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The Income-tax return (ITR) forms for the assessment year 2022-23 (financial year 2021-22) have been notified by the finance ministry recently. The good news is that there are no major changes this year on the applicability of the various forms to different taxpayers and income groups. Thus, ITR 1 this year (subject to certain exceptions) is still applicable to individual taxpayer being ‘Resident and Ordinarily Resident’ and having total income up to ₹50 lakh, having income from salary, income from one house property and/or income from other sources (interest, dividend etc.) and agricultural income up to ₹5,000. Similarly, ITR 2 is applicable for individual tax-payers having income exceeding ₹50 lakh, income from more than one house property, capital gains and foreign income/assets that are required to be reported. ITR 4 is applicable to individuals, HUFs and firms (other than limited liability partnerships) having presumptive income from business and profession with income up to ₹50 lakh .
Most changes in ITR 1 and ITR 2, predominantly applicable to individuals, involve additional disclosure requirements in relation to certain transactions and accounts.
Changes in ITR 1
The salary schedule in ITR 1, which used to be simpler, is now aligned with other ITR forms, where the break-down of the salary income (into salary, perquisites, exemptions, etc) needs to be reported in detail.
Changes in ITR 2
While selecting residential status as ‘Resident and Ordinarily Resident’ or ‘Resident but Not Ordinarily Resident’, the taxpayer needs to answer additional questions now from the drop-down list on the qualifying conditions, basis which the selected residential status has been determined.
Pensioners are now required to provide additional details of the source of their pension as nature of employment i.e. Pension from Central Government/State Government/Public Sector Undertaking/Others etc.
The capital gain schedule now requires reporting of additional information pertaining to the date of purchase and sale of the asset (land/building) as well as year of making the improvement to the asset, where applicable, for determining the cost of improvement.
With respect to stock option income (commonly referred to as ESOP), specifically for employees of ‘eligible start-ups’ which qualifies for a tax holiday under Section 80-IAC of the Income-tax Act 1961, the tax law provides for deferral of the payment of taxes on ESOP perquisite income. ITR 2 has a specific schedule for reporting the details of the ESOP income and tax deferral brought forward and/or being carried forward under the above provision.
With regard to reporting of foreign assets (applicable for Resident and Ordinarily Residents), the specific schedule requires reporting the details of such assets/income accrued from such assets for the calendar year ending December 31, 2021, thus providing greater clarity on the reporting period.
Common changes
These apart, there are some common changes for ITR 1 and ITR 2 as well. In the salary schedule, in addition to the regular salary components, the details of income from overseas retirement benefit accounts are also required to be reported, which is a new requirement this year. Details of such accounts are required to be reported in the specific field which seeks the details separately for a notified country and a non-notified country. Currently, Canada, the UK, and the US have been notified.
From the total salary income, the salary schedule provides for reduction of relief claimed under Section 89A of the Income-Tax Act 1961. Similar reporting of relief under the section is also provided in the schedule for reporting income from other sources.
With regard to income from other sources, this year, there is a specific reporting requirement of deemed dividend, differentiated from regular dividend. There are also separate reporting requirements for interest accrued from provident fund accounts. The new form further seeks the details of interest accrued in provident fund account of the taxpayer on employee’s contributions exceeding ₹2.5 lakh, following the move to tax this income.
(The writer is Tax Partner – People Advisory Services, EY India. Views expressed are personal)
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