New tax forms also require accurate reporting of income from intraday trading and retirement benefit accounts
Every year some changes are made to the income tax return (ITR) forms. Taxpayers need to be cognisant of them before they start the process of filing their returns.
Income from virtual digital assets (VDAs)
The tax authorities have introduced a separate schedule known as “Schedule VDA” in the new ITR forms 2, 3, 5, 6, and 7, respectively, for reporting income from virtual digital assets (VDAs), which include crypto currencies and non-fungible tokens (NFTs). Taxpayers are required to disclose the details of each VDA transaction, including the sale and purchase dates. The purpose is to make it easier for the tax authorities to see if tax has been paid on VDA-related activities.
Pallav Pradyumn Narang, partner, CNK, says, “Taxpayers must not skip any of these details, particularly since VDA exchanges and other similar entities in India may also provide inputs to the department as part of their reporting requirements. Any mismatches in declarations can lead to tax liabilities for taxpayers.”
Provide donation reference number
Taxpayers must disclose the application reference number (ARN) for donations eligible for Section 80G deduction.
Pratyush Miglani, managing partner, MVAC Advocates & Consultants, says, “To ensure compliance, taxpayers must obtain the ARN from the donation certificate issued by the donee institution using Form 10BE. The ARN should be included in the ITR for accurate reporting of eligible deductions.”
The ARN is a unique reference number that is mentioned in Form 10BE, the donation certificate, or donation receipt issued by the donee institution.
Narang says, “This additional disclosure facilitates the verification of donations claimed for Section 80G deduction. It curbs bogus donations that were used to defraud the exchequer.”
Income from intraday trading
The reporting requirements for intraday trading have changed. Sandeep Bajaj, managing partner, PSL Advocates & Solicitors, says, “Now, the profit or loss from intraday trading shall be considered business income rather than income from capital gains.”
The new ITR forms feature a dedicated section on ‘trading account’ for reporting intraday trading operations. Here, details of turnover and income transferred to the Profit and Loss account have to be provided.
Miglani says, “Maintain thorough records, consult a tax professional if needed, and stay updated with the regulations to ensure proper compliance with the reporting guidelines.”
Income from retirement benefit accounts
The ITR forms have been updated to include a new disclosure requirement: income from retirement benefit accounts. Taxpayers must now disclose any taxable income on which relief under Section 89A of the Income-Tax (I-T) Act was claimed in previous years. The Finance Act, 2021, had inserted a new Section 89A in the I-T Act, 1961, to provide relief to residents who have income from foreign retirement benefits accounts.
Ankit Rajgarhia, principal associate, Karanjawala & Company, Advocates, says, “Income from retirement benefit accounts is a dedicated section in the ITR forms that mandates taxpayers to disclose income derived from pension funds, annuities, or other retirement benefit schemes.”
The disclosure requirement also extends to taxable income on which relief was claimed under Section 89A of the I-T Act in earlier years. Rajgarhia explains, “Section 89A provides relief to individuals who have received arrears or additional income in a specific financial year, ensuring accurate calculation of tax liability.”
For instance, let’s consider the case of Kumar, a taxpayer who received income from a pension fund and claimed relief under Section 89A in a previous year. In the current financial year, Kumar earned Rs 5 lakh from his pension fund. During the previous year, he received arrears amounting to Rs 2 lakh.
When filing his ITR in the updated form, Kumar must disclose the Rs 5 lakh income from pension fund. Additionally, he must provide information about the Rs 2 lakh arrear that was subject to relief under Section 89A in the appropriate disclosure section.
Finally, Miglani says, “Taxpayers must pay attention to changes in residency status, especially if they have become non-residents. When filing your ITR, accurately disclose both the income from retirement benefits withdrawal and the taxable income resulting from relief claimed under Section 89A.”
How to ensure accuracy in reporting VDA income
When filing tax return in the amended ITR forms, disclose income from virtual digital assets accurately
Indicate whether the income should be categorised as business income or capital gains and report it under the relevant head of income
To ensure accurate reporting, check Forms 26AS which is a tax credit statement
Also check annual information statement, which provides information on tax deducted at source (TDS) under Section 194S
Verify that the income from VDAs, subject to TDS, has been properly included in the I-T return
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