Why This Year’s Indian Income Tax Returns Need Extra Attention: Decoding Section 143 (iia)

It is that time of year again when we start thinking about filing our Income Tax Returns (ITRs). This year, thanks to a new amendment introduced by the Finance Act, 2025 — effective from 1 April 2025 — taxpayers need to be especially careful when preparing and filing their returns.

Section 143(1) of the Income Tax Act, 1961 deals with Assessment. A key change has been brought about by adding a new clause (iia) after clause (ii). This clause adds to the adjustments that can be made when processing returns and says –

“(iia) any such inconsistency in the return, with respect to the information in the return of any preceding previous year, as may be prescribed;”

[At the time of writing this, no rules have been prescribed.]

Previously, only arithmetical errors, incorrect claims, disallowance of losses/deductions claimed where ITR was furnished beyond due date, any audit report items that were not considered while computing income formed the subject matter of adjustments that could be made.

On a reading of the new clause, it looks like the system will consider any inconsistency in information contained in the return(s) of any preceding year. Therefore, comparisons will be made with the returns of prior years and adjustments could be made. This appears to be a very powerful tool in the hands of the department to ensure that the returns are accurate. Of course, any such adjustment can be made only with intimation being given to the assessee and after considering the response received.

However, there is a critical issue that has not been addressed yet. The word ‘inconsistency’ has not been defined nor has the department come out with any rules or notifications as to what all is considered an ‘inconsistency’. This adds to the uncertainty and there is a concern that even genuine cases could be dressed up as ‘inconsistency’ and thrown at the taxpayers. This will increase the compliance burden not just for the taxpayer, but also professionals. There is also an increased risk of litigation unless more clarity is brought in.

Some examples where items could be flagged under inconsistency include:

• Fluctuations in income – rent, professional receipts etc.

• Sudden changes in amounts of deductions claimed – a significant rise in capital gains exemptions or an 80G deduction

• Changes in residential status – especially when foreign incomes are involved

• MAT/depreciation claims – if not consistently aligned with prior year filings

Until formal guidelines define what constitutes an ‘inconsistency’, taxpayers and professionals must exercise greater diligence. Important steps include comparison of key figures from prior years, documentation of any deviations and being prepared for possible communications from the Centralized Processing Center (CPC). This tax season may require more than just compliance; it may require some amount of foresight as well.

This article is for informational purposes only. For specific advice based on your case, consider contacting us through email.