Income Tax Department to Cross-Check Current Year’s ITR with Previous Year’s: What Taxpayers Should Know

According to tax experts, the amendment is aimed at addressing inconsistencies between the current and previous year’s returns at the time of processing.

In the Finance Bill 2025, Finance Minister Nirmala Sitharaman proposed an amendment to Section 143(1) of the Income Tax Act, 1961, which was discussed and passed in the Lok Sabha. The Income Tax Department has also issued FAQs providing clarity on how this amendment will affect taxpayers.

What’s Changing in Section 143(1)?

The proposed change allows the Income Tax Department to compare the current year’s ITR with the information from the previous year’s ITR. The goal is to identify any discrepancies or inconsistencies between the two filings. While specific details about what will be flagged are still to be defined, one possible example is when a taxpayer claims a certain credit in their prior year’s return, but the same figures are inconsistent or missing in the current year.

What Is Section 143(1) of the Income Tax Act?

Section 143(1) governs the processing of tax returns after they are submitted and verified by the taxpayer. The Income Tax Department checks for any arithmetic errors, incorrect claims, or obvious mistakes in the return based on the information provided.

How Will the Amendment Affect Taxpayers?

According to tax experts, the amendment is aimed at addressing inconsistencies between the current and previous year’s returns at the time of processing, reducing the likelihood of taxpayers receiving income tax notices.

An official explained that while the Income Tax Department will clarify which inconsistencies will be reviewed, it’s expected that the department will look at both the current year and previous year’s data. This comparison could include:

• Reported income

• Asset disclosures (such as in Schedules FA or AL)

• Carry-forward losses or deductions

• Business or professional details, including scale and nature

• Information from audit reports

The review will primarily focus on discrepancies that directly affect income or loss calculations. For example, differences in carried forward losses, unabsorbed depreciation, or the opening balance of assets or stock could be flagged for further examination.

What This Means for You

For taxpayers, this means it’s important to ensure that the information in the current year’s ITR is consistent with the previous year’s filing. If discrepancies are found, it could delay processing or prompt further scrutiny. However, by addressing inconsistencies early in the process, the amendment aims to minimize the need for notices and ensure more efficient processing.

All  in all, the amendment to Section 143(1) is designed to improve the accuracy and efficiency of the tax return processing system by flagging inconsistencies between the current and previous year’s returns. Taxpayers should review their returns carefully to ensure consistency, particularly regarding carry-forward losses, deductions, and other relevant details.