It is that part of the year when taxpayers prepare to file Income Tax Returns (ITR) which is due by 31 July 2022. Over the years the disclosure requirements in a tax return and the data requirements have increased manifold. While the tax portal of the government provides significant support in selecting the right form and various inputs to the taxpayers, the primary responsibility for filing a correct and complete tax return solely vests with the taxpayers.
Here are some critical points that are relevant to ensure proper return filing.
- ITR Forms: First thing first. Selecting the correct forms for filing the return is the starting point in the return filing exercise. Choice of the form involves the consideration for residential status, nature of income, audit requirements, etc. For example, a non-resident should file the tax return using ITR 2 irrespective of the income quantum, rental income from 2 house properties or capital gains should be reported in ITR 2 and not ITR 1, and similarly, income from intraday trading or futures and options trading should be reported in ITR 3.
- Personal information and bank account details: The ITR filing for FY 2021-22 is based on pre-filled JSON utility whereby the particulars of personal information are automatically sourced from the tax portal onto the ITR Form. It is important that taxpayer provides his/her correct address, contact number, email-ID, etc. in their tax portal. It may be noted that incorrect details, for example bank account details, will result in stalling the refund credit process.
- Reconciliation of Form 26AS and Form AIS with the details available with taxpayer: With the aim to increase transparency in filing correct particulars of income, the government has introduced Form Annual Information Statement (AIS). Taxpayers should file their tax returns in line with Form AIS and Form 26AS, and in case of any deviation, the taxpayers can submit the feedback on Form AIS to avoid any enquiries from the tax department.
- Non-reporting of assets or liabilities, foreign assets, directorship, or unlisted share holding: Taxpayers should report – (i) assets and liabilities (income exceeding INR 5 million), (ii) overseas assets (for ordinarily resident taxpayers) or (iii) directorship details or (iv) unlisted shareholding where applicable. Non-furnishing of overseas assets may invite query from authorities under both the Income-Tax Act and the Black Money Act.
- Particulars of TDS and TCS: Taxpayers should be careful in claiming the correct Taxes Deducted at Source (TDS) or Taxes Collected at Source (TCS) while filing the ITR as incorrect particulars may lead to mismatch of tax credit and may result in levy of demand of taxes. Further, wherever TDS has to be carried forward into the future years, suitable references should be provided in the tax return.
- Filing of Form 67 for the purpose of foreign tax credit claim: Filing of Form 67 is mandatory before filing ITR for the taxpayers availing foreign tax credit against the overseas income taxed in India. Besides filing of Form 67, taxpayers are required to submit proof of taxes paid in overseas country viz. copy of overseas tax return, tax payment challan, etc. Non-filing of Form 67 may lead to denial of foreign tax credit for the taxpayers.
- Incorrect bank account details for refund: Taxpayers having refund claims should report the correct particulars of bank account besides validating the bank account. Any omission on part of the taxpayers may result in delayed refund of taxes.
- Non-reporting exempt income: Many taxpayers do not report exempt incomes (such as interest income from PPF, interest on Sukanya Samriddhi Account, exempt income under tax treaty, gifts from relatives) while filing the ITR. Non-reporting of exempt income may lead to queries from the tax authorities and also denial of the exemption status.
- Non-filing of ITR: The government in the recent past has notified new categories for filing of ITR such as – taxpayers having foreign travel expenditure exceeding INR 0.2 million, electricity expenditure exceeding INR 0.1 million, foreign assets held, bank deposits exceeding INR 5 million, TDS or TCS of more than INR 25,000 etc., during the year are mandatorily required to file their ITR.
- Verification of ITR-V: The ITR filing does not end with the process of filing ITR as taxpayers are supposed to either electronically verify their ITR using OTP or EVC options or send the signed ITR-V manually to the Centralized Processing Centre (CPC). Failure to verify the ITR-V is equivalent to non-filing of ITR and it may lead to denial of carry forward of losses, refund of taxes claimed.
Investing some time while filing the tax return correctly can save substantial future time and efforts in defending any enquiries from the tax authorities. Taxpayers can always consult the Government of India tax help desk and take professional support wherever required and complete the return filing.
(By Sudhakar Sethuraman, Partner, Deloitte India, and Ankit Agarwal, Manager, Deloitte Haskins & Sells LLP)