THE BIG STORY. Let’s talk tax

Come July, the annual tax return filing exercise begins to gain steam. This time around, apart from gathering your papers and setting aside funds to meet the July 31 deadline, you have to familiarise yourself with the tweaks in Income Tax Return (ITR) forms and additional disclosure requirements.

Here are the changes that salaried tax payers, small businessmen and professionals need to know while filing their returns this year:

Applicable for individuals with salary/pension income, one house property and income from other sources such as interest earnings, ITR 1 (Sahaj) has always been the least complicated of the return forms.

The good news this year is the further simplification of the ITR 1 form, with the number of pages down to just one now from seven last year.

So, what has changed? For one, the section which deals with deductions from total income has been pruned. While provisions for showing 18 different deductions was available until last year, the new ITR 1 has consolidated this under four commonly used sections — 80C (tax-saving expenses/investments), 80D (medical insurance), 80G (donations) and 80TTA (savings account interest). A fifth space is provided to show any other deductions, if necessary.

Secondly, while separate schedules were given for showing details related to tax deducted at source (TDS) from salary, TDS from interest and tax collected at source (TCS) earlier, all these have been consolidated into one schedule in the new ITR 1.

Three, sparsely used sections of the return such as supplementary schedules for filling additional TDS/TCS details — which occupied about three pages in last year’s ITR 1 — have been completely done away with, this year.

But the reduction of ITR 1 to one page doesn’t mean that no new information is required. Unlike earlier, details relating to exempt income are being sought under each head such as sec 10 (38) (long-term capital gains from equity shares/equity oriented funds), sec 10 (34) (dividends), agricultural income and others such as tax-free interest separately.

Quoting the Aadhaar number or Aadhaar Enrolment ID is compulsory for returns being filed from July 1, 2017, onwards.

Thus, if you are an individual with taxable income and also fulfil the eligibility criteria for Aadhaar, you can no longer postpone getting enrolled. Remember to set aside some time to visit an Aadhaar enrolment centre before filing your return. Besides, details (IFSC Code, name of bank, account number) of cash deposited in the bank during the demonetisation period (9.11.2016– 30.12.2016 ) are required to be disclosed, if it aggregates to above ₹2 lakh.

Note that not only deposits into current/savings account but also repayment of loan accounts needs to be disclosed.

Keep in mind that this disclosure has to be made irrespective of whether you were among those who were asked this detail during ‘Operation Clean Money’.

Under this operation, the tax department had reached out to about 18 lakh assessees to do an online verification of cash deposits made by them during the demonetisation window in the e-return filing portal.

As it has always been the case, assessees with more than one house property, income under the head capital gains, foreign assets/income or agricultural income in excess of ₹5,000 cannot use ITR 1 this year too.

But there is another new restriction on usage of ITR 1 this year. If your income is above ₹50 lakh, you need to use only ITR 2 even though your income may fall only in the categories applicable for ITR 1.

With electronic return filing catching up, the IT department has made e-returns compulsory for many categories of assessees. But manual filing is still allowed in ITR 1, albeit with some restrictions. Only an individual assessee who is 80 years old or more at any time during the year in which the income is earned or an individual or HUF whose income does not exceed ₹5 lakh and who does not have any refund due can file ITR 1 manually.

The Modi government’s focus on crackdown of black money saw the introduction of greater disclosure requirements in the ITR 2 form since 2015.

Accordingly, during the last two years, ITR 2 was to be used by salaried assessees who had income under capital gains and/or foreign income/assets, with a whole lot of additional information requirements on these gains and foreign transactions.

To relieve other salaried assessees who weren’t eligible for ITR 1 but did not have capital gains or foreign income/assets either, ITR 2A was introduced. Thus ITR 2A users typically included those who had salary /pension income, income from other sources (including lotteries, puzzles and horse races) and who owned more than one house property.

This year, ITR 2A has been done away with. Those who are otherwise eligible for ITR 2A now have no choice but to use the more comprehensive ITR 2. In addition, partners of a firm also have to use ITR 2 this year as against ITR 3 last year. In effect, all individuals not running a proprietary business or profession and those not eligible for ITR 1 should use ITR 2.

So what’s new with ITR 2 this year? This year’s ITR 2 has 16 pages, compared with 13 last year. Since partners of a firm too need to use this return this year, certain schedules relevant to income from a partnership have been included. But more importantly, disclosure requirements have increased.

Schedule OS dealing with Income from Other Sources now requires unexplained/undisclosed investments, unexplained money, unexplained expenses, etc., to be shown separately.

Do remember, the numbers you show here may be compared with your earlier disclosures during the year under schemes such as the Pradhan Mantri Garib Kalyan Yojana or ‘Operation Clean Money’. Hence, make sure that they are in sync. First-time disclosure in the IT return may attract further scrutiny or action from the IT department.

Next, for those with income more than ₹50 lakh a year, Schedule AL, requiring details of various assets and liabilities, has been made more comprehensive. Last year, only the value of movable and immovable assets and liabilities was required. This year, description and address has to additionally be provided for immovable properties. Also, financial assets such as bank deposits, shares, insurance policies, loans, cash in hand, investments in partnership firms, etc., have to be reported separately.

Like the ITR 1 form, Aadhaar number or Aadhaar Enrolment ID is mandatory in ITR 2 as well; so are details related to cash aggregating over ₹2 lakh deposited during the demonetisation window.

A third refresh this year is the new return form ITR 4 Sugam instead of ITR 4S Sugam for small businessmen falling under the presumptive income scheme.

Also, from this year onwards, professionals are eligible to file returns under the presumptive scheme using the same ITR 4 Sugam form.

Assessees including individuals who are engaged in specified professions such as legal, medical, engineering, architecture, accounting, technical consultancy or interior decoration and whose gross receipts from profession do not exceed ₹50 lakh in 2016-17 can now pay tax on 50 per cent of the gross receipts under this scheme, without having to maintain accounts or auditing them.

Quoting of Aadhaar number or Aadhaar Enrolment ID has been made mandatory for ITR 4 Sugam, too.

Similarly, in case total income under all heads put together exceeds ₹50 lakh, more disclosures have been sought on the assets and liabilities; details relating to cash deposits aggregating to over ₹2 lakh during the demonetisation period are required as well. Besides, ITR 4 also allows manual filing under the same conditions as ITR 1.

While filing returns on time is advisable, keep in mind the new law in case you happen to file past the deadline ( July 31, 2017 or date until which it is extended). Earlier, you could take up to two years from the end of a particular year to file returns for that year’s income.

From this year onwards, the maximum time that tax laws now provide is only until the end of the following year (called the assessment year).

So, if July 31, 2017, is the last date for filing your returns for the income earned in the year 2016-17, in case you miss this deadline, you are allowed to file your return only until March 31, 2018 (2017-18 being the assessment year for 2016-17).

Further, from the assessment year 2017-18 onwards (i.e. for income earned during 2016-17), persons filing their returns within the due date (say, July 31, 2017, in this case) as well as those who filed after the due date, but before the end of the assessment year (i.e. before March 31, 2018), can revise their returns.

Earlier, late filing meant that returns could not be revised in case any omissions or errors are found at a later date.