A sign reading “Pay Your Tax” sits outside the income tax office in Kolkata, India (Photographer: Brent Lewin/Bloomberg)
A sign reading “Pay Your Tax” sits outside the income tax office in Kolkata, India (Photographer: Brent Lewin/Bloomberg)

New Income Tax Return Forms: Taxpayers, Take Note Of These Seven Additional Requirements

The new income tax return forms, notified by the revenue department in April this year, require furnishing of additional information and details by taxpayers compared to the previous assessment year. The last date for filing income tax returns for assessment year 2019-20 is July 31.

The key changes in the new form include:

  1. Reporting of capital gains
  2. Furnishing of Director Identification Number, where applicable
  3. Information when immovable property is transferred
  4. Details to establish residential status
  5. Unlisted equity shares held
  6. Foreign assets
  7. Additional details for agriculture and interest income

Experts said while the utility of the new information sought by the tax department cannot be disputed, taxpayers will find it cumbersome to collate it accurately.

Types of ITR forms
Types of ITR forms

Reporting Of Capital Gains

Budget 2018 introduced taxation on long-term capital gains exceeding Rs 1 lakh arising from the sale of listed equity shares or an equity-oriented mutual fund unit. Prior to Budget 2018, transfer of listed equity shares were exempt from LTCG tax.

2019-20 will be the first assessment year when reporting of LTCG arising from transfer of listed equity shares will become applicable. Experts, however, pointed out some software-related troubles.

“There seems to be a mismatch in the manner in which capital gains are calculated by the department’s software and the software used by taxpayers to generate reports, which is causing issues with the validation,” Ameet Patel, partner at Manohar Chowdhry & Associates, told BloombergQuint. The issue here pertains to software utility used by the department for validation of data generated by the taxpayer, he added.

According to Sanjoli Maheshwari, director at Nangia & Co. LLP, the mismatch stems from the fact that the department’s software utility does not give the leeway to classify the scrips based on the method adopted by taxpayers for calculating the cost of acquisition.

For instance, assume a taxpayer had five transactions involving sale of equity shares during the previous financial year. As per the income tax law, the cost of acquisition can either be the original price at which the share was bought for two scrips and the fair market value for the remaining three. The result of this calculation at the taxpayer’s end and tax department’s end may be different because of the choice of formula, Maheshwari explained. Since the form doesn’t give an option to taxpayers’ to edit, there is potential for errors, she added.

And while the department’s software utility will accept the taxpayer’s calculation at the time of filing the return, the discrepancy can be questioned through a notice at the time of assessment, she said.

Furnishing Of DIN

Taxpayers who were directors in any company during FY18-19 must mention the name of the company, company’s permanent account number, director identification number and category of shares—listed or unlisted—of the company in which they were a director. Such directors will have to file their returns in Form ITR 2 or ITR 3. In the last assessment year, Form ITR 1 SAHAJ was applicable.

This change is in line with the government’s initiative to curb black money and shell companies, Maheshwari said, adding that this will enable the tax department to identify ghost directors and shell companies by further validating the same with the records of the Registrar of Companies.

According to Hinesh Doshi, managing partner of Hinesh R Doshi & Co., specification of DIN details in the income tax return will help in interlinking of the Ministry of Corporate Affairs and the tax department’s database and detect directors who are receiving disproportionate remuneration from companies with no active business.

Transfer Of Immovable Property

Compared to assessment year 2018-19, the revised ITR forms require furnishing of additional details in case of capital gains arising from transfer of an immovable property by the taxpayer. Details like address of the property transferred, name and permanent account number of the buyer have to be included in the form. If there are multiple buyers in the transaction, share of each buyer in the transaction must be reported.

The requirement, Maheshwari said, will enable the tax authorities to have comprehensive details in case of joint ownership of immovable property that has been transferred and will help in tracking whether the respective co-owners have correctly disclosed the capital gains in their tax returns. It will also aid in reconciling the tax deducted at source according to their respective income, she said. “For instance, assume ‘A’ sold his immovable property situated at Mumbai to ‘B’ and ‘C’ in June 2018 for Rs 50 lakh. ‘B’ and ‘C’ each contributed Rs 25 lakh for this purchase. While filing his tax return for 2018-19, ‘A’ will have to mention the PAN number and percentage contribution made by ‘B’ and ‘C’ in his tax return.”

Residential Status Of An Individual

As per the revised return format, individuals will be required to file either Form ITR 2 or 3 depending on whether their income comes from a business or not. In both these forms, there’s an additional requirement to establish residential status by stating the number of days for which the taxpayer was physically present in India.

Under the Income Tax Act, taxability of an individual depends on his physical presence and residential status. The taxability of income varies depending on whether a person is resident, resident but not ordinarily resident and a non-resident.

The revised ITR forms require a resident person to declare whether he was in India for a period of 182 days in the previous year. If he does not fulfil the criteria, he has to specify whether he was in India for 60 days in the previous year and 365 days within the preceding four years.

A resident but not ordinarily resident must specify whether he has been a non- resident in India in nine of the preceding 10 years or whether he has been in India for less than 729 days during the preceding seven years.

A person who is a non-resident must specify jurisdiction of residence and tax identification number of such country during the previous year.

By mandating the disclosure of the numbers of days for which the taxpayer was in India, the government is attempting to gather an additional data point to plug this mischief, experts told BloombergQuint.

“There have been instances where taxpayers have tried to avoid taxation by misrepresenting their residential status,” Patel said. “For instance a misrepresentation by a resident as “non-resident” can help a person avoid disclosure of global income in India.”

Residential status and taxability under the Income Tax Act
Residential status and taxability under the Income Tax Act

Unlisted Equity Shares

In this year’s returns, taxpayers will have to also disclose the details of unlisted equity shares held by them in the previous year. These include name and PAN of the company, opening balance of shares, number of shares purchased, acquisition cost, date of purchase, issue price or purchase price, number of shares sold during the year along with the consideration and closing balance.

“This is a good move,” according to Patel. “There have been instances where transfer of unlisted equity shares was not done at fair value,” he said. “Unlike listed companies, there are no quotes available for unlisted equity shares which makes them vulnerable to manipulation by taxpayers. By intentionally pricing shares at a value lesser than their fair value, the tax generated from such transactions can be relatively less.”

By including the details of the transfer of unlisted equity shares in the tax return, the department can cross-check and validate the data against the data provided by the company whose unlisted equity shares have been transferred.
Ameet Patel, Partner, Manohar Chowdhry & Associates

A detailed disclosure, according to Maheshwari, will help in determining the income and net worth of the taxpayer vis-à-vis the amount of investment made in the company on a year-to-year basis in order to track any unaccounted money.

Shares held by an individual in companies which have delisted or vanished will appear in the balance sheet but it would be logistically impossible to obtain their PAN, address and value per share as required by the return, Doshi pointed out.

Foreign Assets

In the revised return forms, taxpayers will have to furnish additional information on foreign assets, including foreign depository and custodian accounts. Equity and debt interest held by the taxpayer in any entity at any time during the previous year must be reported with details like country name, entity name and the nature, date of acquisition of the asset etc.

“The scope of reporting foreign assets has been expanded so as to have comprehensive details available for funds routed outside India,” Maheshwari said.

This will also help in reconciliation with the details available through exchange of information with the respective countries. 
Sanjoli Maheshwari, Director, Nangia & Co. LLP

Agricultural And Interest Income

Under the Income Tax Act, income classified as agricultural income is exempt from taxation. The revised forms, however, require a taxpayer to prescribe additional details like measurement of the agricultural land, the district it is situated in if the agricultural income exceeds Rs 5,00,000 per annum. The forms also require a taxpayer to state whether such land is leased or owned and whether it is rain fed or irrigated.

Separately, taxpayers must specify incomes which are taxable at a specified rate. The interest income must be bifurcated into different categories like interest received from an infrastructure debt fund, or from a government instrument or interest received from an Indian concern on foreign currency debts. Until assessment year 2018-19, there was no such requirement for separate disclosure and classification.

Besides additional information, the revised forms have also brought in the requirement of mandatory electronic filing of income tax returns, except for citizens above the age of 80 years. In the previous year, taxpayers having income below Rs 5,00,000 and with no claim of refund could file paper returns. This facility is now withdrawn.

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