Dawn of a New Era in Income Tax Filing

With the dawn of a new era in Income Tax return filing, the CBDT and Government of India have taken into consideration the expected increased compliance. In AY 2018-19 (relevant to FY 2017-18), the tax base of the Indian Income Tax Payer is set to increase manifold with the introduction of Sec 234F in the Finance Bill, 2017.

The CBDT has also taken cognizance of the information now available through demonitisation and GST. The very nature of GST being entirely computer based, driven by a GSTIN, will play a key-role in reducing conflicts of information provided to different regulatory authorities. The ITR reflects the same by incorporating certain requirements now to be additionally submitted by Assessees. In addition to the earlier expected particulars, the Assessee now will have to disclose his/her GSTIN in specified Forms.

Sec 234F seeks to penalise non-filers (within due date) of their income tax return, to the tune of Rs.5000/- and set to increase by another Rs. 10,000/- if the failure persists. Prior to this amendment, the Tax Payer faced no penal consequences for non-filing the return of income in due time. While recourse could be sought by the department to the effect of even prosecuting the non-filer; it was rarely done so.

In true Indian fashion, it looks likely that the new penal consequences of non-filing the return of income in due time, vide Sec 234F, will encourage a significant portion of the tax base to file their return of income and file the same in due time.

ITR 1 for Salaried Employees Requires More Details

The ITR 1, simplified form, for salaried employees was largely meant to be a straight-forward Income Tax form, with minimal requirements to be complied with. This was a decision by the CBDT, then, to do away with unnecessary information that makes compliance cumbersome. The Assessee only had to input the income from salary and house property. However, in AY 18-19, the CBDT has mandated additional details for Salary Income and House Property Income (much like what is required in ITR2 and ITR3).

Figure 1 : ITR 1 Form for AY 2018-19

The simplicity of the earlier forms enabled several tax payers to file the return of income themselves. With the above change, there is room for errors (due to not understanding the specific line items/the law or the form itself). It is expected there might be an increase in the number of Assessee who will seek professional assistance in this regard.

ITR 2 No Longer Usable by Partners of Firms - ITR 3 now mandatory

Till AY 2017-18, an Assessee who is a Partner of a firm can use ITR 2 to file his/her/it's return of income, if no income is earned from any other business. Where the Partner earned any income from other businesses as well, then Form ITR 3 had to be filed.

However, now ITR 2 for Partners of Firms has been done away with. Only ITR 3 should be filed by all Partners of Firms.

Depreciation Schedule Updated - ITR 3, 5 and 6

The CBDT, vide Notification dated 07/11/2016, has restricted the highest depreciation rate to 40%. Certain blocks of assets were earlier eligible to depreciation at the rate of 50%, 60%, 80% and 100%. This will all now be restricted to 40%.

Figure 2: Depreciation restricted to 40%

Figure 3: Details of Depn on FA used not exclusively for business

Further, a field is added to disclose the disallowance to be made in respect of depreciation under section 38(2) if an asset is not exclusively used for business purpose.

ITR 6 - Details of business with registered/unregistered suppliers under GST

For all companies not subject to Tax Audit u/s 44AB is now mandated to provide certain specific GST related details in a new schedule. The new schedule requires the following details in respect of all transactions entered into during the year with a registered or unregistered supplier under GST:

Figure 4 : GST schedule in ITR 6

i) Transactions in exempt goods or services

ii) Transactions with composite suppliers

iii) Transaction with registered entities and total sum paid to them

iv) Transaction with unregistered entities

Taxation of Remission of Trading Liability for Income from Other Sources - ITR 2, 3, 5, 6 and 7

Remission of Trading Liability has been a very important Section in recent times which has allowed the Department to bring to tax additional disallowances. Refer https://database.taxsutra.com/articles/28a4b9b3d93e010e5bc6463ae00930/expert_article for a detailed article on the same.

As per Section 41(1), where any amount is received, in respect of an allowance or deduction by way of remission or cessation thereof; the amount so received shall be deemed to be the business income and chargeable to tax.

There is a similar provision in respect of an expense which had been claimed as deduction against an income chargeable to tax under the head 'Income from other sources' - Sec 59.

The new ITR forms require separate reporting of such remission or cessation, which is taxable as per Section 59, in Schedule OS.

ICDS Related Disclosures - ITR 3, 5 and 6

Till AY 17-18, the Assessee was required to report only the net impact of ICDS on profits of the Assessee.

Figure 5: ICDS changes

The new ITR for AY 18-19, however, requires the Assessee to report profit and loss separately. Further, the same needs to reported in Schedule BP and a separate ICDS schedule as well.

DTAA - Additional Information for Relief - ITR 2, 3, 5 and 6)

An Assessee claiming relief through a DTAA now has to share additional information, as follows:

a) Tax rate as per Treaty

b) Tax rate as per Indian Income Tax Act

c) Details of relevant section (section number)

d) Lower of the above rate

Figure 6: DTAA relief details

ITR 4 for Presumptive Income will require GST Information also

Taxpayers choosing the presumptive income scheme u/s Similar to ITR 1, the form for presumptive income, i.e. ITR 4, demands significantly more information. The salary income and house property income information is equally robust as the new ITR 1.

Figure 7: ITR 4 - AY 2018-19

Furthermore, the ITR 4 demands completely new and additional particulars relating to GST.

Figure 8: ITR 4 - AY 18-19 - GST particulars

The ITR 4 now requires Assessee's availing the Presumptive Income Scheme to detail their GSTR No. and the turnover/gross receipts, as per the GST Returns filed. This will be a big step in dissuading tax payers from misreporting information to different authorities. Undue advantage that could possibly been taken by using the Presumptive taxation scheme will also now be plugged.

Further, while the earlier ITR 4 only required Total Creditors, Total Debtors, Total Stock-in-trade and Cash Balance; then new ITR 4 requires the following additional particulars:

a) Secured/unsecured loans; b) Fixed Assets; c) Loans and advances; d) Capital Account; e) Bank balances

TDS in hands of others can be claimed in own hands now - Change in ITR 2, 3, 4, 5, 6 and 7

A big change that will bring much needed respite for the tax payers is the change in the ITR form where Assessees can now disclose any tax deducted at source in the hands of a relative/specified person, where income is included in Assessee's name but tax is deducted against the PAN of the other person.

Figure 9: TDS in hands of others can now be claimed

Assessee can now claim the tax deducted at source against his own PAN by detailing the information of the TDS in the hands of the other specified person in the above mentioned fashion.

Persons' whose spouse's income was clubbed in their hands or wrong TDS credits made by the bank to the nominee holder earlier had faced the challenge of difficulty in claiming the credit against a different PAN number. Invariably, it was only when the matter reached scrutiny that the Assessee was able to explain his/her stand.

Capital Gains for Unquoted Shares - Valuation Disclosure - Change in ITR 2, 3, 4, 5, 6 and 7

With the introduction of Sec 50CA, vide Finance Act 2017, the Assessee now, on transfer of Unquoted Shares will have to mandatorily obtain a valuation report from a CA/Merchant Banker. This detail now is to be disclosed in the new ITR.

Figure 10: FMV as per CA certificate

Foreign Bank Account information for Non-Residents - ITR 2, 3, 4, 5, 6 and 7

Non-residents can now share the details of a foreign bank account to collect income tax refunds. The same will be a big relief for a lot of tax-payers who live abroad as the refunds will be credited to active accounts regularly used by them.

Figure 11: Details of Foreign Bank Account

Additional Ownership Information for all Companies - ITR 6

ITR6 for AY 18-19 now mandates every Company Assessee to provide details of owners/beneficial owners who are holding 10% or more voting power, at any time during the year.

Figure 12: Ownership information

Details of Receipts and Payments made in Foreign Currency - ITR 6 Only

A new schedule in ITR 6 requires Assesses not subject to tax audit u/s 44AB, to provide details of payment made and sum received in foreign currency. This is irrespective of whether it is capital in nature or revenue in nature.

Figure 13: New schedule of foreign payments/receipts

Hence, as it can be seen, there is a slew of new changes brought about to the ITRs. The Government is on the path to equipping itself with more information and the Taxpayers and the Auditor should be prepared to handle and deal with the specific requirements.