered an NRI.
3. Self-Declaration: In some cases, the landlord can provide a self-declaration (Along with CA Certificate) stating their residential status, which the tenant can verify with relevant documents (passport, visa, or foreign address proof).

If the landlord is an NRI, the tenant must deduct TDS under Section 195, rather than Section 194I applicable to resident landlords.

TDS Rate on Rent Paid to NRI

As per Section 195, the applicable TDS rate on rent paid to an NRI is 30% (plus applicable surcharge & cess) on the gross rent amount. Unlike resident landlords, where TDS is deducted at 10% under Section 194I, rent paid to an NRI is subject to a higher rate.

Impact of DTAA (Double Taxation Avoidance Agreement)

If the NRI landlord resides in a country that has a DTAA (Double Taxation Avoidance Agreement) with India, they may be eligible for a lower TDS rate. The landlord can claim DTAA benefits by:

1. Providing a Tax Residency Certificate (TRC) from their country of residence.
2. Furnishing Form 10F and a self-declaration stating they are eligible for DTAA benefits.
3. Ensuring compliance with Section 90/90A of the Income Tax Act for DTAA applicability.

For example, under DTAA with the USA, the TDS rate may be reduced to 15% instead of 30%, depending on the agreement terms.

Example of TDS on Rent to NRI

Assume Mr. Sharma, an Indian resident, is paying a monthly rent of ₹1,00,000 to his NRI landlord.

• TDS Calculation: ₹1,00,000 × 30% = ₹30,000
• Monthly payment after TDS deduction: ₹1,00,000 – ₹30,000 = ₹70,000
• The deducted TDS of ₹30,000 must be deposited with the Income Tax Department.

If DTAA applies and the TDS rate is 15%, then:

• TDS Calculation: ₹1,00,000 × 15% = ₹15,000
• Monthly payment after TDS deduction: ₹1,00,000 – ₹15,000 = ₹85,000

Lower TDS Deduction Process

If the NRI landlord’s actual tax liability is lower than the 30% TDS rate, they can apply for a Lower Deduction Certificate (LDC) from the Income Tax Department. Here’s how:

1. Application by NRI Landlord: The landlord must apply for a lower deduction certificate (Form 13) from the Assessing Officer (AO).
2. Certificate Issuance: The AO reviews the landlord’s tax liabilities and issues the certificate specifying a reduced TDS rate.
3. Tenant’s Compliance: The tenant can deduct TDS at the lower rate mentioned in the certificate.

Form 15CA & 15CB Requirements

For any payment made to an NRI, compliance with Form 15CA & 15CB is mandatory before remittance:

1. Form 15CA: A declaration by the payer (tenant) to be submitted online before making the remittance to an NRI landlord.
2. Form 15CB: A certificate issued by a Chartered Accountant (CA) certifying that the tax deduction is in compliance with the Income Tax Act.
3. Submission: If the remittance exceeds ₹5,00,000 in a financial year, both Form 15CA & 15CB are required. Otherwise, only Form 15CA is sufficient for smaller amounts.

Budget 2017 Amendment Impact

Budget 2017 introduced stringent compliance measures for TDS on payments made to NRIs, emphasizing stricter enforcement of Form 15CA & 15CB. The following changes were made:

1. Expanded scope of TDS deduction: TDS compliance for rental payments to NRIs is closely monitored, making it necessary for tenants to deduct and deposit TDS accurately.
2. Strengthened penalties: Non-deduction or non-payment of TDS now attracts higher interest rates and penalties.

Consequences of Not Deducting TDS on NRI Rent

Failure to deduct or deposit TDS can lead to serious tax implications, including:

• Interest on Late Deduction/Deposit:
  • 1% per month for failure to deduct TDS.
  • 1.5% per month for failure to deposit TDS after deduction.
• Penalty Under Section 271C: The tenant may be liable to pay an equivalent amount as a penalty.
• Disallowance of Rent Expense: If TDS is not deducted, the rent paid may be disallowed as a business expense for tax purposes.
• Tenant in Default: If the tenant fails to deduct and deposit TDS, they will be considered a “defaulter” and held liable for the unpaid tax amount, along with penalties and interest.

Conclusion

Compliance with TDS on rent paid to NRI landlords is crucial to avoid penalties and legal issues. If you are unsure about tax deductions or need assistance with a lower TDS application, consult N C Agrawal& Associates, CA in Delhi and Noida to ensure seamless compliance.

You can also read our Article on TDS applicabilty on sale of property by NRI by clicking here

For expert advice, reach out to N C Agrawal & Associates, offering specialized tax and compliance services for residents and NRIs.

Tax Deducted at Source (TDS) is a mechanism by which the government collects tax at the source of income. The payer deducts a certain percentage of the payment as tax and remits it to the government on behalf of the payee. The TDS rates and applicable sections under the Income Tax Act for the Financial Year (FY) 2024-25 (Assessment Year 2025-26) are outlined below:

TDS Rate Chart for FY 2024-25 (AY 2025-26):

Section	Nature of Payment	Threshold Limit (₹)	TDS Rate (%)	Effective Date
192	Salary	As per income tax slab rates	As per slab rates	–
192A	Premature withdrawal from EPF	₹50,000	10%	–
193	Interest on securities	₹10,000	10%	–
194	Dividend	₹5,000	10%	–
194A	Interest other than on securities	₹40,000 (₹50,000 for senior citizens)	10%	–
194B	Winnings from lotteries, crossword puzzles, etc.	₹10,000	30%	–
194BA	Winnings from online games	No threshold	30%	–
194BB	Winnings from horse races	₹10,000	30%	–
194C	Payment to contractors/sub-contractors (single transaction)	₹30,000	1% (Individual/HUF), 2% (Others)	–
194C	Payment to contractors/sub-contractors (aggregate in FY)	₹1,00,000	1% (Individual/HUF), 2% (Others)	–
194D	Insurance commission	₹15,000	5%	–
194DA	Payment in respect of life insurance policy	₹1,00,000	5%	–
194EE	Payments from National Savings Scheme	₹2,500	10%	–
194F	Payments on account of repurchase of units by Mutual Fund or Unit Trust of India	No threshold	20%	Up to 30-09-2024
194F	Omitted	–	–	From 01-10-2024
194G	Commission on sale of lottery tickets	₹15,000	5%	–
194H	Commission or brokerage	₹15,000	5%	Up to 30-09-2024
194H	Commission or brokerage	₹15,000	2%	From 01-10-2024
194I(a)	Rent for plant and machinery	₹2,40,000	2%	–
194I(b)	Rent for land, building, furniture, etc.	₹2,40,000	10%	Up to 30-09-2024
194I(b)	Rent for land, building, furniture, etc.	₹2,40,000	2%	From 01-10-2024
194IA	Payment on transfer of certain immovable property other than agricultural land	₹50,00,000	1%	–
194IB	Payment of rent by certain individuals or HUF	₹50,000 per month	5%	Up to 30-09-2024
194IB	Payment of rent by certain individuals or HUF	₹50,000 per month	2%	From 01-10-2024
194IC	Payment under specified agreement	No threshold	10%	–
194M	Payment of certain sums by certain individuals or HUF	₹50,00,000	5%	Up to 30-09-2024
194M	Payment of certain sums by certain individuals or HUF	₹50,00,000	2%	From 01-10-2024
194O	Payment of certain sums by e-commerce operator to e-commerce participant	₹5,00,000	1%	Up to 30-09-2024
194O	Payment of certain sums by e-commerce operator to e-commerce participant	₹5,00,000	0.1%	From 01-10-2024

Key Changes Effective from 1st October 2024:

• Section 194H (Commission or Brokerage): TDS rate reduced from 5% to 2%.
• Section 194IB (Rent by Individuals or HUF): TDS rate reduced from 5% to 2%.
• Section 194M (Payments by Individuals or HUF): TDS rate reduced from 5% to 2%.
• Section 194O (E-commerce Transactions): TDS rate reduced from 1% to 0.1%.
• Section 194F (Repurchase of Units by Mutual Funds or UTI): This section has been omitted.

These changes aim to simplify tax compliance and reduce the burden on taxpayers. It’s essential to stay updated with these modifications to ensure accurate TDS deductions and adherence to tax regulations.

if you further need to study the detail about TDS deposit dates and tds return filing process, the same can be read at TDS Deposit dates and Return Filing

Dear Taxpayer, ANIL KAUSHAL (BOSPKXXXXL)
It is observed that you have claimed deduction under section 80GGC of Rs 500000 in your ITR for A.Y. 2023-24. It is requested that the claim may be verified and mistake, if any, may be rectified by updating the ITR for A.Y. 2023-24 by 31.03.2025.

Warm regards
Income Tax Department

Did you received the above message from income tax department? worried about , what should do?

Steps to Take Upon Receiving a SMS for Section 80GGC Deduction Discrepancy or verification

If you have received a notice from the Income Tax Department regarding a claimed deduction under Section 80GGC, it is crucial to verify and rectify the details to ensure compliance with tax laws. Section 80GGC allows taxpayers to claim deductions for donations made to political parties. However, any discrepancies or unverified claims can lead to legal and financial complications.

As a leading CA Firm in Delhi and Noida, we guide taxpayers through the proper steps to resolve such issues effectively.

Steps to Take After Receiving the Notice

1. Verify the Claimed Deduction

• Check your filed Income Tax Return (ITR) for A.Y. 2023-24 to confirm the amount claimed under Section 80GGC.
• Ensure that the donation was made to a registered political party or electoral trust through a valid payment mode (excluding cash).
• Cross-check the acknowledgment or receipt of the donation from the concerned party.

1. Gather Supporting Documents

• Please make sure you are in possession of Donation receipt or Obtain a donation receipt from the political party or trust.
• Keep a copy of the bank transaction statement as proof of payment.

1. File an Updated ITR (ITR-U) if Required

• If you find any mistake in the claim, file an Updated Return (ITR-U) under Section 139(8A) before 31st March 2025.
• The ITR-U can be filed online through the Income Tax e-Filing Portal.
• Ensure accurate reporting to avoid penalties or further scrutiny.

1. Respond to the Notice Properly (in case if you have received the Tax Notice)

• If your claim is correct, respond to the Income Tax Department with necessary documents.
• Use the Compliance Portal on the Income Tax website to submit your response.
• If required, seek assistance from a professional CA Firm in Delhi and Noida for drafting a response.

• We have already highlighted this matter earlier, emphasizing that the government is actively monitoring and identifying fake deductions claimed through updated ITRs. This issue was recently addressed and published on our website. You can read the full article by clicking here

Why Choose a CA Firm in Delhi and Noida?

Handling tax notices and rectifications requires expertise in income tax laws and compliance. Professional assistance ensures:
✅ Correct tax filing and compliance with regulations.
✅ Proper documentation and legal response to the tax department.
✅ Avoidance of penalties due to incorrect claims.

If you have received a similar notice, contact our expert team at N C Agrawal & Associates, a trusted CA Firm in Delhi and Noida, for hassle-free assistance in resolving tax discrepancies and filing Updated ITR.

During various search & seizure and survey operations conducted by Income Tax Department, it has come to notice that various individuals are claiming incorrect deductions, under sections 80C, 80D, 80E, 80G, 80GGB, 80GGC, in their ITRs, leading to reduction of tax payable to the government.

As many as 90,000 salaried individuals, both from PSUs and the private sector, have withdrawn wrongful tax deductions claims totalling Rs 1,070 crore as of December 31, 2024, government sources said on Thursday.

During various search & seizure and survey operations conducted by Income Tax Department, it has come to notice that various individuals are claiming incorrect deductions, under sections 80C, 80D, 80E, 80G, 80GGB, 80GGC, in their ITRs, leading to reduction of tax payable to the government.

During investigation, it was revealed that such individuals are employees of organisations operating in diverse fields including PSUs, big corporations, MNCs, LLPs, Private Ltd Companies, etc, sources said. Also, most of them who claimed wrongful deductions were working in the same company.

Analysis of the information with the department showed that there is a vast mismatch between total deductions under section 80GGB/80GGC claimed by taxpayers in their ITRs as against the total receipts shown by the donees in their ITRs.

Similarly, deductions claimed under sections 80C, 80E, 80G also appear to be suspicious in nature, sources said. They said, a list of common employers (TDS deductors) has been identified and tax department would be reaching out to as many persons as possible who are suspected to have claimed bogus deductions under section 80E, 80G, 80GGA, 80GGC and other deductions

Further, verification has revealed that certain unscrupulous elements have misguided taxpayers for claim of incorrect deduction/refunds,” a source said. Sources said the department has been conducting outreach programmes with employers to spread awareness about the consequences of claiming incorrect deductions in the ITRs and corrective measures which can be taken by the taxpayers to rectify the errors of omission or commission.

Till 31st December, 2024, approximately 90,000 taxpayers have withdrawn incorrect claim of deductions amounting to Rs 1,070 crore approx in their ITRs and have paid additional taxes,” a source said.

As per the provisions of Income-tax Act, 1961, taxpayers can file updated returns on payment of some additional tax rectifying the errors within two years from the end of the relevant assessment year, for AY 2022-23 to 2024-25. In order to intensify the efforts of the department of promoting voluntary tax compliance and reducing litigation, outreach programme with employers is being launched, sources added. PTI JD CS ANU

Source: https://www.moneycontrol.com/news/india/90k-salaried-individuals-withdraw-rs-1-070-crore-worth-wrongful-tax-deduction-claims-12912663.html

After successful implementation of Phase-1 & Phase-2 now Phase-III regarding Table 12 of GSTR-1 & 1A is being implemented, from return period January 2025. In this phase manual entry of HSN has been replaced by choosing correct HSN from given Drop down. Also, Table-12 has been bifurcated into two tabs namely B2B and B2C, to report these supplies separately. Further, validation regarding values of the supplies and tax amounts involved in the same, have also been introduced for both the tabs of Table-12. However in initial period these validations have been kept in warning mode only, which means failing the validation will not be a blocker for filling of GSTR-1& 1A. To view the detailed advisory please click here

Source: https://www.gst.gov.in/

The upcoming Direct Tax Code (DTC) 2025 in India is designed to replace the existing Income Tax Act of 1961, aiming to modernize, simplify, and enhance the efficiency of the tax system. Key features include:

1. Residency Simplification: The DTC will reduce residency categories from three (Resident and Ordinarily Resident, Resident but Not Ordinarily Resident, and Non-Resident) to two: Resident and Non-Resident.
2. Unified Financial Year Basis: The concepts of Previous Year and Assessment Year will be removed, with the Financial Year becoming the sole reference point for tax purposes.
3. Integration of Capital Gains: Capital gains may be taxed as regular income, which could increase tax rates for some taxpayers.
4. Updated Income Terminology: “Income from Salary” will be renamed as “Employment Income,” and “Income from Other Sources” will become “Income from Residuary Sources,” though the main income categories remain unchanged.
5. Expanded Audit Eligibility: In addition to Chartered Accountants (CA), Company Secretaries (CS) and Cost and Management Accountants (CMA) may also be authorized to conduct tax audits, enhancing accessibility and competition in tax audit services.
6. Streamlined Sections and Schedules: Fewer sections in the tax code aim to simplify compliance and reduce litigation complexity.
7. Revised TDS and TCS Rules: Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) will apply more broadly across income types, with lower rates but wider applicability.
8. Reduction in Exemptions: Many existing exemptions and deductions are likely to be phased out, broadening the tax base and simplifying filing processes. The goal is to increase the taxpayer base from about 1% to around 7.5% of the population.
9. Corporate Tax Rate Harmonization: A unified tax rate for domestic and foreign companies aims to encourage foreign investment by creating a level playing field.
10. Lowered Tax Burden for Salaried Employees: Salaried employees may see a reduced tax burden, addressing the long-standing issue of a disproportionate tax load on this group.

The DTC 2025 is anticipated to take effect in the fiscal year 2025-26, signaling a major evolution in India’s tax framework that could impact compliance, competitiveness, and transparency across sectors.

An unexpected issue emerged, in which it was stressed that technicalities made via the Department and not the assessee must not be put forth by the department to defeat the legal rights and entitlements of the assessees.

It was carried out by the Bombay High Court that the related Revenue officials (respondent) could not refuse the advantage of the accrued Input tax credit to the taxpayer (applicant) merely because the specified forms had not been furnished electronically but furnished manually.

Since the GST ITC-02 Form was not available for electronic filing, neither the applicant nor TDN could be held responsible for not submitting Form GST ITC-02 electronically on the department’s common portal, the Court stated.

Consequently, the Division Bench of Justice M.S. Sonak and Justice Jitendra Jain asked the respondents to regard the manually filed forms via the TDS as expeditiously as feasible.

The bench therefore specified that if on the due consideration of manual forms the respondents still discovered that the ITC of Rs 18,30,58,995 was not due or was claimed erroneously of and used by the applicant, they are free to pass a relevant order.

Case Facts

The applicant has the business of providing internet services, entered in the Business Transfer Agreement (BTA) with Tikona Digital Networks (TDN), where TDN business was transferred before the applicant as a present concern. Hence TDN approached the AO jurisdictional notifying them of the non-availability of Form ITC-02 functionality on the department’s common portal.

TDN has the objective to transfer unused credit in its electronic credit ledger on the date of slump sale before the applicant. However as Form ITC-02 was not available till now on the GSTIN portal for filing, TDN can not follow with the electronic filing need of the mentioned form.

The applicant in the second half of the year 2017 claimed the ITC to the tune of Rs 18.30 crores. As the respondents do not incur the available electronic facility to file Form GST ITC-02, the applicant has furnished the form manually.

The applicant has received a notice after 6 years alleging that the applicant has erroneously claimed and used the ITC of Rs 18 crores, as the applicant manually furnished the forms. Therefore the applicant has approached the HC contesting the notice and the demand asked from the Respondent department.

High Court Observations

The Bench remarked that the only claim made in the show cause notice is related to the non-electronic submission of Form GST ITC-02 on the department’s shared portal.

The Bench expressed the view that these allegations would be valid if the Department’s shared portal were operating properly, allowing TDN or the petitioners to submit Form GST ITC-02 electronically through it.

The Bench acknowledged that the TDN or the petitioner was unable to submit Form GST ITC-02 on the department’s shared portal during the applicable period due to functionality problems associated with that portal.

Therefore the Bench noted that after the same has been considered that Form GST ITC-02 was not e-filed on the shared portal of the department as it was not operational to generate and accept the Forms, the issuance of the Show cause notice (SCN) is to practice of excessive jurisdiction under the CGST act and the rules.

The Bench noted that the petitioner only claimed the ITC after the CA’s certificate was submitted, which confirmed that the business transfer from TDN to the Petitioner included specific provisions for transferring liabilities.

Respondents can have processed the forms and wished on the issued of ITC if they had problems with the Form GST ITC-02 or GSTR-3B manual filing, the bench said.

The bench outlines that the respondents on the specious plea can not have avoided processing the manual return that Section 18(3) & Rule 41(1) of the CGST Act and Rules identify only electronic filing and not manual filing.

Similarly, the Bench determined that the Allahabad High Court observed that, at the time when BTA transferred its business along with liabilities to the petitioner, the option to file Form IT-02 was not accessible on the department’s common portal, thus ruling that the petitioner should not be denied the ITC.

Moreover, the Gujarat High Court, Delhi High Court, and Bombay High Court determined under the same conditions that the Department’s failure to recognize and transfer the ITC owed to the petitioner was highly unlawful, the Bench noted.

It was therefore specified that the respondents were bound from duty to take cognizance of the decisions of the Allahabad, Gujarat, and Delhi High Courts in dealing with the almost same problem related to the applicant, the Bench quashed the SCN asking for the ITC and permitted the petition of the taxpayer.

It was specified by the Bench that if the respondent concludes that the Input tax credit (ITC) was claimed erroneously. Then the respondents can take action by complying with natural justice.