Individual income tax return forms have witnessed many changes over the past few years. This year the government proposes to introduce new tax returns forms, in lieu of the existing ones, including the Saral (Form 2D). In this connection, new forms have been drafted by the Central Board of Direct Taxes (CBDT). These forms are expected to be notified in mid-May.

New tax returns forms

For the assessment year 2007-08 (financial year 2006-07), following forms are proposed to be introduced for individual / Hindu Undivided Family (HUF) taxpayers:

ITR -1: This form can be used by individuals having salary and interest income only and no other income. This form is primarily to be used by salaried individuals who do not have any other income except interest income.

ITR -2: This form can be used by individual / HUF having income from any source except from business or profession.
This form is to be used if besides salary and interest income, the individuals / HUF has income from house property, capital gains short term and long term, income from other sources.

ITR -3: This form is to be used by individuals and HUF being partners of firms and not having proprietary business or profession. This form is to be used by partners of the firms for filing their personal tax returns.

ITR -4: This form is to be used by individuals / HUF having proprietary business or profession.

It would be interesting to note few of the important features of the proposed forms for individual taxpayers, as below:

No cash flow statement: Form 2F introduced last year required individuals to furnish their cash flow details.

Due to various representations made to the government, the said form was not made compulsory and an option was given to individual taxpayers to use other forms. The new individual tax return forms do not contain any such requirement of furnishing cash flow statements / details.

New requirement: Annual Information Return transaction - new requirement in respect of specified transactions is being introduced in the proposed tax return forms. Accordingly, an individual / HUF would be required to furnish information in respect of specified transactions undertaken by him, that are reported through Annual Information Returns (AIR) by the other parties. Therefore, it would be important to take note of the transactions that are currently being reported to the tax authorities under AIR by companies, banks, mutual funds, etc.
 
These include: cash deposits of Rs 10 lakh or more in a year in savings account (by banks); credit card payments exceeding Rs 2 lakh (by banks / credit card companies); purchase of mutual funds for Rs 2 lakh or more (by mutual funds); purchase of bonds or debentures for Rs 5 lakh or more (by company / institution issuing such bonds or debentures); purchase of shares for Rs 1 lakh or more (by company issuing shares through public or rights shares); purchase or sale of immovable property for Rs 30 lakh or more (by Registrar or Sub-registrar) and purchase of RBI Bonds for Rs 5 lakh or more (by RBI).

Form 16 may not be filed: The individual tax returns have been designed to be annexure less. Unlike in the past, no separate annexure for computation / other information is to be furnished along with the return. Therefore, it is likely that once complete information in respect of tax withheld at source as contained in Form 16 is furnished in the return, then, Form 16 may not be required to be filed along with the return.

All the necessary information is to be furnished in the specified schedules of the tax return form only. These schedules also provide guidance as to the step-by-step method of computing the taxable income under each head salaries, income from house property, capital gains, etc.

Electronic filing: The individual tax return forms can be filed electronically, even though this has not been made compulsory for the current tax year.

Tax return preparer information: If the tax return has been prepared by a tax return preparer (TRP), then his name and identification is to be furnished in the tax return form. Further, the TRP is also required to sign the tax return form.

Whats the final word?

The basic information required to be furnished in the proposed return forms remain the same as contained in the old forms. Nevertheless, there are a few important deviations which should be taken note of.

Vikas Vasal
KPMG