IMPORTANT CHANGES IN INCOME TAX RETURN (ITR) FORMS FOR AY 2018-19 by CA Sudin Sabnis
Why filing correct Income Tax Return is important Law of the land Losses and Tax holiday Refunds Stich in time saves interest and penalties Create your history Database for the Government compliant citizen Scrutiny IT Department warning to salaried taxpayers Hoodwinking the taxman is difficult (Business Standard April 22, 2018) 2
Why changes are made in ITR forms? To enable ease of doing business online filing, e- verification, pre-filled forms, etc. Simplifying formats for better compliance ITR 1 (Sahaj) Information regarding exemptions, deductions, etc. Probable basis for selection of assessment Verify and process information electronically ITR vis-à-vis Form 3CD, Form 26AS and Form 16 CPC Expediting refunds, Notices for mismatch etc. 3
Applicability of Income Tax Return Forms for AY 2018-19 FORM ITR 1 ITR 2 ITR 3 ITR 4 APPLICABILITY For a resident individual (other than R-NOR) having income from salaries, one house property, other sources and having total income up to Rs. 50 Lakh For other individual and HUFs not having income from PGBP For other individual and HUFs having income from PGBP For presumptive income from PGBP ITR 5 For person other than individual, HUF, company and person filing ITR 7 ITR 6 For companies other than companies claiming exemption under section 11 ITR 7 For persons, including companies, required to furnish return under section 139(4A), 139(4B), 139(4C), 139(4D), 139(4E), 139(4F) 4
Explanation 2 to Section 139(1): Due dates for filing return of income Sr. No Status of the taxpayer Due date 1 2 3 4 Any company other than a company who is required to furnish a report in Form No. 3CEB under section 92E. Any person (may be corporate/non corporate) who is required to furnish a report in Form No. 3CEB under section 92E (Transfer pricing return applicable) Any person (other than a company) whose accounts are to be audited under the Income tax act or under any other law A working partner of a firm whose accounts are required to be audited under Income tax Act or under any other law 5 Any other assessee September 30 of the assessment year November 30 of the assessment year September 30 of the assessment year September 30 of the assessment year July 31 of the assessment year 5
Index of Key changes in ITR Forms Beneficial Owner Details of income chargeable to tax as per section 56(2)(x) is to be provided More disclosures for provisions of section 50CA of the Income Tax Act 1961, (the Act) An additional column is added for land in the depreciation schedule. The amount of depreciation disallowable under section 38(2) of the Act is to be provided in the depreciation schedule. Details of depreciation allowable in the event of succession, amalgamation, demerger etc. Ind-AS related changes (Normal Tax and MAT) ICDS disclosures Corporate Social Responsibility Deductions from income from other sources, which are not allowed under section 58 and profits chargeable to tax under section 59 are to be reported now Details in relation to Tax treaty benefits Carbon Credits GST Details More details for income from House property and Salary Income Others 6
Key Changes in ITR Forms 7
Ultimate Beneficial Owner ITR 6 General Information Unlisted companies are required to provide details of natural persons who were ultimate beneficial owners, directly or indirectly, of shares holding not less than 10% of the voting power at any time of the previous year A The potential usage of the details of beneficial ownership would include: Application of section 2(22)(e) [deemed dividend] Application of section 79 (carry forward of losses) Application of section 40A(2) and TP provisions [related parties and associated enterprises] Application of section 139(1) [beneficial ownership of assets outside India] Identifying person who has substantial interest in the company [section 2(32)] Application of GAAR provisions - Lifting corporate veil for various purposes Application of tax treaty provisions [Articles dealing with interest, dividend, FTS and royalties] FATCA compliance Application of Prohibition of Benami Property Transactions Act, 1988 Funding Debt B C Interest 8
Ultimate Beneficial Owner ITR 6 Under the Income Tax Act, beneficial owner means person who has paid for an asset (directly or indirectly) for immediate or future benefit (directly or indirectly) of himself or any other person Natural Ultimate beneficial owner? To what level one should go to get details of natural person? Is it a mandatory field? 9
Ultimate Beneficial Owner ITR 6 10
Income from other Sources - Details of income chargeable to tax as per section 56(2)(x) is to be provided ITR 2, 3 and 6 This is a new provision introduced vide Finance Act, 2017 as an anti-abuse measure w.e.f. AY 2018-19. This will compel the companies (and other assessees) to evaluate applicability of section 56(2)(x) and make appropriate disclosure in the return. The disclosures are with regards to amount received without or inadequate consideration and stamp duty or fair market value of the property depending upon the asset 11
Capital Gains Section 50CA ITR 2, 3, 6 and 7 Changes have been made so as to reflect full value consideration in accordance with provisions of section 50CA of the Act, both in case of short-term and long-term capital gains. Section 50CA was inserted by the Finance Act, 2017 w.e.f. AY 2018-19, as a part of anti-abuse measures. It deals with the fair value of assets being unlisted shares transferred at nil/inadequate consideration for the purpose of computation of capital gains (Similar to that of section 50C). New ITR Forms require the taxpayer to provide figures of actual sales consideration and FMV as determined by a Merchant Banker or CA and it has been made mandatory to obtain a valuation report. The new ITR Forms require assessees to provide the information regarding actual sale consideration and FMV in respect of unlisted shares. This could be the reason why details of capital gains from transactions to which section 50CA of the Act is applicable, have been asked for separately in the ITR. The process of determination of fair market value in terms of Rule 11UAA needs to be initiated in advance. 50CA and 56(2)(x) double disclosure / taxation? 12
Capital Gains Section 50CA ITR 2, 3, 6 and 7 13
Depreciation Schedule ITR 3 and 6 An additional column is added for land in the depreciation schedule. No depreciation is allowable on land, and the rate column for land is also shown as nil. The title building (excluding land) suggests that in some cases depreciation may have been claimed on the land value by including such value in the value of building. Therefore, more details are sought now with the intention of checking that no false claim for depreciation is made. Proportionate aggregate depreciation allowable in the event of succession, amalgamation, demerger etc. is to be separately provided in the depreciation schedule. 14
Balance sheet and Profit and Loss disclosures for Ind AS ITR 6 Details whether financial statements of the company are drawn up in compliance to the Indian Accounting Standards specified in Annexure to the companies (Indian Accounting Standards) Rules, 2015 Balance sheet as on 31 st March 2018 or as on the date of business combination The presentation of financial statements under Ind AS and IGAAP are different. To avoid issues in respect of the heads under which particular asset or liability would be shown, the form has provided separate parts for companies following Ind AS and for those following IGAAP. Amount adjusted to other equity which is a balance sheet item needs to be considered for MAT purposes for companies adopting Ind AS for the first time e.g. Reserves do not have rows for Other Comprehensive Income that will be reclassified to profit and loss and that which will not be reclassified to profit and loss. For MAT purposes, these may be relevant information. Similarly, presentation of statement of profit and loss for Ind AS compliant companies is different from profit and loss account for companies following IGAAP and therefore there are separate parts in ITR. For computing the income taxable under the head Business Income for companies following Ind-AS, the figure adopted is the net profit as per the P&L account prepared using Ind-AS provisions. There does not seem to be any other adjustments specified in the computation of business income to nullify the effect of fair valuation accounting. 15
Balance sheet and Profit and Loss disclosures for Ind AS ITR 6 16
MAT related disclosures for Ind AS ITR 6 Sub-sections (2A) to (2C) were introduced in Section 115JB w.e.f. AY 2017-18. These provisions are related to Ind AS. The changes to give effect to the amendment is made in the form for AY 2018-19. Details of adjustments made to profits of company following Ind AS under section (2A) to (2C) of section 115JB are to be provided i.e. adjustment on account of OCI items not to be reclassified to P&L account, distribution of noncash assets to shareholders during demerger and impact of transmission amount. 17
Income Computation Disclosure Standards (ICDS) ITR 3 and 6 Profits and gains of business or profession Schedule ICDS requires disclosure of effect of each ICDS on the profits. Accordingly, the aggregation of such ICDS impact in positive and negative could be with the objective of obtaining (auto collection) some statistical data. Effects on the profits and losses due to ICDS have to be reported in two categories instead of a consolidated figure Increase in profit or decrease in loss due to deviation as per ICDS Decrease in profit or increase in loss due to deviation as per ICDS In method of valuation of closing stock also, effects due to deviation from valuation method under section 145A have to be reported in two categories Increase in profit or decrease in loss Decrease in profit or increase in loss The total effect of ICDS adjustments on profit is bifurcated into positive effect and negative effect instead of net effect Income from Other Sources While the provisions of ICDS are relevant from the perspective of determining income chargeable under section 56, no details with regards to ICDS adjustments on income from other sources are to be reported separately. 18
Income Computation Disclosure Standards (ICDS) ITR 3 and 6 ITR AY 2017-18 ITR AY 2018-19 19
Income Computation Disclosure Standards (ICDS) ITR 3 and 6 20
Corporate Social Responsibility ITR 6 Details of appropriation of profit towards Corporate Social Responsibility are to be provided. Deductibility of such expenses may be examined in detail in view of the provisions of Explanation 2 to section 37. 21
Income from other sources Section 58 and section 59 ITR 2, 3 and 6 Deductions from income from other sources, which are not allowed under section 58 and profits chargeable to tax under section 59 are to be reported now. These details are also to be specifically reported for income from the activity of owning and maintaining race horses Section 58 does not allow deduction of expenses if tax has not been withheld at source thereon. Provision of this information in the ITR can immediately bring cases of TDS default by deductors to the attention of the tax authorities. Information about profits chargeable to tax under section 59 would also help the tax authorities keep a track of genuineness of expenses claimed earlier with respect to income from other sources. Section 59 corresponds to section 41(1). Although neither of the sections are new, separate amounts for the same are now to be provided. 22
Income from other sources Section 58 and section 59 ITR 2, 3 and 6 23
Tax Treaty Benefits Fees for Technical Services (FTS) No FTS clause, make available etc. Capital Gains Nil / Reduced taxation in India Royalty Nil taxation in certain cases 24
Tax Treaty Benefits Capital Gains ITR 2, 3 and 6 In the details of income for which tax treaty provisions have been availed, additional details like rate of tax as per the treaty, applicable section of the Act and rate as per the same, as well as the final applicable rate are required to be provided now. There is also bifurcation in totals of income into two categories, i.e., income chargeable to tax at special rates under the treaty or not chargeable to tax as per the treaty. Earlier, only capital gains not chargeable to tax as per treaty were required to be reported separately. Now even where a reduced rate is claimed as per treaty on taxability of capital gains, the same is to be reported separately. Amendments were made in the Mauritius and Singapore treaties signed by India where capital gains on sale of shares acquired on or after 1st April 2017 is taxed @ 50% of rate of tax applicable on such gains under the Act. These seem to be the only treaties where capital gains is taxable at a special rate. The intention could be to observe over a period of time, the sale/ transfer of investments from these countries. 25
Tax Treaty Benefits Income from other sources ITR 2, 3 and 6 Regarding income from other sources which is eligible for tax treaty benefit, additional information like nature of income and rate as per the Act is to be provided. The form requires rate as per the treaty to be stated as NIL if the income is not chargeable as per the treaty. This requires disclosure of items claimed exempt on the basis of the treaty provisions. Such claims may be scrutinized in detail. Examples of such income Royalty (software) or Fees for technical services (make available benefit) Defective Notice issued for foreign companies where income as per Form 26AS not matching with ITR 26
Carbon Credits ITR 2, 3 and 6 Income from transfer of carbon credits is to be separately reported now. Also, expenses relating to the same, if any, are to be separately reported. Section 115BBG was added by the Finance Act, 2017 w.e.f. AY 2018-19 for the purpose of providing consistency in taxation of transfer of carbon credits and to encourage measures to protect the environment. The rate of 10% is provided for taxability under the head business or profession as well as income from other sources. This change facilitates taxation of income from transfer of carbon credits as business income or income from other sources. 27
GST Related details ITR 3 and 6 Amount of CGST, SGST, UTGST and IGST received or receivable in respect of goods and services sold or supplied are to be provided Amount of CGST, SGST, UTGST and IGST paid or payable in respect of goods and services purchased are to be provided Amount of CGST, SGST, UTGST and IGST paid or payable to Government or local authority are to be provided Amount of credit outstanding in the accounts w.r.t. CGST, SGST, IGST and UTGST is to be provided Break-up of total expenditure incurred on or after 1st July, 2017 with entities registered or not registered under the GST. These details are to be provided by the assessees who are not subject to tax audit under section 44AB of the Act. (Only applicable to ITR 6 assessees) 28
GST Related details ITR 3 and 6 29
Foreign Bank Account Details ITR 2, 3, 4 and 6 Non-resident assessee can furnish details of any one foreign bank account for the purposes of credit of refund IBAN refers to International Bank Account Number. It may be noted that the form states that the non-resident assessee may provide details of a foreign bank account. Hence, it can be said that it is not mandatory to do so. This could have been added for convenience of the non-resident assessees. The Press Release issued by the CBDT for notification of ITR forms for AY 2018-19, states that the requirement of furnishing details of any one foreign Bank Account has been provided for the purpose of credit of refund. While the use of the term requirement may make it sound like it is mandatory, what is stated in the form itself makes it seem like it is optional. Practical difficulties being faced in case of refund to be deposited to foreign bank accounts 30
Foreign Bank Account Details ITR 2, 3, 4 and 6 31
Break-up of payments/ receipts in Foreign Currency ITR 6 Details of payments/ receipts in foreign currency are to be provided by the assessees who are not subject to tax audit under section 44AB of the Act. The payments and receipts details are to be bifurcated between capital and revenue account. 32
Income from house property Self-occupied property ITR 2 and 3 Besides an option to tick whether the house property is let out or deemed let out, there is now an additional option to tick whether the house property is self-occupied. Under law, the assessee being an owner of two house properties, has an option to select which one can be taken to be self-occupied, subject to conditions as specified. Hence, making a provision for showing this option in the ITR is logical. 33
Salary and House property income changes ITR 1 (Sahaj) As against a total of salary and house property income, specific breakup is required to be provided now. Details of salary like allowances not exempt, perquisites, profits in lieu of salary and deductions under section 16 are to be provided now. The details for salary are now same as that to be provided in ITR-2, except details of allowances exempt under section 10. Details relating to house property income, like tax paid to local authorities, annual value, 30% of annual value, interest payable on borrowed capital are to be provided now The details for income from house property are same as that to be provided in ITR-2, except for value of rent which cannot be realized. Since one house property would usually be self-occupied, the question of providing details of unrealized rent doesn t arise. 34
Salary and House property income changes ITR 1 (Sahaj) 35
Non-applicability of ITR 1 (Sahaj) to non-residents ITR-1 (Sahaj) was introduced for the first time for individual tax payers with the objective of providing a one-pager simplified form to make compliance easy for such tax payers. The ITR was applicable to all individual tax payers. For AY 2018-19, it has now been restricted only to resident individuals. Non-residents and individuals who are resident but not ordinarily so (R-NOR) will now have to file ITR-2/3/4, as applicable. This increases the compliance burden for such assessees, especially the ones who would usually have only limited income from India, like in the form of interest on bank deposits or rent from residential house property. Intention could be to bring higher level of scrutiny in case of such assessees. No option to enter residential status. What if R-NOR files ITR 1? 36
Other Changes Changes in TDS (ITR 2 7) ITR 4 now contains details for 14 financials particulars such as secured/unsecured loans, advances, fixed assets, capital account, etc. as against the old ITR 4 seeking only 4 financial particulars of the business, total creditors, total debtors, total stock-in-trade and cash balance apart from aggregate turnover reported in GST Returns. The assessees shall now be required to pay late filing fees under section 234F along with interest under section 234A, 234B and 234C before filing the ITR. Until last year, such late fees was imposed only after filing of return. New columns in TDS Schedule is inserted which would allow Dept. to easily correlate the PAN, amount of income and TDS thereon as disclosed by both the parties in their respective return of income making it convenient for the assessee to claim the credit of tax deducted in name of another person. (ITR 2 to 7) Partners of a partnership firm cannot use ITR 2. The new ITR Forms introduce details of each capital gains exemption under Sections 54, 54B, 54EC, 54EE, 54F, 54GB and 115F in applicable column. Further, the date of transfer of original capital asset needs to be mentioned which was missing in earlier ITR Forms. Section 115BBDA provides for levy of additional tax on dividend above Rs. 10 lakhs received in aggregate by all resident taxpayers (except domestic company, funds or instructions as referred in Section 10(23C) & a trust registered u/s 12A or 12AA) from Domestic Companies. New Schedule OS & Schedule SI of Form ITR 7. The column of gender has been removed from respective ITRs. 37
Other Changes Form ITR 7 requires to disclose additional information such as Aggregate annual receipts of the projects/institutions, Date of registration or approval granted to the trust and amount utilized during the year for the stated objects out of surplus sum accumulated during earlier year. (Details about the name & annual receipts of institutes covered u/s 10(23C)(iiiab), (iiiac), (iiiad) & (iiiae) has been removed) Where a charitable institution has been granted registration and, subsequently, it has adopted or modified the objects which do not conform to the conditions of registration than a fresh registration is required. New ITR-7 require to furnish Date of change in objects, Application for fresh registration has been made within stipulated time period, fresh registration has been granted and date of such fresh registration. Explanation 2 inserted from Assessment Year 2018-19 states that any donation to another charitable institution registered under section 12AA with a specific direction that it shall form part of the corpus of the donee, shall not be treated as application of income for charitable or religious purposes. The consequential changes have been made in Schedule TI that all the corpus donations made by a trust to another registered trust shall be added back to the taxable income of the donor trust. [Applicable for ITR 7] Registered political parties are exempt from income-tax by virtue of section 13A of Income-tax Act. From assessment year 2018-19, Section 13A puts a restriction on political parties against receiving the cash donations in excess of Rs. 2,000 further a political party will lose its tax exemption if not complied with section 13A. The new ITR 7 requires the political parties to provide a declaration by selecting the Yes or No check-box to confirm whether it has received any cash donation in excess of Rs. 2,000. A political party is now required to disclose more information about the auditor who is signing the audit report of the political party. 38
Practical Challenges Defective return in case amounts not matching with Form 16, Form 26AS, etc. Defective return in case of foreign companies where financial data is not filled Responding to intimations in cases of mismatches (Tax Audit comparison) Penalty for misreporting 39
Q&A 40
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