Five provisions you must not miss in the tax return filing process

As the deadline to file the tax return is fast approaching, taxpayers must take note of these provisions to avoid late filing fees and penal consequences.

For an individual [not subject to tax audit provisions under Income-tax Act, 1961 (the Act)] the Income Tax Return (ITR) filing deadline for Financial Year (FY) 2018-19 is  July 31. 2019.

ITR forms for FY 2018-19 have already been notified by the Central Board of Direct Taxes (CBDT).  Similar to the past year, this year as well there have been substantial changes in the tax filing procedure and forms.  Also, the CBDT from time to time provides clarifications on certain aspects of the form by way of notification and keeps updating the online utility used to file the tax return to incorporate these clarifications.  Thus, it is pertinent to choose the appropriate ITR form and fill in the correct details while filing the ITR

In this context, five key provisions which one must not miss in a tax return filing process are discussed as under:

1. 1. Verification of prepaid taxes with Form 26AS

Recently, prescribed pro-forma for issuing salary cum TDS certificate in Form 16 (Part B) was notified by the CBDT (as against only Part A until last year). This form is to be generated electronically and has to be provided by the employer to the employee by the extended deadline of July 10, 2019. It is imperative that taxpayers verify their prepaid taxes, including Tax Deducted at Source (TDS) (reflected in Form 16 for salary income/Form 16A for other income), advance tax and self-assessment taxes with Form 26AS—an online tax credit statement which can be retrieved from income tax e-filing portal.

Any discrepancy in the details of pre-paid taxes should be notified either to the employer (in case of salary income) or other deductor(s) (in case of other income) or banks (for advance tax/self-assessment tax payments) for the necessary rectification by amending their TDS quarterly returns. Unless such discrepancies are rectified, the tax return will not be processed by the tax department successfully and one may receive an intimation either for balance tax payable (to the extent of shortfall in pre-paid taxes or taxing of additional income) or refund not being processed.

2. 2. Tax on Long term capital gains (LTCG) from listed securities

Budget 2018 reintroduced tax on LTCG earned from transfer of equity shares of a company or a unit of an equity oriented mutual funds on which securities transaction tax has been paid at the time of acquisition. Effective FY 2018-19, LTCG earned on such securities exceeding Rs 1 lakh is taxable at 10 per cent (plus applicable cess and surcharge), without the indexation benefit. It is pertinent to note that such LTCG has been grandfathered up to January 31, 2018. Accordingly, the necessary gains should be computed to be a part of gross total income as per the method prescribed in this regard.

Also, it should be noted that a separate column has been introduced in Capital Gain Schedule (Schedule CG) in the new ITR forms (including line items like Fair Market Value of capital asset as on January 31, 2018, LTCG after threshold limit of Rs 1 lakh, etc.) in line with the above changes to enable individuals to report LTCG from such securities.

3. 3. Payment of taxes

Once the gross total income under different heads of income is determined, deductions available under Chapter VI-A of the Act like Section 80C – for tax saving investment and expenditure towards life insurance premium, public provident fund, etc., Section 80D – for payment of medical insurance premium, Sec 80TTA – for interest income earned from savings bank account, Section 80GG – for rent paid, etc. should be claimed to arrive at total taxable income. On such taxable income, applicable slab rates of tax should be applied to compute the total tax liability. Necessary taxes due on the tax return (depending upon nature of income(s)) post claiming credit of prepaid taxes (TDS and advance taxes paid during the FY) and foreign tax credit for taxes paid outside India, should be discharged (including applicable interest under Section 234B and 234C of the Act, as applicable) before filing the tax return.

4. 4. Various disclosure requirements:

Appropriate disclosure of various assets and financial investments held by an individual forms an integral part of an ITR. The prescribed disclosure schedules/requirements applicable for FY 2018-19 are:

Asset/Liability disclosures:-

• • Details of all Indian bank accounts (name and IFSC code, account number and type of account) held at any time during relevant FY. Dormant accounts can be excluded from reporting.

• • Schedule of Assets and Liabilities (AL): Details of specified assets [such as land, building, jewellery, financial assets, etc.] and corresponding liabilities are required to be disclosed in case the total income of an individual exceeds Rs 50 lakh.

• • Schedule Foreign Assets (FA): Resident and Ordinarily Resident (‘ROR’) individuals are obliged to furnish details of their assets held outside India (both as an owner and as a beneficiary) such as foreign bank accounts, financial interest in any entity, etc. as per specified disclosure guidelines. In the new ITR forms, such disclosure requirements have been widened to include details of foreign depository accounts, equity or debt interest in a foreign entity, etc. A penalty of Rs 10 lakh may be levied in case of non-disclosure of such assets in this schedule under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Some of the other disclosures

• • Individuals qualifying as Non-Resident (NR) are required to mention their jurisdiction of tax residence and taxpayer identification number during the relevant FY. This may potentially create a challenge for individuals who may not be tax residents of any country (e.g. employees working in multiple countries during the year, etc.)

• • In addition, in case of an Indian citizen or Person of Indian Origin, total period of stay in India during the relevant FY along with preceding four FYs is also required to be mentioned.

• • In order to keep a check on issue of shares by closely held companies and investments made by shareholders therein, a new table has been inserted to seek details in respect of unlisted equity shares held at any time during the relevant FY, like name and PAN of the company, opening balance of shares, shares acquired/transferred during the year and closing balance. There is no clarity on this disclosure requirement as to whether individuals [especially who are qualifying as NR or Not-Ordinary Residents (NOR)] are required to report even foreign company shares under this schedule or only Indian company shares should be reported.

• • Individuals who are directors in a company are now required to furnish details such as company name, PAN of the company, whether shares of the company are listed and the Director Identification Number (DIN). Reporting of PAN and DIN are optional in case of foreign companies. Here again clarity is needed whether directorship in foreign company is required to be reported for individuals qualifying as NR or NORs.

5. 5. Validation of Form ITR-V

After e-filing the ITR, an acknowledgement in Form ITR-V is generated.  It is important to validate Form ITR-V to complete the filing process. It can be validated either online (through Aadhaar OTP, digital signatures, net banking or other modes) or manually by placing the signature in printed Form ITR-V and sending the same to Centralised Processing Centre in Bengaluru. Without such verification, the tax return uploaded will not be considered as filed and hence will not be processed by the tax department.

As the deadline to file the tax return is fast approaching, it would be prudent for taxpayers to assess their taxable income as per the provisions of the Act and take cognisance of aforesaid provisions amongst others for filing their tax return accurately without attracting late filing fees and penal consequences.