Filling income tax return forms not a smooth affair
July, 10th 2019
Clarification from the tax department is needed on disclosures that need to be made under different heads
Just a couple of months ago, the Central Board of Direct Taxes (CBDT) notified the amended tax return forms (ITRs) for filing tax returns for FY 2018-19. Moreover, the Government has been making sustained efforts over the past few years to drive the broader agenda of tax compliance.
On the one hand, there is increased online interaction to make compliance easy for all. On the other, with the view of promoting transparency and accountability, the Tax Department seems to be making all possible efforts to update ITRs in a manner that would help it collate crucial information about taxpayers. The new forms seem to be aligned to this objective, since there is a significant increase in the details that need to be provided by taxpayers.
However, despite the detailed instructions issued by the department with respect to changes in the ITR, there are still some disclosure-related requirements, which require clarification on the scope of disclosure, applicability and other related matters.
In this article, we have highlighted some areas on which clarification from the Tax Department will help taxpayers file their returns accurately. • Part A of the ITR requires details of unlisted equity shares held at any time during the year. In the Income-tax Act, 1961 (the Act), ‘unlisted shares’ refer to shares that are not listed in any recognised stock exchange in India. Technically, this covers the shares of foreign companies as well. However, if such companies are to be included, details such as their PAN will not be available and will make return filing difficult if the forms are not validated. If foreign companies are to be included, certain fields in the form should be made optional. Clarification in this regard would be very welcome.
• If individuals qualify as non-residents in India, it is mandatory for them to mention their countries of residence in Part A of the return form. There may be situations where an individual may not qualify as a tax resident of any country. This problem can be mitigated if there is a clear instruction that says it is permissible to write ‘NA’ in the form in such situations.
• Persons who are directors of companies are required to disclose details such as their names, the PAN of their companies as well as their Director Identification Number (DIN) in Part A of the ITR. Furthermore, ITR 1 cannot be filed by a person who is a director. Unfortunately, the word ‘director’ is not defined. Whether this requirement is restricted only to directors in Indian companies or also includes directors in foreign companies needs to be clarified. In the case of foreign companies, details such as PAN and DIN may not be available. Therefore, provision should be made to permit validation of the form, even in the absence of these details, or by writing ‘NA’ in the requisite columns.
• The scope of reporting in Schedule FA of the ITR has been expanded this year and requires reporting of the following assets:
- Custodial accounts - Depository accounts - Equity and debt interest held in any entity - Foreign cash value insurance contract or annuity contract
Unfortunately, the instructions do not elaborate on what is to be reported in each category. And in view of there being onerous repercussions for incorrect reporting, it is essential that clear instructions are issued with respect to each of the above.
• It is mandatory to fill in the details of Indian bank accounts, which may be problematic in a situation where individuals may qualify as tax residents in India and yet not have Indian bank accounts (e.g. in the case of an expatriates working in India for a short time). For non-residents, if they do not have Indian bank accounts, they can provide their overseas bank account details. This option should also be made available in the case of residents, or the mandatory field should be made optional.
• From this year, the reporting details of overseas assets held by assessees during the accounting period followed in their overseas countries are required under Schedule FA. Accounting periods are different in different countries. Most countries follow the calendar year and India its financial year. This can create practical challenges that need to be addressed. For example, individuals coming from the USA will need to report details of the assets they held during their calendar year (from 1 January 2018 to 31 March 2018), which is different from India’s. Consequently, there will be a mismatch between the assets they held in the corresponding calendar year and their income considered during the Indian financial year.
Lack of understanding about disclosures required may lead to an unhappy situation where taxpayers could end up under-reporting or misreporting particulars, despite having no intention of concealing their income or assets. Currently, with enhanced use of technology, the Tax Department is quick to issue notices if data appears to have been missed out. Defending this leads to unnecessary time and expenditure for taxpayers as well as the department. This can be avoided by issuance of clear and thorough instructions. With only a few weeks remaining between now and the July 31 deadline, we hope for timely clarity on the issues mentioned above.
(The writer is Partner, Personal Tax, PwC. Manavi Gupta, Associate Director and Abhay Chaturvedi, Manager, also contributed to this article. Views expressed are personal)