April 1marks the beginning of the new fiscal year and it’s time again for all of us to take stock of income earned in last fiscal year, making good any shortfall in taxes and filing tax return. Kudos to the government for notifying tax return forms before April 1. The ball is now in taxpayers’ court to collate required information and file the tax return within due date (July 31st).Let’s see the key changes in tax return forms (1 & 2) which are normally applicable in case of salaried individuals.
Applicability
As promised by the Finance Minister in his Budget speech, a simplified one pager form (ITR-1 Sahaj) has been notified. Also, the new Form ITR-2 now consolidates the earlier Form ITR-2, 2A & 3. Below is a summary on applicability of relevant forms basis heads of income and the income ceiling.
| Particulars | Form ITR-1 | Form ITR-2 | ||||||||||||||||||||||||||||||||||||
| Taxpayer category | Individual | Individual & HUF | ||||||||||||||||||||||||||||||||||||
| Income level | Up to INR 50 lakhs | No income limits | ||||||||||||||||||||||||||||||||||||
| Having income from – |
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It is also to be used if the taxpayer have –
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Now let’s look at some of the prominent changes as compared to earlier year tax return and the related challenges
Quoting of Aadhaar Details
The amended Finance Bill, 2017, proposes to make quoting of Aadhaar (Aadhaar number / Enrolment ID) mandatory in the tax returns effective 01 July 2017. Inline with proposed provisions, the tax return form provides to quote either Aadhaar number or the Aadhaar enrolment ID for those eligible for Aadhaar. However, currently these are not marked as mandatory fields as the proposed amendment is effective only from 01 July 2017.
This requirement, once made mandatory, may cause some difficulties in genuine cases. For instance, foreign nationals working in India may not have the required documents to enroll for Aadhaar. An Indian citizen who is currently overseas with no Aadhaar number / Enrolment ID will also find it difficult. It needs to be seen if the government would notify any specific category of taxpayers who may be exempted from this requirement and how this would be captured for tax return filings post 01 July 2017.
Disclosure on cash deposits
Demonetization compelled almost everyone to deposit demonetized currency notes into banks within the given time frame. If you are among those who deposited cash exceeding INR 2 lakhs in aggregate then keep all details handy. The new forms require taxpayers to disclose cash deposited in each bank account during the demonetization period i.e. 09 November 2016 to 30 December 2016. Interestingly, there is no differentiation between a current and savings bank account. Infact, the new form has done away with the requirement to disclose the nature of bank account i.e. savings or current. Also there is no differentiation between cash deposits in demonetized and other currency of deposits.
Reporting of dividend from domestic companies
In the recent past, dividends received from domestic companies were fully exempt. However, effective FY 2016-17, dividends received by individuals and HUF from domestic companies in excess of INR 10 lakhs is taxable at a special rate of 10%. Accordingly, the new forms require separate disclosure of the taxable and exempt dividends. Reporting is to be done as under –
♦ dividend income from domestic company in excess of INR 10 lakhs is to be reported in schedule relating to ‘income
from other sources’ and ‘special rate’
♦ dividend income from domestic company upto INR 10 lakhs is to be reported in schedule relating to ‘exempt income’
Enhanced disclosure under Asset and Liability Schedule
Taxpayers having total income exceeding INR 50 lakhs are mandatorily required to disclose their assets and liabilities in tax return. Until now, only the cost of specified assets (land & building, jewellery, vehicles, cash in hand, etc.) were required to be reported in ITR 1 & 2. The new forms require below enhanced disclosures –
♦ Land & Building – Address of the property needs to be reported
♦ Scope of financial assets has been widened to include bank deposits, shares and securities, insurance policies
and loans and advances.
♦ New assets included for reporting –
– Archaeological collections, drawings, painting, sculpture or any work of art
– Interest held in the assets of a firm or association of persons (AOP) as a partner or member of AOP.
The disclosure requirements are much extended as compared to assets which were earlier subject to wealth tax in India. While reporting does not have any tax implications but a correct reporting of cost should be ensured. Any change in reporting in subsequent years / at the time of sale of the asset in a future year could be challenged by the tax authorities. So it’s time for taxpayers to start compiling details of all assets and related liabilities on an ongoing basis to ensure appropriate reporting. Given the enhanced disclosure requirement, detailed FAQs and appropriate relief in reporting (such as inherited shares and securities) would be welcome.
Miscellaneous
Here are few other changes in forms which may be kept in view while tax filing –
♦ New form ITR1 specifically requires reporting of exempt income such as dividend from domestic companies and long
terms capital gains from sale of shares of Indian company on which STT is paid. It also provides additional rows
to report individually the nature of exempt income and the related amount. Earlier a separate reporting of each
category of exempt income was not required in ITR-1.
♦ The salary schedule in ITR-2 has been rearranged and all exempt allowances are clubbed at the end of schedule.
♦ The details of firm in which you are a partner as well as the details of income earned from such partnership firm
is required to be reported in ITR-2.
The excel utility which is used for e-filing tax return has also been notified for ITR-1 & 4. One can expect to
have the other forms available soon for e-filing. So kick off the efforts to compile details and file tax returns
in a timely manner