How filing income tax returns has changed post Budget 2012-13
The new disclosures in Budget 2012-13 make the government's intent loud and clear - track understated income and overseas assets.
With the beginning of the new financial year, most individuals would gear up to finalise their tax returns for the year just gone by. While you are busy collating details of your income, it is important to take note of the additional disclosures to be made while filing income tax returns this year. The new disclosures make the government's intent loud and clear - track understated income and overseas assets.
TAX RETURN FORMS
The income tax return (ITR) forms for individuals are same as previous year, subject to the requirement for some additional disclosures. ITR 1, applicable for salaried individuals with one house property and no capital gains income, has remained unchanged. It can no longer be used by individuals with foreign assets. ITR 2, ITR 3 and ITR 4 include additional information on house property income, donations, treaty reliefs and foreign assets.
HOUSE PROPERTY INCOME
The reporting requirements for house property income have undergone a change. The assessee now needs to disclose details of co-ownership in the tax return. If the property is co-owned, the percentage share in the property and the details of the co-owner need to be specified. It is possibly to ensure that the rental income is appropriately taxed and the mortgage interest is accounted for correctly in the hands of the owner.
DONATIONS
As donations qualify for different percentage of deduction based on the donee, the tax return forms have been modified to capture this data. The Permanent Account Number (PAN) of the donee has to be mentioned along with the donation amount and the qualifying amount for deduction. It is expected to help reduce instances of fictitious donations being declared in tax returns.
TREATY RELIEFS
The tax return forms now need the individual claiming tax treaty relief to disclose details like the tax identification number in the overseas jurisdiction, income declared, tax paid and the relief claimed on such income.
FOREIGN ASSETS
In a move to track foreign assets and income generated thereon, Indian residents would now have to provide details of foreign assets held by them (including financial interest in any entity or signing authority in any account outside India). The modifications to the tax return forms that have now been notified, prescribe disclosures for persons having taxable income.
The Budget proposals also provide for filing of a tax return and disclosures by residents without any taxable income. These, however, will be effective after the Finance Bill, 2012, is passed.
These amendments are applicable for residents-individuals who are 'resident and ordinarily resident' in India.
While there is no clarity whether 'resident but not ordinarily resident' would need to comply with these requirements, it may be possible to take a view that as these individuals are not required to pay tax on income that does not accrue or arise in India, hence, this provision should not apply to them. However, a specific clarification on this by the tax department would be appreciated.
AMBIGUOUS INTERPRETATION
As the amended tax rules are silent on what constitutes foreign assets for the purpose of disclosures under the new provision, the taxpayers can only be guided by the tax return forms. While the tax return forms include five specific heads for assets (see Assets Covered), there is much more information to be provided than what meets the eye.
Joint Holders:
Details of foreign bank accounts can be provided in the case of single holder. However, it is unclear on how to provide information where bank accounts, securities, properties and other assets are held jointly. Assesses may need to disclose the fact of joint ownership in the space provided to avoid disputes at a later stage. Disputed property issues and transactions, where the transfer formalities are not completed, would need to be separately tackled. Details of accounts where one holds a signing authority could also have multiple residents reporting on a single entity such as trusts and partnerships.
Financial interest:
What constitutes a financial interest may be a contentious issue. Generally, investment in equity, fixed deposits, interest in partnerships and beneficial interest in trusts are covered here. However, whether financial interest includes retirement benefits and social security benefits similar to the 401(k) in the US needs clarification.
Other assets:
The residuary disclosure provision which includes 'any other asset' has a wide connotation and requires clarification. Would this include personal assets such as boats, cars, jewellery and inherited assets?
Coverage:
Another question, especially for persons transacting in securities, would be whether they need to disclose all holdings during the year or do they only report assets/interests held at the end of the year? Individuals investing through brokers may have a considerable number of transactions during the year.
While owning an asset does not trigger any tax liability, the tax department may seek information on the source of funds for acquiring these assets and whether these have been subject to tax. Since this is a mandatory requirement, non-provision of details may be treated as concealment and trigger penal consequences.
Disclosures on foreign assets are new to India, but many developed countries including the US have such reporting requirements. In some countries, thresholds have been prescribed. The disclosure norms on foreign assets would take some time to realise the full scope and impact.
By: Tapati Ghose, Partner, Deloitte Haskins & Sells and Aarti Raote, Senior Manager, Deloitte Haskins & Sells
ITR 1
Applicable for individuals having income from:
> Salary/pension
> Only one house property
> Capital gains that are exempt
> Other sources
> Not applicable for individuals owning foreign assets
*Additional disclosures*
> No additional disclosures notified
ITR 2
Applicable for individuals having income from:
> Salary/pension
> One or more house or brought-forward losses
> Capital gains
> Other sources (including winning from lottery and income from race horses)
> Foreign assets
*Additional disclosures*
> House property ownership
> Donation details
> Treaty relief
> Foreign assets
ITR 3
Applicable for partner in a firm having income from:
> Interest, salary, bonus, commission or remuneration
> Salary/pension
> Capital gains
> One or more house or brought-forward losses
> Other sources (including winning from lottery and income from race horses)
*Additional disclosures*
> House property ownership
> Donation details
> Treaty relief
> Foreign assets
ITR 4
Applicable for individuals having income from:
> Business or profession
> Any of the other heads of income
*Additional disclosures*
> House property ownership
> Donation details
> Treaty relief
> Foreign assets
TAX RETURN FORMS
The income tax return (ITR) forms for individuals are same as previous year, subject to the requirement for some additional disclosures. ITR 1, applicable for salaried individuals with one house property and no capital gains income, has remained unchanged. It can no longer be used by individuals with foreign assets. ITR 2, ITR 3 and ITR 4 include additional information on house property income, donations, treaty reliefs and foreign assets.
HOUSE PROPERTY INCOME
The reporting requirements for house property income have undergone a change. The assessee now needs to disclose details of co-ownership in the tax return. If the property is co-owned, the percentage share in the property and the details of the co-owner need to be specified. It is possibly to ensure that the rental income is appropriately taxed and the mortgage interest is accounted for correctly in the hands of the owner.
DONATIONS
As donations qualify for different percentage of deduction based on the donee, the tax return forms have been modified to capture this data. The Permanent Account Number (PAN) of the donee has to be mentioned along with the donation amount and the qualifying amount for deduction. It is expected to help reduce instances of fictitious donations being declared in tax returns.
TREATY RELIEFS
The tax return forms now need the individual claiming tax treaty relief to disclose details like the tax identification number in the overseas jurisdiction, income declared, tax paid and the relief claimed on such income.
FOREIGN ASSETS
In a move to track foreign assets and income generated thereon, Indian residents would now have to provide details of foreign assets held by them (including financial interest in any entity or signing authority in any account outside India). The modifications to the tax return forms that have now been notified, prescribe disclosures for persons having taxable income.
The Budget proposals also provide for filing of a tax return and disclosures by residents without any taxable income. These, however, will be effective after the Finance Bill, 2012, is passed.
These amendments are applicable for residents-individuals who are 'resident and ordinarily resident' in India.
ASSETS COVERED: From the current tax assessment year, income-tax returns will include disclosures on foreign assets held by assessees.
AMBIGUOUS INTERPRETATION
As the amended tax rules are silent on what constitutes foreign assets for the purpose of disclosures under the new provision, the taxpayers can only be guided by the tax return forms. While the tax return forms include five specific heads for assets (see Assets Covered), there is much more information to be provided than what meets the eye.
Joint Holders:
Details of foreign bank accounts can be provided in the case of single holder. However, it is unclear on how to provide information where bank accounts, securities, properties and other assets are held jointly. Assesses may need to disclose the fact of joint ownership in the space provided to avoid disputes at a later stage. Disputed property issues and transactions, where the transfer formalities are not completed, would need to be separately tackled. Details of accounts where one holds a signing authority could also have multiple residents reporting on a single entity such as trusts and partnerships.
Financial interest:
What constitutes a financial interest may be a contentious issue. Generally, investment in equity, fixed deposits, interest in partnerships and beneficial interest in trusts are covered here. However, whether financial interest includes retirement benefits and social security benefits similar to the 401(k) in the US needs clarification.
Other assets:
The residuary disclosure provision which includes 'any other asset' has a wide connotation and requires clarification. Would this include personal assets such as boats, cars, jewellery and inherited assets?
Coverage:
Another question, especially for persons transacting in securities, would be whether they need to disclose all holdings during the year or do they only report assets/interests held at the end of the year? Individuals investing through brokers may have a considerable number of transactions during the year.
While owning an asset does not trigger any tax liability, the tax department may seek information on the source of funds for acquiring these assets and whether these have been subject to tax. Since this is a mandatory requirement, non-provision of details may be treated as concealment and trigger penal consequences.
Disclosures on foreign assets are new to India, but many developed countries including the US have such reporting requirements. In some countries, thresholds have been prescribed. The disclosure norms on foreign assets would take some time to realise the full scope and impact.
By: Tapati Ghose, Partner, Deloitte Haskins & Sells and Aarti Raote, Senior Manager, Deloitte Haskins & Sells
TAX RETURN FORMS FOR 2011-12
ITR 1
Applicable for individuals having income from:
> Salary/pension
> Only one house property
> Capital gains that are exempt
> Other sources
> Not applicable for individuals owning foreign assets
*Additional disclosures*
> No additional disclosures notified
ITR 2
Applicable for individuals having income from:
> Salary/pension
> One or more house or brought-forward losses
> Capital gains
> Other sources (including winning from lottery and income from race horses)
> Foreign assets
*Additional disclosures*
> House property ownership
> Donation details
> Treaty relief
> Foreign assets
ITR 3
Applicable for partner in a firm having income from:
> Interest, salary, bonus, commission or remuneration
> Salary/pension
> Capital gains
> One or more house or brought-forward losses
> Other sources (including winning from lottery and income from race horses)
*Additional disclosures*
> House property ownership
> Donation details
> Treaty relief
> Foreign assets
ITR 4
Applicable for individuals having income from:
> Business or profession
> Any of the other heads of income
*Additional disclosures*
> House property ownership
> Donation details
> Treaty relief
> Foreign assets
