Undisclosed Income On Tax Department's Watchlist

The central government has proposed an amendment to the Finance Act 2025 to address issues raised by taxpayers and industry stakeholders. The government’s step is supposed to cover the scope of search and seizure operations conducted by the tax department, as per a Financial Express report.

The amendment said that these operations would be targeted at "total undisclosed income" instead of "total income," indicating that already disclosed earnings would not fall under scrutiny, the report added.

The issue arose following the Finance Act 2024, which introduced a block assessment system for search and seizure cases but used the term "total income." This ambiguity also raised fears that even legally declared income could be subject to severe penalties in search operations, as per the report.

Clearer Definition to Protect Taxpayers

The revision aimed to prevent unnecessary litigation and reduce taxpayer anxiety, particularly among businesses and high-net-worth individuals frequently subjected to tax probes, the report added.

Automated Compliance Checks for Tax Filings

Additionally, there was another crucial change that came in the form of an amendment to Section 143(1). Which will now grant the Centralized Processing Centre (CPC) enhanced powers to automatically adjust income tax returns based on inconsistencies with previous filings. This automated system is expected to improve compliance oversight, flagging discrepancies and reducing tax evasion, the report added.

Incentives for Electronics Manufacturing

The amendment also provides clarity on Section 44BBD, a provision that introduces a 25 per cent presumptive income regime for the electronics manufacturing sector. The government has explicitly stated that Sections 44DA and 115A will not apply to this provision, ensuring that companies in the sector do not face taxation disputes similar to those seen under Section 44BB, as per the report.

Changes to Offshore Fund Management Rules

Another key modification affects Section 9A, which governs offshore fund managers operating in India. The existing rule imposed a restriction that more than 5 per cent of a fund’s corpus could not be owned, directly or indirectly, by Indian residents. Under the Finance Bill 2025, the requirement has been eased by removing the “indirect” ownership clause, simplifying compliance for fund managers and foreign investors, as per the report.

However, an earlier proposal to remove the central government’s authority to modify these provisions through notifications has now been reversed, restoring the government’s ability to make further amendments when necessary, the report added.

Tax Authorities Get Expanded Powers

The amendments came at a time when tax enforcement was becoming more stringent. Recent measures have expanded the tax department’s ability to raid, seize digital assets, and attach properties.

Buy Outlook Money March 2025 Magazine Issue on Amazon Here.