STA Interpretation: IIT Comprehensive Income Annual Reconciliation and Settlement Management Measures

关于《个人所得税综合所得汇算清缴管理办法》的解读

Source (Chinese): STA Policy Database — 政策解读 (Income Tax Division, February 26, 2025)

English translation: Independent translation. Not an official government translation.

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In accordance with the Individual Income Tax Law of the People's Republic of China, the Tax Collection and Administration Law of the People's Republic of China, and other relevant national regulations, the State Taxation Administration drafted the Management Measures for Individual Income Tax Comprehensive Income Annual Reconciliation and Settlement (hereinafter the "Measures"). After publicly soliciting comments from January 3 to February 2, 2025, and carefully studying and incorporating relevant opinions and suggestions, the Measures were reviewed and approved at the 1st Executive Meeting of the State Taxation Administration on February 21, 2025, and took effect on the date of publication.

I. Background for Issuing the Measures

Starting from 2019, China began implementing a new individual income tax system combining comprehensive and schedular taxation. After the end of each year, taxpayers are required to aggregate four categories of comprehensive income — wages and salaries, remuneration for personal services, author's remuneration, and royalties — for combined taxation, file an annual reconciliation and settlement (annual filing) with the tax authorities, and settle any tax refund or supplementary payment due. From 2019 to 2023, the tax authorities issued an annual announcement each year specifying the matters for handling IIT comprehensive income annual reconciliation and settlement, clarifying the content, applicable circumstances, processing period, filing methods, filing channels, and declaration information. With the joint support and active participation of all sectors of society, five annual reconciliation and settlement cycles were completed smoothly, and conditions are now ripe for establishing a more stable and mature set of management measures.

The Decision of the Third Plenary Session of the 20th CPC Central Committee stated that China should "improve the individual income tax system combining comprehensive and schedular taxation," setting higher requirements for standardizing IIT comprehensive income annual reconciliation and settlement services and management. To further implement the deployment of the Third Plenary Session, better stabilize social expectations, and promote the regularization of annual reconciliation and settlement work, the STA used the content of the previous five annual announcements as the main body, conducted a comprehensive review and systematic summary of past reconciliation and settlement experiences, fully absorbed opinions and suggestions from taxpayers and all sectors of society, and drafted and issued the Measures.

II. Main Contents of the Measures

The Measures generally continue the main content of the annual IIT comprehensive income annual reconciliation and settlement announcements and consist of six chapters with thirty-seven articles. The main contents include: Chapter 1 — General Provisions, which primarily specifies the scope of annual reconciliation and settlement, the concept of annual reconciliation and settlement, the tax year, the filing deadline, and applicable circumstances. Chapter 2 — Preparation for Annual Reconciliation and Settlement and Reporting of Related Items, which primarily specifies the preparatory work taxpayers must undertake before the annual reconciliation, the deductions, tax reductions/exemptions, and related requirements that may be reported or supplemented during the annual reconciliation, as well as the dispute and complaint process. Chapter 3 — Filing for Annual Reconciliation and Settlement and Services, which primarily specifies the filing methods, filing channels, document retention, amended returns, competent tax authority, extension of filing deadline, and other matters, as well as services provided by tax authorities to taxpayers including pre-populated return form services, appointment-based filing services, and policy interpretation and operational guidance services. Chapter 4 — Tax Refund (Supplementary Payment), which primarily specifies the conditions for annual reconciliation tax refunds, refund review, account requirements, and supplementary payment channels, and provides priority refund services and simplified return refund services for eligible taxpayers. Chapter 5 — Administrative Measures and Legal Liability, which primarily specifies the responsibilities of all parties in the annual reconciliation, IIT tax record notation, taxpayer credit management, information confidentiality, orders to rectify within a time limit, and penalties, emphasizing taxpayers' right to seek legal remedies under tax law. Chapter 6 — Supplementary Provisions, which primarily specifies the effective date of the Measures and two categories of circumstances to which the Measures do not apply.

III. Key Features of the Measures

The Measures place greater emphasis on stabilizing social expectations. Drawing on service and management practices from recent years, the Measures codify as formal rules those measures that have demonstrated clear effectiveness and received positive feedback from taxpayers, further strengthening the annual reconciliation service and management system. For example, the Measures formally incorporate provisions for tax authority pre-populated return form services, appointment-based filing services during the initial period of the annual reconciliation, and priority refund services for taxpayers who meet annual reconciliation refund conditions and bear heavy living burdens, making it more convenient for taxpayers to efficiently complete the annual reconciliation. Additionally, the Measures provide, for taxpayers who have questions about their income tax status during the annual reconciliation period or encounter situations such as identity misuse, a dispute and complaint channel through the tax authorities.

The Measures place greater emphasis on protecting taxpayers' legitimate rights and interests, more clearly delineating the rights and obligations of all parties in the annual reconciliation, and providing better legal safeguards for annual reconciliation services and management. For example, the Measures require tax authorities and their staff to maintain the confidentiality of individuals' tax-related information in accordance with law, and list the legal remedy channels available when taxpayers' legitimate rights are infringed.

The Measures also place greater emphasis on facilitating taxpayers' detailed understanding of various annual reconciliation matters and guiding taxpayers in making proper preparations. For example, before the annual reconciliation begins, taxpayers can promptly verify the validity of their contact phone numbers, bank accounts, and other basic information in the IIT App; verify the accuracy of comprehensive income, related deductions, and taxes already paid through the IIT App, the Natural Person Electronic Tax Bureau website, or through their withholding agents; and organize relevant supporting materials for reporting during the annual reconciliation. Taking the 2024 tax year IIT comprehensive income annual reconciliation as an example, this annual reconciliation began on March 1, 2025. The system also opened the appointment function on February 21. Taxpayers who need to file during the initial period (March 1 to March 20) can make an appointment through the IIT App for any day within that period.

IV. Matters Requiring Clarification

(1) Circumstances Under Which Annual Reconciliation Is Not Required

Article 6 of the Measures specifies four circumstances under which taxpayers who have earned comprehensive income and have lawfully prepaid IIT need not file the annual reconciliation. Among these, "(1) where the annual reconciliation requires supplementary tax payment but the total annual comprehensive income does not exceed the prescribed amount; (2) where the annual reconciliation requires supplementary tax payment but the amount does not exceed the prescribed amount" primarily refer to the provisions in the Announcement of the Ministry of Finance and the State Taxation Administration on Extending the Implementation of Relevant Policies for IIT Comprehensive Income Annual Reconciliation and Settlement (2023 No. 32), which stipulate: "Before December 31, 2027, taxpayers whose annual comprehensive income does not exceed RMB 120,000 and who need to make supplementary tax payments through the annual reconciliation, or whose annual reconciliation supplementary tax payment amount does not exceed RMB 400, may be exempted from filing the IIT comprehensive income annual reconciliation."

(2) Priority Refund Services

Article 23, Paragraph 2 of the Measures provides that "for taxpayers who meet the conditions for annual reconciliation tax refunds and bear heavy living burdens, the tax authorities shall provide priority refund services." This primarily means that for groups who are "supporting the elderly while raising children," bear heavy medical expenses, have experienced significant income declines, or are eligible for the simplified return refund, the tax authorities will continue to implement the priority refund system, providing taxpayers with more convenient refund services.

(3) Reminders Regarding Annual Reconciliation Refund Review

Article 24, Paragraph 2 of the Measures provides that "where the tax authority discovers during review that a refund application does not comply with regulations, it shall notify the taxpayer to supplement materials or amend the annual reconciliation return; if the taxpayer refuses to provide materials or refuses to amend the return, the tax authority shall deny the refund." When the tax authority discovers during refund review that a taxpayer's refund application does not comply with regulations, it will issue reminders to the taxpayer through the IIT App and website messages, mobile text messages, telephone, and other means. Upon receiving such notification, the taxpayer should promptly supplement materials or amend the annual reconciliation return to avoid affecting their own taxpayer credit.

(4) Service of Orders to Rectify Within a Time Limit

Article 33 of the Measures provides that "after the annual reconciliation period ends, for taxpayers who have not filed supplementary tax returns or have not paid supplementary taxes in full, the tax authority shall order them to rectify within a time limit in accordance with law and serve the relevant documents." For those who have signed the Electronic Tax Document Service Confirmation, the tax authority will effect electronic service through the IIT App, website, and other channels. For those who have not signed the Electronic Tax Document Service Confirmation, service will be effected by other means. Electronic service has the same legal effect as other methods of service.

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After the issuance of the Measures, the tax authorities will earnestly strengthen guidance for annual reconciliation filings, improve taxpayer services, continue to optimize the various functions of the IIT App, promptly respond to and resolve taxpayers' reasonable requests, and as always, provide taxpayers with a better filing experience.