Understanding tax laws can often feel like navigating a complex maze. With so many different sections, rules, and provisions, it can be hard to pinpoint what applies to you. However, one key section that taxpayers in Pakistan should be aware of is Section 155 of the Income Tax Ordinance. Whether you’re an individual taxpayer, a business owner, or a tax professional, understanding this section is crucial for staying compliant with the law and avoiding penalties.

In this article, we’ll break down Section 155, explain its importance, and show you how it impacts your taxes. This guide is written in simple, straightforward language to help you understand the provisions and how they apply in real-world scenarios. So, let’s dive in!

What is Section 155 of the Income Tax Ordinance?

Section 155 of the Income Tax Ordinance is a provision that deals with the adjustment of income tax paid in excess or deficiencies. In simple terms, it allows taxpayers to make adjustments to their previously filed tax returns if they have overpaid or underpaid their taxes. This section helps correct errors in tax assessments or claims made by taxpayers, ensuring that they pay the right amount of taxes.

The main aim of this section is to rectify mistakes or discrepancies in the original tax filing and provide an opportunity to make amendments in case the tax calculation was incorrect.

Why is Section 155 Important For Taxpayers?

Imagine this: you’ve filed your taxes, paid what you thought was your due amount, only to find out later that you’ve overpaid or underpaid. This could happen due to various reasons, such as a miscalculation or an error in filing your tax returns.

Here’s where Section 155 steps in. It provides a legal way for you to correct those errors. By using this section, you can adjust your tax return, whether it’s to claim a refund for overpaid taxes or to pay the additional amount if you underpaid. This provision also prevents taxpayers from facing penalties for mistakes that are rectified within a reasonable time frame.

The provision also serves as a tool for taxpayers to ensure accuracy in their financial dealings with the government. Whether you are an individual, a business owner, or even a company, Section 155 ensures that you only pay your fair share of taxes, based on your actual taxable income.

The Process of Adjustment under Section 155

Step 1: Identify the Error

Before you can make any adjustments, you need to identify if an error occurred in your original tax filing. This could be an overpayment or underpayment of taxes. Common reasons for errors may include:

• Misreporting of income
• Incorrect calculation of deductions or exemptions
• Wrong application of tax rates

Step 2: File the Corrected Return

Once you’ve identified the error, you must file a corrected income tax return. This amended return should reflect the actual income, deductions, and tax payable. You can make the necessary amendments by filling out the relevant forms provided by the Federal Board of Revenue (FBR).

Step 3: Submit the Application

After preparing the corrected return, you need to submit it to the FBR along with a formal request for adjustments. The application should include details of the mistake and the revised calculations. It’s important to ensure that you provide all the required supporting documentation, such as proof of income and deductions.

Step 4: Review by the Tax Authorities

Once the amended return is submitted, the FBR will review the changes and verify if the adjustments are valid. If everything is in order, the authorities will approve the adjustment. If there’s any additional tax payable, you will need to pay the balance amount.

On the other hand, if the FBR finds that you’ve overpaid, they will process your refund. This refund will be credited to your bank account or provided in the form of a cheque.

Step 5: Receive Confirmation

After the adjustment process is complete, you will receive a confirmation from the FBR, either acknowledging your overpayment and issuing a refund or confirming the additional payment required. This confirmation will officially close the matter and update your tax records.

The Benefits of Using Section 155 for Tax Adjustments

1. Corrects Mistakes and Errors

The most significant benefit of Section 155 is that it gives taxpayers the chance to correct mistakes in their filings. If you accidentally underreported your income or claimed an incorrect deduction, this section allows you to fix the error without facing harsh penalties.

2. Prevents Penalties

Taxpayers who realize they’ve made an error in their filing can use Section 155 to avoid penalties. By making corrections within a reasonable time frame, you can ensure that you aren’t penalized for any mistakes that were not intentional.

3. Ensures Fair Taxation

Another benefit of this provision is that it ensures taxpayers are only paying taxes based on their actual income. If you’ve overpaid, Section 155 allows you to claim a refund and avoid losing money to unnecessary overpayments.

4. Supports Tax Compliance

By providing a mechanism to correct errors, Section 155 encourages taxpayers to remain compliant with tax laws. It also ensures that taxpayers feel confident that they can resolve issues related to their tax filings without fearing consequences.

Real-World Example of Section 155 in Action

Let’s consider an example to help you understand Section 155 better:

Example: A small business owner, Ali, filed his tax return for the year 2023. However, he mistakenly included a non-taxable income as part of his total income. This error resulted in an overstatement of his taxable income, leading to an overpayment of taxes.

After receiving his tax assessment notice from the FBR, Ali realizes the mistake and decides to correct it. Using Section 155, he files a corrected return, clearly explaining the error. Ali submits the return along with his supporting documents, such as proof that the income was not taxable.

Once the FBR reviews the corrected return, they confirm that Ali overpaid his taxes. As a result, they issue a refund for the excess payment.

This process helps Ali recover the money he overpaid and ensures that his tax records are accurate for future filings.

Common Mistakes to Avoid When Using Section 155

Even though Section 155 provides a way to correct tax filing errors, there are still some common mistakes that taxpayers make when utilizing this section. Here are a few:

• Failure to Submit Proper Documentation: Without adequate proof, your request for an adjustment may be rejected. Always ensure that you attach all the necessary documents when submitting your application.
• Missed Deadlines: While Section 155 allows for corrections, there are deadlines to file the amended return. Be mindful of these deadlines to avoid missing the opportunity to make adjustments.
• Not Seeking Professional Help: If you’re unsure about how to navigate the process, consider consulting a tax professional. They can help you prepare the necessary documents and ensure everything is in order.

Conclusion

Section 155 of the Income Tax Ordinance is an essential provision that allows taxpayers to make adjustments to their tax returns if they’ve overpaid or underpaid their taxes. It offers a valuable opportunity to correct errors, avoid penalties, and ensure that taxpayers pay the right amount of taxes.

If you’ve made a mistake in your filing or discovered an error after submitting your tax return, don’t panic. Simply follow the steps outlined above, and take advantage of this provision to rectify the issue. Whether you’re an individual taxpayer, a business owner, or a corporate entity, understanding Section 155 is crucial for maintaining tax compliance and safeguarding your finances.

Remember, if you ever feel uncertain about the process or need assistance, you can always consult with a tax professional or refer to resources like Tax Laws in Pakistan for additional guidance.

FAQ Section

1. What is Section 155 of the Income Tax Ordinance?

Section 155 allows taxpayers to adjust their tax returns by correcting any overpayments or underpayments in their tax filings. It provides a mechanism for taxpayers to rectify mistakes without facing penalties.

2. How do I correct an error under Section 155?

To correct an error under Section 155, you need to file an amended return, submit a formal request for adjustment to the Federal Board of Revenue (FBR), and provide all necessary supporting documents.

3. Can I get a refund if I overpaid my taxes?

Yes, if you have overpaid your taxes due to an error, Section 155 allows you to claim a refund. Once your amended return is processed, the FBR will issue the refund.

4. Is there a time limit for making adjustments under Section 155?

Yes, there are deadlines for submitting an amended return. It is important to file the correction as soon as possible to avoid missing out on the opportunity to make adjustments.

5. Should I consult a tax professional for assistance with Section 155?

While you can handle the adjustment process on your own, consulting a tax professional is recommended, especially if you are unsure about how to file the corrected return or provide the correct documentation. A professional can guide you through the process efficiently.