De-tax: Things to note for ensuring a defect-free ITR

As most individual taxpayers approach the income-tax return filing deadline, unfamiliarity with tax laws and recurrently changing disclosure requirements in income-tax returns tend to send shivers down their spine. The regulators have endeavoured to make return preparation and filing process seamless through concepts such as pre-filled ITRs, among others, especially for individuals who are not surewhether their return adequately discloses information. However, paradoxically, the regulators have also, over time, amplified the quantum of disclosures in ITRs with intention of upgrading them for congruence with amended tax laws, unearthing instances of misreporting and under reporting of income etc, in turn, increasing taxpayers’ anxiety. From taxpayers’ perspective, one should be abreast of key disclosure requirements to shield themselves from far-reaching consequences of any default.

Amplified reporting in capital gains schedule

Additional disclosures are introduced in Schedule CG in connection with sale of land or buildings or both requiring separate disclosures of cost of improvement and year of improvement unlike previous years' ITR forms, which directly required reporting of indexed cost of improvement. Details of date of sale and purchase are also mandated in case of sale of land or buildings or both.

Disclosure of non-exempt interest income from PF contribution

As per amendments introduced vide Finance Act, 2021, no exemption is to be allowed for interest income accrued in recognised and statutory PF to the extent it relates to amounts contributed by employee exceeding ₹2.5 lakh in any previous year. Where there is no employer contribution, the limit of ₹2.5 lakh is increased to ₹5 lakh. The new ITR forms have modified "Schedule OS" (Other Sources) to incorporate the reporting requirement of exempt and non-exempt interest income under the amended provisions.

Annual information statement

With the objective of building a robust taxpayer's database, with effect from AY2021-22, the Annual Information Statement (AIS)/Tax Information Statement (TIS) were made comprehensive to contain information about taxpayer's income, taxes paid, demand and refund, financial transactions, income-tax proceedings, etc. With such abundance of information available to taxmen, taxpayers should exercise vigilance and ensure that income reported, and disclosures made in ITR forms, align with AIS information. Where reconciliation is required, thrust should be to get it off the hook prior to filing ITR to steer clear of errors on processing of ITR forms. Where bank statements are used as a base document to select income for reporting, taxpayers should be mindful that credits appearing therein are net of TDS and gross amounts are to be reported as taxable income in ITR forms. Individuals with total income exceeding ₹50 lakh are required to disclose details of all assets and liabilities held at the end of the relevant year in "Schedule AL".

Nil or inadequate disclosures, under or misreporting of income in ITR have vexed taxpayers with defect notices subjecting them to the rigmarole of revising returns. The thumb rule, therefore, is to be diligent in understanding the information needs and dotting the i's and crossing the t's well before the return filing deadline.

Key disclosures

No exemption to be allowed for interest income accrued in recognised and statutory PF

Sale of land or buildings or both require Separate disclosures of cost of improvement and year of improvement

Details of date of sale and purchase are mandated in sale of land or buildings or both

ESOP tax deferment

To ease the burden of tax payment on exercise of ESOPs, employees of eligible (IMB-certified) start-ups are granted a benefit of tax deferral on perquisite value of such ESOPs. ITR forms have been modified to include a new schedule titled "Schedule: Tax deferred on ESOP" to enable taxpayers and tax authorities to monitor deferred tax amounts and the year in which such taxes are required to be paid. This schedule requires individuals who are eligible for tax deferral to provide details of brought-forward tax deferrals, date of sale of shares allotted on exercise of ESOPs and tax attributable to such sale, date of employment cessation (if applicable), amount of tax payable in the current year and tax deferral carried forward to subsequent years.

The tax deferral schedule for ESOPs is provided in ITR-2 and ITR-3. Employees of eligible start-ups with only salary income who, hitherto, reported income in ITR-1, should be mindful of their ITR choice and furnish ITR-2 where ESOPs are exercised during the reporting period. Where a taxpayer is not an employee of an eligible start-up, perquisite tax would apply in the year of exercise and would get reported in salary schedule of ITR form, along with other perquisites.

Improper disclosures

Nil or inadequate disclosures, under or misreporting of income in ITR have vexed taxpayers with defect notices subjecting them to the rigmarole of revising returns

Foreign assets reporting period

Schedule FA necessitates resident taxpayers to report foreign assets and foreign-sourced income. ITR forms, hitherto, required disclosures of foreign assets only if taxpayer held such assets anytime during the relevant accounting period, which essentially corresponded to the period adopted for closure of accounts and tax filings in foreign jurisdiction where assets are located.

To assuage misunderstandings caused by the overlap of previous year (April-March) which is the reporting period followed for India income-tax purposes and the term ‘accounting period’, new ITR forms have replaced the expression “accounting period” with “calendar year”, requiring disclosure of foreign assets held anytime during the calendar year ending as on December 31, 2021, in ITR for FY 2021-22.

The author is Partner, Nangia Andersen LLP. With inputs from Amita Jivrajani and Usha Uppala

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