Failure to do so might render the ITR (Income-Tax Returns) defective and invite an income tax notice and penalties
Albert Einstein once said, “The hardest thing in the world to understand is the income tax.” Thankfully, with the help of technology, the task of filing one’s income tax return (ITR) has now become easier. Note that the new due date for filing the returns is September 30, 2021. The return pertains to financial year 2020-21 and assessment year 2021-22. And tax filers should remember that while technology has made things easier, many will still end up making mistakes such as not providing full disclosures. Kapil Rana, founder and chairman HostBooks Limited says, “Certain disclosures are mandatory when filing return of income, which many might miss out on inadvertently. An assessee should remember these disclosures in order to avoid filing a defective return and getting a notice from tax department.” Some mandatory disclosures are given below.
Specified details of bank accounts: The taxpayer needs to report all his bank accounts held by him in India. Suresh Surana, founder, RSM India says, “These including those held in joint names.” Mention details like bank name, account number and the IFSC code of the bank. Further, in case of multiple bank accounts, the taxpayer needs to select one account for the purpose of refund, if any. There’s no need to mention dormant bank accounts which are non-operational for the past three years. Surana adds, “Though the IT Act does not specifically provide for penal provisions for non-disclosure of these details, the I-T Department might treat the return as defective u/s 139(9) and send a notice to the assessee if it believes he/she has tried to escape paying taxes.”
Specified details of unlisted equity shares: The taxpayer is required to report details of investments in unlisted equity shares such as name and Permanent Account Number (PAN) of the company, number of shares acquired and sold during the year. Gopal Bohra, partner, NA Shah Associates says, “Investments in shares of unlisted foreign companies is also required to be reported in this schedule, even if it is separately reported under the foreign assets schedule.” You will have to give details like name of the company, type of company, its PAN, opening balance, shares acquired during the year, shares transferred during the year and closing balance. Surana adds, “if an assessee holds shares in an unlisted foreign company and has duly reported the same in Schedule FA, he still needs to disclose it while filling his ITR. If not disclosed, the I-T Department may treat the return as defective, and ask the assessee to revise it.” Scheduel FA deals with foreign assets.
Details of holdings pertaining to unlisted equity shares by the assessee anytime during the previous year are required to be provided in ITR2, ITR3, ITR5, and ITR6.
Directorship in Indian or foreign companies: The ITR forms ask the assessee to disclose if he/she is a director in a company. The taxpayer needs to provide information about the name, type and PAN of the company, director identification number (DIN) and indicate whether, or not, shares of the company are listed on a recognised stock exchange. Naveen Wadhwa, deputy general manager Taxmann says, “If a person is a director in a company, he can’t file a return in form ITR-1 or ITR-4. He has to file it in form ITR-2 or ITR-3. If assessee files a wrong ITR form, the return might be treated as defective and if there is failure to rectify the defect, the return may become invalid and the assessee will be deemed to have failed to file the return.”
Schedule assets and liabilities: Details of specified assets such as land, building, and movable assets, financial assets (bank deposits, shares & securities, cash in hand, etc.) and corresponding liabilities are to be disclosed. Ritesh Kumar, partner, IndusLaw says, “Not all taxpayers have to disclose their assets and liabilities. The requirement to furnish such information applies only to those who have net taxable income (after deductions) exceeding Rs 50 lakh in a financial year.” This means, taxpayers eligible to file Form ITR 1 or ITR 4 are outside the scope of this requirement. The requirements to disclose the details of such assets are applicable in Schedule AL in tax payers (individuals/HUF) who are filing their tax returns in Form ITR 2 and ITR 3.
Kumar says, “The reporting compliances are specially cumbersome for taxpayers such as specially senior citizens and high net worth individuals (HNIs) or non-resident Indians (NRIs) who earn passive incomes.” There are two types of assets required to be disclosed in schedule AL (Assets and Liabilities)–one is movable assets and the another is immovable assets.
Rana says, “Where taxpayer is a partner in a firm or member of and AOP/BOI then particulars of interest in such firm or association of persons (AOP) or a body of individuals (BOI) shall be disclosed along with PAN of the entity.” Movable assets include jewellery, bullion, archaeological collections, paintings, paintings, sculptures, any work of art, vehicles, boats, boats and aircraft, financial assets. Immovable assets include land, buildings etc. Financial assets embrace bank balances (including all deposits), shares and securities, insurance policies, loans and advances given and cash in hand.
Schedule of foreign assets: Ordinarily Resident individuals are obligated to furnish details of their assets held outside India (both as owner and as beneficiary) as per specified disclosure guidelines. Reporting is required even if the asset is held for a single day during the relevant accounting period. So if a taxpayer has held the foreign assets in the relevant accounting period as applicable to the foreign jurisdiction, reporting of such assets is mandatory in the ITR forms.
Undisclosed foreign income or assets is taxed at 30 per cent plus a penalty equal to thrice the tax payable on the income or value of the undisclosed asset. In addition to tax and penalty on concealed income, an additional penalty of Rs 10 lakh may be levied for failure to file ITR or to disclose such foreign assets/income in ITR. Gopal says, “Wilful failure to evade taxes by not furnishing a tax return or not disclosing foreign income and assets in ITR may lead to prosecution.”
Disclosure of foreign assets and income from any source outside India
- Foreign accounts: Foreign Depository Accounts, Foreign Custodial Accounts, Foreign Equity and Debt Interest (including any beneficial interest), Foreign Cash Value Insurance Contract or Annuity Value Contract (including any beneficial interest)
- Financial Interest in any entity held (including any beneficial interest)
- Immovable property held (including any beneficial interest)
- Any other capital asset held (including any beneficial interest)
- Account(s) in which the assessee has signing authority (including any beneficial interest)
- Details of trusts created under the laws of another country in which the assessee is a trustee, beneficiary or settlor
- Details of any other income derived from any source outside India and income under the head business or profession
Source: HostBooks Limited