Changes are made to the Income tax return (ITR) forms almost every year with the intent of collecting more information and also simplifying the compliance for taxpayers. The Finance Minister has time and again mentioned the need for expanding the taxpayer base and fighting tax evasion. With technology playing the role of an enabler, the revenue authorities are increasingly relying on digital tax data gathering and analytics to assess taxpayers. As most of the tax returns are being filed online, data gathering and analysis has become much simpler than earlier times. The government’s focus on e-assessments is a testimony to the fact that technology will continue to be used to effectively assess tax returns and restrict tax avoidance.
The focus on collecting more data was clearly visible when the new tax return forms for Financial Year (FY) 2017-18 were released. Keeping in mind the convenience for the taxpayers, ITR-1 (Sahaj) has still been kept as a one pager simplified form. However, the new form requires taxpayers to furnish additional details on income from “Salaries”, such as taxable allowances, value of perquisites, deduction for professional tax, etc. These additional details will help the revenue authorities gather more information, enabling them to reconcile/ compare data already available in their records through the quarterly salary returns filed by employers. Additional details such as gross rent received, tax paid on property and interest payable on housing loan also need to be furnished for income from house property, in the new ITR-1. These details were not required to be furnished in the ITR-1 form earlier.
The new ITR forms have also rationalized the use of each form based on the type of income and the taxpayers. ITR-1 can now be used only by ordinarily residents having income from salary, one house property, other sources (interest, etc.) and having total income below INR50 lakhs. ITR-2 can now be used by individuals and Hindu Undivided Families (HUFs) who do not have any income from business or profession. Taxpayers having any kind of business income would now be required to file ITR-3 or ITR4 Sugam, which requires them to share extensive details in connection with their business/ profession.
The new ITR 2 forms have brought in more clarity for non-residents who do not have an Indian bank account, as the form specifically mentions that details of one foreign bank account can be provided to receive refund, if any. This comes as a relief, especially to the expatriate population, who end up closing their Indian bank account when they move outside India, usually before the tax refunds are processed.
The Finance Act 2017 has introduced the requirement for tenants to deduct taxes while making rental payments, if the monthly rent exceeds INR 50,000. The new ITR forms require the property owner to provide the PAN of the tenant, for claiming credit for the tax deducted by the tenant, on the rental income. The PAN of the tenant is also required to be mentioned while furnishing the details of income from house property (other than in Form ITR-1). This may help the revenue authorities map the rental income with PAN of the property owner and the tenant.
The Finance Act 2017 has also introduced a fee which will be payable by the taxpayers who file their tax return after the due date. The fee payable is INR 5,000 if the tax returns are filed after the due date, i.e., 31 July but before 31 December. The fee payable would increase to INR 10,000 if the tax returns are filed after 31 December. If the taxable income of the taxpayer is up to INR 500,000, the fee would be restricted to INR 1,000. All the new ITR forms issued have appropriate fields to capture this information. This change might ensure higher compliance in a timely manner and may also give adequate time to the revenue authorities to process the tax returns.
In order to put more onus on the taxpayer for the validity and accuracy of the tax return filed, the new ITR forms have added a new field under verification where the person signing the tax return will need to declare their PAN and also confirm that they are competent to prepare the tax return and verify it. This is in addition to the previous ITR forms which used to only ask the taxpayers to verify that the information submitted through the tax return is correct.
These changes indicate the revenue authorities’ intent to collect more data and use the same to fight tax evasion. However, it may mean additional responsibility for the taxpayers.
We may get more details once the revenue authorities come out with the detailed instructions for filing these forms.
The author of the blog is Amarpal Chadha, Tax Partner & India Mobility Leader, People Advisory Services, EY India
The co-author of the blog is Rama Karmakar, Director, People Advisory Services, EY India