Tax payers need not live in fear of their tax assessments being re-opened many years after they file their income tax return (ITR) anymore. The finance minister, in her budget speech, announced that the period of re-opening of income tax assessment has been reduced to 3 years from the existing 6-year period. This is the duration till when taxpayers are required to maintain relevant tax documents, as their case can be re-opened by tax authorities if they have any doubt of serious tax fraud or evasion.
The latest budget proposal means that taxpayers will now have to maintain all ITR-related documents for 4 years including the current assessment year instead of 7 years earlier .
The re-opening period can go up to 10 years in the case of serious tax evasion where the income tax authorities has evidence of tax evasion of Rs 50 lakh of more. Even in this case, the assessment officer will have to take approval from the chief commissioner of the income tax department.
As per Section 149 of the Income-tax Act, 1961, the income tax department has the powers to issue a notice to taxpayers for seven years from the end of the financial year. So, this would mean that if you have filed ITR for FY 2019-20, then you must keep the related documents with you till the end of FY 2023-24.
How long do you have to keep ITR documents
All documents such as rent receipts or rental agreement, section 80C tax saving documents etc. which prove the claims made by you in your tax-return are advised to be kept safe once you have filed your ITR for a particular financial year.
Here, you should keep in mind that the income tax department does not ask you to submit any documentary evidence to substantiate the claim made at the time of filing ITR. The ITR is filed on the basis of self-assessment but the income tax department has the right to ask you to prove the claims in the ITR by sending you a notice. So with this reduced timeline of last 3 ITR assessments in generic cases will reduce the compliance burden of the taxpayers.
If you have any sort of income from foreign assets, then you will have to keep the ITR related documents for longer. For any individual having income relating to a foreign asset or having a financial interest in any foreign entity, then, in that case, such related documents must be kept for 17 years from the end of the relevant financial years.