The Income Tax department has notified the new Income Tax return forms (new forms) for the tax year 2018-19 on April 01, 2019. Upon analysis of the new forms, one can observe that the Income Tax authorities are seeking detailed disclosures by delving into the finer details of the nature of income. The additional disclosures could be used by the Income Tax department to curb the menace of black money, integrate with tax treaties, cross-verify the data available with various governmental sources and enable CPC to correctly and swiftly process the returns filed. Some of the major changes have been discussed below.
Over a period, there has been increased focus on non-residents and extra-territorial transactions. The new forms are seeking the details of stay pattern in India to ascertain residential status. Further, individuals who are non-residents in India for the said tax year, must provide their country of residence along with their Taxpayer Identification Number.
Due to the introduction of the penal provisions under Black Money Act, special emphasis has been laid down on the true and correct reporting of the assets held outside India. Incorrect reporting of the same may lead to the imposition of penalties and prosecution. Additional reporting requirements incorporated in the new forms includes disclosure of foreign depository accounts, foreign custodial accounts, foreign equity and debt interest held, etc. Furthermore, closing balances of such securities/ accounts are also required to be reported in addition to the peak balance during the year.
Interestingly, the new forms bar individuals with shareholding in unlisted companies to file Form ITR-1 SAHAJ, which is a simpler version. The new forms necessitate exhaustive details of unlisted equity shares held at any point during the tax year like, name and PAN of company, opening and closing balance of shares, cost of acquisition, face value of shares, etc. This will target the group of people who are using this route for mobilizing unaccounted money to the mainstream economy.
Further, a person who is director in a company is not allowed to file Form ITR-1 SAHAJ, which was possible till the last year. Details of directorship in listed and unlisted companies along with name and PAN of company are required to be disclosed in the new forms. This data may be cross verified with the data available at MCA website.
There has been a clear shift in the reporting of salary in the new forms. The new forms require details of exempt allowances to arrive at the taxable salary as against the earlier forms, wherein exempt allowances were disclosed separately and not used directly to arrive at the taxable salary. This change would enable CPC to reconcile net salary numbers through e-TDS returns filed by employers.
Furthermore, the new forms enable pensioners to be identified separately by the tax authorities who should be in the least order of priority for being selected under audit proceedings considering their age and nature of limited income. Also, additional line item has been provided for the standard deduction which was extended to all the salaried tax payers.
Under house property, the new forms mandate the quoting of PAN of tenant if TDS has been deducted. Earlier, this disclosure requirement was optional. This change would further enable the CPC to cross-verify the details filed through TDS returns so that correct income is offered to tax. Further, there are provisions in relation to tax arrears/ unrealized rent received during the year under the Income Tax Act, 1961. However, the earlier forms did not capture the same which could have resulted in leakage of taxes on such income.
To track the transfer of immovable property, the new forms have mandated reporting of details of buyers including PAN and percentage share. This would act as a double-edged sword wherein the exchequer could cross-verify details of the buyer and seller from the returns filed as well as e-TDS returns. Additionally, the last budget introduced the taxation of long term capital gains on sale of listed shares. The forms have been enabled to capture all the required data for the calculation of such taxable income.
With regard to agricultural income, if the income exceeds INR5 lakhs during the said tax year, elementary details such as district along with the PIN, size of land, mode of irrigation and ownership pattern of agricultural land has to be provided. This would enable the Income Tax department to identify rich farmers, which may help in broadening the tax base.
Individuals having interest income are now required to separately disclose the interest from savings bank, deposits, income tax refunds, etc. The bifurcation for the aforesaid categories was not available in the notified forms for the tax year 2017-18 but was later introduced in the income tax return preparation utilities for better disclosures. Detailed bifurcation would be instrumental in correct processing of return of income in time bound manner.
To track cash donations, the new return forms require the breakup of donation in cash or other modes so as to maintain the transparency by the donor as well as by the donee.
Since the introduction of provisions of the Tax Residency Certificate (TRC) for claiming relief under tax treaties from the tax year 2012-13, there has been a lot of litigation around the TRC. The new forms are explicitly seeking the details of the exemption claimed under tax treaty along with the confirmation of availability of TRC. This could be challenging for the tax payers, as obtaining the TRC from foreign countries for the entire tax year before filing may not be practically feasible. It is expected that the Income Tax department would come up with additional clarity on the said requirement.
With the enhanced disclosure requirements, the Income Tax department has clearly indicated its no-tolerance stance with respect to tax leakages. Further, the data collected through the additional disclosures will act as an enabler for the CPC to process returns with precision and in a time bound manner through its automated systems without going back to taxpayers for trivial queries. A new momentum has been provided to ensure compliances through the reporting of the detailed information which may be used to identify black money and tax evaders.
This brings us to an important conclusion, about the need for adequate and accurate reporting in the return of income filed by tax payers. Lack of awareness about new reporting requirements and the casual approach in the filing of return of income among salaried individuals including the expat population working in India could end up in tedious litigation and monetary losses. Although the increased reporting requirements may be an additional burden on taxpayers, if adequate caution is taken in preparation of the tax return, it would be a windfall in avoiding litigation and achieving peace of mind!
The author of this blog is Amarpal S. Chadha, Tax Partner and India Mobility Leader, People Advisory Services, EY India