The Hindu Business Line : A tax-payers' guide to filing returns vide Form No.2F

In the last week of May, the Government announced that a new income-tax return form would soon come into force. On June 1, Form No.2F was notified. The following are the issues to be addressed in relation to this new return form.

From when is Form No.2F applicable?

Form No.2F, has been notified on Jun2 1, 2006, is applicable with immediate effect. However, tax-payers can continue to file Form No.2E up to July 31, 2006.

How many pages are there in the new Form?

There are two page of return of income, with another two pages for filling out nine schedules such as income from house property, other sources, exempt incomes, deductions under Chapter VIA, cash flow statement and four schedules for advance tax, tax deduction at source and self-assessment tax particulars.

To whom is the Form applicable?

This form is meant for resident individuals and HUF (Hindu undivided family) assessees only.

To whom is the Form not applicable?

Resident individuals and HUFs who have income under any of the following head/sources are not eligible to file return of income in Form No.2F. Profits and gains of business or profession; capital gains; agriculture income; having more than one house property; or claiming relief under Section 89 in respect of arrears or advance salary.

For what types of income is the Form applicable?

Form No.2F is applicable in the case of assessee's having salary income or income under the head "house property" (having only one property) or having income under the head "other sources".

Can the Form be used in respect of long-term capital gains from transactions in securities on which the securities transaction tax (STT) has been paid?

Yes. Individual and HUF assessees having long-term capital gains from transactions in securities on which the STT is paid can use Form No.2F.

What are the other features of the new Form?

No annexures are required to be enclosed when the return is filed vide Form No.2F. Details such as the number of dependents of the assessee and the closing cash and bank balance have to be furnished in the return itself. Also, the e-mail ID of the taxpayer is to be given (this does not seem to be a mandatory requirement though)

Even tax-paid challans need not be enclosed with Form No.2F. The cash flow statement to be furnished in Form No.2F would enable the Department verify the same with Annual Information Return furnished under Section 285 BA.

Is the return in Form No.2F to be filed electronically only?

Though it is encouraged that the return be submitted electronically at the web site http://www.incometaxindiaefiling.gov.in, the assessees have been advised to enclose the acknowledgement number (given by the Income-Tax Department for electronically filed returns) along with the paper return which can be furnished later. However, the assessee may file return in Form No.2F in paper form without transmitting the same electronically. There is no compulsion to file the return in the electronic mode.

Is this return Form applicable for the assessment year 2007-08 also?

Though it has not been stated about the duration of life of Form No.2F, the instructions for filling up states that "This Form is applicable for the assessment year 2006-07 only".

What are the distinguishing features of Form No.2F from Form No.2E?

Form No.2E came into force from May 14, 2003 and it was optional. Whereas Form No.2F is compulsory and the tax-payers covered by this Form cannot file their return either in Form No.2D or in Form No.2E. Form No.2E, known as Naya Saral, was similar to Form No.2D but Form No.2F is very different in its content and is elaborate in nature.

What are the important features of Form No.2F?

Assessees have to state whether there has been change of address and the new address has to be furnished.

Similarly, if there is change in jurisdiction, assessees have to indicate the fact of change in the return form itself.

The name and address of the employer has to be furnished in the case of assessees having salary income.

In respect of income from house property, assessees have to state the annual value of the property and prima facie that will be accepted. This is because no provision is given for checking the annual value of the property such as (i) whether let out for whole year or not; (ii) whether treated as deemed let out; or (iii) has remained vacant for a part of the year, etc.

There are two provisions providing for receipt of rent relating to earlier year(s). They are unrealised rent and arrear rent. In the case of unrealised rent, the entire receipt is chargeable to tax (Section 25 AA). In the case of arrear rent, the assessee is eligible for 30 per cent deduction as per Section 25B. In Schedule 1 to Form No.2F, there is a provision for mentioning "rent of earlier years realised during the year". This expression in the return Form is vague. Instruction 11 for filling up the Form states that incomes in accordance with provisions of Section 25A or Section 25AA or Section 25B have to be furnished. But there is no space or column for deducting at 30 per cent in the case of arrear rent which is taxable under Section 25B.

How does the Form cover income from other sources?

Schedule 2 of Form No.2F deals with furnishing details in respect of `income from other sources'. Only three sources are visualised in the Form: (a) interest income; (b) dividend (which is normally exempt), and (c) other incomes. The details furnished by the assessees cannot be verified without supporting annexures, but there is the `no annexure' clause. In the residuary clause, `other income' is meant to cover income from letting out of vacant site/machinery, agriculture income outside India, family pension, etc. Instead of providing a column for dividend two or three spaces could have been provided for mentioning the nature of income by the taxpayers.

Should the assessees disclose tax-exempt incomes also to the Department?

Yes. Schedule 3 to Form No.2F says that exempt incomes such as interest (on PPF, for instance), dividend income (exempt under Sections 10(34) or 10(35)), long-term capital gains which are subject to the STT (the income exempt under Section 10(38)) have to be mentioned in the return.

Should the cash expenditures incurred be mentioned in the return?

Yes. A small cash summary at the beginning and end of the year has to be furnished by tallying the expenditures incurred. The opening cash and bank balance plus incomes received during the year and less expenditures incurred by way of expenses, investments and other outgoings have to be furnished. This would be a difficult exercise for the salaried class who may not maintain books of accounts and may not be able to classify the investments or `outgoings' (a word used in the Form, but not defined) from the expenditure. For example, whether purchase of a television set is an `outgoing' or an expenditure is difficult to classify. A threshold could have been set so that small assessees will not have the burden of filling this return form or could have been exempted from furnishing these details in the cash flow statement. The press note says that for the assessment year 2006-07, the cash flow statement in Schedule 5 is optional for the tax-payers.

What other information is to be furnished in the Form?

As with the existing return forms, details of advance income-tax paid have to be furnished in Schedule 6. The details of tax deducted at source on salary income have to furnished in Schedule 7 and tax deducted at source in respect of other incomes in Schedule 8. The self-assessment tax paid must be furnished in Schedule 9.

Is Form No.2F better than the current return forms, such as Form No.2D and Form No.2E?

Form No.2F is mandatory for the taxpayers. Instead of trying to prescribe a form for the taxpayers, Forms 2D and 2E could have been continued and Section 139(9) could have been amended to accommodate the details of Schedule 1 to 5 in the statute book. This would have enabled easy filing for the taxpayers and the non-furnishing of details would render the return defective. Also, the details furnished would meet the requirements of the Tax Department for cross verification, etc.

Do assessees who have to file return in Form No.2F need to maintain books of account?

There is no requirement for maintaining books of account in the case of assessees having income from salary or income from house property. However, for filing the return in Form No.2F with cash flow statement, details of income earned, expenditures incurred, and investments made have to be maintained.

If the assessee has not maintained books of accounts, what is the remedy?

For the assessment year 2006-07 furnishing of the cash flow statement is optional. Also Form No.2F is meant for the assessment year 2006-07 only. Hence, for the assessment year 2006-07 the cash flow statement need not be furnished. However, if the assessee can match his income and expenditure/investments, it would be better as it would enable him to explain any enquiry emanating from the Income-Tax Department based on the Annual Information Return at a later date.

What are the steps to be taken for preparing the cash flow statement?

Keep track of your bank passbook to know the deposits and withdrawals. Also, keep a note of the incomes and expenditures/investments made during the year. Your income returned for tax purposes should be sufficient to cover your expenses/investments.

The household expenditures also must be taken into account based on the number of dependents, the expenditure towards education, car maintenance, foreign travel, donations and other factors such as standard of living, etc.

Are the details of cash inflow and outflow to be furnished in the return?

The preparation of the cash flow statement is as simple as the single-entry system of book keeping. The opening balance of cash on hand and bank balance plus inflow of cash by means of income, other receipts (including gifts) less expenditures incurred and investments made would result in closing balance of cash on hand and in bank.

If you have the details of opening and closing cash and bank balances and details of incomes, the missing information would reflect your expenditure or investment.

A small diary or a notebook may suffice for preparing the cash flow statement.

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