CBDT notifies ITR forms for Individuals and HUF Taxpayers

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1 26 June 2015 EY Tax Alert CBDT notifies ITR forms for and HUF Taxpayers Executive summary Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your EY advisor. This Tax Alert summarizes amendments made to the Income Tax Return (ITR) Forms for tax year vide Notification No. 41/2015 dated 15 April 2015 and Notification No. 49/2015 dated 22 June 2015 issued by Central Board of Direct Taxes (CBDT). The said Notifications also amended Rule 12 of the Income Tax Rules to modify the manner of filing of ITR Forms. CBDT has so far notified ITR as applicable to and Hindu Undivided Family (HUF) for tax year (viz. forms ITR-1, ITR-2, ITR-2A and ITR-4S). CBDT is yet to notify ITR forms for other taxpayers for tax year

2 Background CBDT had vide Notification No. 41/2015 dated 15 April 2015 amended Rule 12 as also notified ITR form for /HUFs (viz. Forms ITR-1, ITR-2 and ITR-4S) for tax year (assessment year ). Taxpayers raised concern on enhanced disclosure requirement in these notified ITR Forms especially (a) disclosure in respect of foreign travel and expenditure thereon and (b) furnishing details of balances in all Indian bank accounts held by the taxpayers. Concerns were also raised that ITR forms were very cumbersome. Post consultations with industry and stakeholders, CBDT reviewed the forms and has issued modified ITR forms for Individual and HUF taxpayers vide Notification [1] No. 49/2015 dated 22 June Key changes in ITR forms addressing taxpayers concerns 1.01.In response to various representations, the following changes are made in all new ITR Forms with a view to ease compliance burden for taxpayer. Taxpayers are not required to report details in connection with foreign trips and expenditure thereon. Taxpayers need to now furnish only their passport number, if available. Taxpayers are not required to report bank account balances of all bank accounts held by taxpayers at any time during the year. The taxpayers are now required to furnish details of only the Bank name, IFS Code, account number of all current/savings accounts which are held at any time during the previous year. There is further relaxation for dormant accounts (i.e. accounts which have not been operational during the last three years) which need not be reported at all. [1] Return forms notified for individual and HUF taxpayers. Forms for other taxpayers such as company/firm/llp are yet to be notified Further, following changes in ITR forms are carried out as a measure of simplification: ITR 1: This is simplest form applicable to not having business income, losses, foreign assets etc. Erstwhile ITR 1 had limitation that an individual having exempt income exceeding INR5000 was not eligible to file ROI in this form. Newly notified form relaxes ceiling limit in respect of exempt income, other than agricultural income, and thereby expands scope of its usage by larger taxpayer group. Where exempt agricultural income of a taxpayer exceeds INR5000, he/she may use ITR 2 or ITR 2A (discussed below), as the case may be. ITR 2: This form is applicable to /HUFs not having business income but disqualified from using ITR 1 due to presence of foreign assets, foreign sourced income etc. Expatriates working in India and/or their dependents need to use this form and disclose particulars of foreign assets if they are tax residents of India. New ITR 2 by way of notes provides that it is not mandatory for expatriates staying in India on a business, employment or student visa to report foreign assets acquired by them in the past when they were non-resident, provided that no income is derived from such assets during current tax year. ITR 2A: New ITR 2A is introduced to simplify return filing for /HUFs disqualified from using ITR 1 due to presence of foreign assets, foreign sourced income etc. and are required to file ITR 2 which contains elaborate reporting requirements. New ITR 2A can be used by taxpayers who do not have following features: (i)capital gains income (ii)business/professional income (iii)foreign assets/income (iv)claim for relief under Treaty and/or credit for taxes paid in non-treaty country. /HUFs who have exempt agricultural income in excess of INR 5000 can make use of ITR 2A. In an attempt to simplify return forms, the format of all forms is rearranged by shifting all detailed working under different heads as an Annexure to the form.

3 2.0 Key changes in mode or manner of filing ROI 2.01 All taxpayers (except Super Senior Citizen of age 80 years and above) claiming refund of tax are mandatorily required to file ITR under electronic filing mode Super Senior Citizens have option to furnish ITR 1 or ITR 2 in physical form Electronic filing now include an additional option to authenticate the ITR with Electronic Verification Code (EVC) 2.04 All ITR forms require taxpayers to provide their Aadhar number wherever available as an additional detail.01 In response to various representations, the following changes are made in all new ITR Forms with a view to ease compliance burden for taxpayer. 3.0 Significant amendments in ITR Forms 3.01 The significant changes brought about vide the notifications are summarized briefly under two captions viz. changes common to all four notified ITR forms and changes specific to ITR Key additional changes which commonly apply to ITR 1, ITR 2, ITR 2A and ITR 4S [2] are as under: In addition to the changes stated at para 1.01, new ITR forms provide for mechanism to file return beyond statutory time limit for any claim or relief by the taxpayer along with application to tax authority to condone the delay and admit taxpayer s claim. However, return will be treated as valid only after such application is admitted by tax authority. The application may be entertained on merit of each case Key additional reporting requirements which are specific to ITR 2 (which applies to Individual/HUFs not having income from business or profession) (a) Scope of reporting of foreign assets enlarged: Erstwhile ITR 2 mandated resident taxpayers to report foreign assets (including financial interest in any entity) located outside India or signing authority in any account located outside India in Schedule FA. The reporting is in relation to various items viz. (A) foreign bank account, (B) financial interest in any entity, (C) immoveable property, (D) any other capital asset, (E) signing authority in accounts, and (F) foreign trust. New ITR 2 requires further details on each of items along the following lines (i) Status of taxpayer whether he is owner/beneficial owner/ beneficiary (ii) Income accrued from investment/asset (iii) Nature of income (iv) Cross referencing with details of taxable income from these assets reported elsewhere in ITR (v) Date of account opening/date of acquisition of asset. (vi) In case of Trust, date since when position held by the taxpayer as trustee/beneficiary/settlor. Further, new residuary category (item G) is added to seek details of any foreign income derived from any source outside India which is not included in any earlier item or under business income. Details required under this category are name and address of person from whom income is derived, nature and amount of income, cross referencing to section in ITR form where taxable income is reported. Instruction to ITR 2 provides for definition of beneficial owner and beneficiary along the lines as recently introduced in Income Tax Act (ITA) and thereby clarifies scope of reporting categories of taxpayers. [2] Form applies to individuals/hufs whose income includes business income from business of plying, hiring or leasing of goods carriage and has no other significant amendment.

4 (b) Apart from enlarging scope of foreign asset reporting, new ITR 2 requires following other additional details: Particulars Details of utilization of amount deposited in capital gains account scheme for past years to enable monitoring of reinvestment supporting capital gain exemption. Capital gain accruing to non-resident taxpayers claimed exempt due to favorable treaty provisions. Income from other sources, chargeable to tax at special rate provided in Treaty [3] in hands of nonresident taxpayers Reporting Requirements Tax year in which asset is transferred, Section under which exemption is claimed Year in which new asset is acquired Amount utilized out of capital gains account scheme to acquire new asset Amount that has remained unutilized in capital gains account scheme or amount which is not used for making investment in specified new asset Country name Article of Treaty whether Tax Residency Certificate (TRC) obtained Amount of capital gain claimed exempt Cross reference of Schedule where such income is reported elsewhere in ITR. Name of Country Relevant article of Treaty Rate of tax Whether TRC obtained Corresponding section of ITA which prescribes rate of tax Amount of income 4.0 Applicability of new notified forms to various taxpayers Impact of amended ITR forms on its use by different categories of taxpayers as compared to preceding tax year has been summarized in Annexure for ready reference. [3] This reporting also applicable to ITR-2A.

5 Comments The relaxation from reporting of foreign travel details (except for furnishing passport number, if available) and reporting of balances in Indian bank accounts addresses concerns raised by taxpayers and provides relief. Further, removal of cap on exempt income for use of simple ITR 1 and introduction of simplified ITR 2A enables use of these forms by large number of salaried class taxpayers and will ease compliance burden on taxpayers. While providing option to expatriates on business/ employment/ student visa to disclose foreign assets (not earning any income from these assets during current year) acquired in the past is a welcome move, the manner in which relaxation has been provided may raise concerns. The option is provided by way of note to ITR 2 and not by statutory rule. The exercise of option will need to be carefully evaluated in view of possible penalty and prosecution under the onerous provisions of newly enacted The Black Money (Undisclosed foreign income and assets) Imposition of Tax Act 2015 [4]. Further, availability of such option for accompanying spouse/ dependant who may be on dependent visa will also need evaluation. The enlarged foreign asset/income reporting requirements for residents will need careful evaluation and compliance to avoid any possible default attracting severe penalty/prosecution under newly enacted The Black Money (Undisclosed foreign income and assets) Imposition of Tax Act [4] Refer EY Tax Alert dated 22 March 2015 on Indian Government proposes legislation to curb menace of undisclosed overseas income/assets

6 Annexure Snapshot of impact of amended rules for different categories of individual taxpayers Sr. No. Taxpayers Particulars of Income ITR Form applicable for tax year ITR Form applicable for tax year Resident 2. Non-Resident 3. Non-Resident 4. Resident/Nonresident Income comprised o Income from salary/pension o Income from one house property (other than cases where loss is brought forward from previous years) o Income from other sources (excluding loss under this head, winning from lottery and income from race horses) o Exempt Income (other than Agricultural income) exceeding INR 5,000 No claim of relief under Treaty or foreign tax credit No foreign assets/income As per 1 above subject to modification that exempt income > INR 5000 comprises salary earned in India exempt under section 10(6)(vi) of ITA (short stay exemption) As per 1 above subject to modification that salary income earned in India is claimed not taxable under Dependant Personal Services (DPS) Article of Treaty Income comprised o Income from salary/pension o Income from more than one house property o Income from other sources (excluding loss under this head, winning from lottery and income from race horses) o Agricultural income exceeding INR 5,000 No claim of relief under Treaty or foreign tax credit No foreign assets/income ITR 2 ITR 1 ITR 2 ITR 1 ITR 2 ITR 2 (no change in position) ITR 2 ITR 2A

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