With the due date of 31 July 2018 for filing returns for Financial Year 2017-18 fast approaching, one should be aware of the significant changes in the tax return process introduced this year. Understanding these changes will be useful in filing tax returns timely and accurately.
While the deadline for filing the return remains the same at 31 July, one of the biggest change is the introduction of late filing fees of Rs 5,000 (if the return is filed by 31 December) or Rs 10,000 (if filed after 31 December). There is a lower fee amount of Rs 1,000 prescribed for income levels up to Rs 500,000.
Till last year, a penalty of Rs 5,000 could have been levied for filing return after 12 months from the year-end, but only after the tax officer issued a notice to show cause against penalty levy, conducted a hearing and passed a written order. Unlike this penalty till last year, which was selectively levied by the taxman, now such late filing fees are required to be mandatorily paid upfront in all cases of default. Hence, one would need to be cautious of the filing due date to avoid such unnecessary costs.
The maximum time limit for filing the original tax return was already crunched 12 months (from 24 months), so such return can be filed upto the following 31 March at most.
There is no change in the mode of filing of tax returns, as a requirement to file returns electronically continues. However, an option has been provided to individuals having taxable income up to Rs 500,000 without any tax refund claim or super senior individuals (aged more than 80 years), who can file returns in paper format.
Another additional disclosure requirement introduced in all return forms is consequent to the new provisions introduced effective 1 April 2017, where the landlord receiving rent over Rs 50,000 per month from a tenant will be subject to deduction of tax at source.
Where the tenant has undertaken these compliances under his own PAN, the existing fields for deductor of tax are modified to allow entry of tenant's name, his/her PAN and the amount of tax deducted from rent paid. Therefore, the landlord reporting rental income in the return can avail credit for such tax and pay differential tax.
Moving on to specific return forms, while the simplified one-pager ITR"1 (Sahaj) continues to be available this year also, the same can no longer be used by any individual who qualifies as Non-Resident (NR) or Resident but Not Ordinarily Resident (NOR). This means that NRIs residing outside India or foreign nationals living in India, but qualifying as NR/NOR, would need to fill detailed schedules for their income sources, increasing their compliance burden.
A radical change in form ITR-1 relates to the enhanced disclosure requirements for the sections on salary income and house property, which are made as elaborate as the more detailed form ITR-2. For example, in the Salaries section in new form ITR-1, in addition to final taxable amount, values of taxable allowances, perquisites, profits in lieu of salary and deductions (profession tax) are also required. Similarly, House property section in new form ITR-1 now also requires details of whether the property is let out or self-occupied, along with values of rent received/ receivable/ letable value, municipal taxes paid, standard deduction at 30 percent and interest payable on housing loan.
In short, under salary and house property income sections, the tax authorities have mandated providing the entire calculation of taxable income in the return form itself, which only had final taxable values as the reporting requirement last year.
Keeping a similar tone of expanding details required to be reported in ITR-2 also, the tax authorities have mandated elaborate details to be provided to support claim for exemptions in relation to capital gains (viz., dates of sale of old and the purchase of new capital assets, purchase cost of new asset, amount deposited in specified capital gains scheme) and tax treaty benefits (viz., country, tax treaty rate, Indian tax rate, reference to relevant sections/ articles, etc.).
The tax authorities have provided free of cost return preparation software in accordance with required data quality requirements. However, for the first time, taking cognizance of the commercially available software or websites for return preparation and the potential of poor data quality or common mistakes in tax returns filed, the authorities have laid down various types of validation rules used in the return processing stage upfront. The taxpayers would be advised to ensure compliance while using such other software.
In light of the above, it can be said that albeit the increase in the reporting requirements, the tax rules or processes are being made more comprehensive and stringent with the passage of time, with a clear intent of supporting the increased surveillance and enhanced vigilance by the tax authorities.
(Agrawal is Partner and Shah, Director at Deloitte Haskins and Sells LLP)