Skip to main content

Filing Tax Returns 2016 new disclosure norms

 

The Central Board of Direct Taxes has released new return forms to be used for filing tax returns (ITR). The amendments brought in the ITR forms are a move towards creating an environment of greater disclosure and tax transparency, although this may be viewed as an additional compliance burden by some.

 

The amendments in tax return forms are largely similar and simultaneous with changes being brought about in tax reporting across the globe. In 2015, Russia, for example, introduced additional tax reporting for tax residents, who have to notify Russian tax authorities about companies in which they hold more than 10% and about "structures" (trusts, foundations) where they participate in the role of founder, beneficiary, guardian, or others, as well as about the holding structure. The UK was the first to sign an enhanced automatic tax information exchange agreement in September 2012, together with the US, to accomplish the reporting required under US Foreign Account Tax Compliance Act (Fatca). Fatca has now been signed or agreed in substance by about 119 countries, including India. The Organisation for Economic Co-operation and Development, supported by the G20 nations, released a 15-point action plan against base erosion and profit sharing, to protect international economic system and facilitate an equitable tax architecture.

 

In India, ITRs for financial year 2015-16 (FY16) are due to be filed by 31 July 2016 (except those liable to tax audit or transfer pricing for whom due date is 30 September 2016 or 30 November 2016). Significant changes have been brought in the forms applicable for FY16. This is clearly indicative of the government's focussed strategy on tax reporting. These are some of the changes.

 

Introduction of Schedule PTI:

 

This is to be used to report details of pass through income received by investors from business trusts or investment funds. This schedule has been inserted in all ITR forms except ITR-1 (which is used by individuals with salary, one house property and income from other sources). The schedule intends to capture details of income from different sources under the pass through mechanism received by investors in funds such as venture capital funds or real estate investment trusts.

 

Under the pass through mechanism, income distributed by such funds is taxable directly in the hands of investors and not in the hands of the funds. The funds are required to report to the tax authority, details of investors and income distributed. Reporting by investors in their tax returns will help the tax authority reconcile the data and track defaulters.

 

Reporting of assets in Schedule AL for taxpayers with income above Rs.50 lakh: Schedule AL and also instructions to ITR form do not expressly provide that only India assets have to be reported in this Schedule. But where a taxpayer holds foreign assets, either as a legal or beneficial owner, he has to file his tax return in ITR-2 and report his foreign assets in Schedule FA. Since foreign assets and income are separately reported in Schedule FA, it appears that Schedule AL will capture details of those assets that are not captured under Schedule FA, i.e., India assets.

 

Assets to be reported include immovable assets, cash in hand, jewellery, bullion, vehicles, yachts, boats and aircraft at cost. Financial assets like stocks or funds are not included. There is no need to get a valuation report. If an asset was acquired by inheritance or gift, it would be required to be reported at cost to the previous owner of the asset, increased by the cost of improvement.

 

Since wealth tax has been done away with, the need to disclose details of assets and liabilities as part of ITR may help the tax department monitor an individual's assets and corresponding sources of investment. What is different from wealth tax reporting is that there is no threshold for cash reporting, so even small amounts might have to be reported. At the same time, reporting assets would also help cross check taxation of corresponding incomes.

 

Taxpayers should be careful in declaring foreign incomes and assets. A default can attract Black Money Act's stringent provisions.

 

Additional reporting in Schedule IF for partnership firms:

This Schedule in ITR-4 requires information about the partnership firm in which taxpayer is a partner. The taxpayer (in addition to details such as name of the firm, profit sharing ratio, capital balance, and others) is now required to report whether the firm had entered into any international transaction or specified domestic transaction during the year and whether the same has been reported by the firm in prescribed report.

 

Details of tax collected at source (TCS) under Schedule TCS:

 

 TCS constitutes tax paid on behalf of the taxpayer. This inclusion would help the taxpayer take credit of these taxes in his tax return. For example, if A buys jewellery worth Rs.6 lakh in cash in a single transaction, she has to pay TCS of 1% to the seller over and above purchase price. She can claim credit for this in her ITR. She will also have to offer the income from which cash was generated to tax and also report the jewellery in Schedule AL.

 

This change is all the more relevant because from 1 June 2016, the scope of TCS is proposed to be expanded to cash purchase of all goods and services in excess of Rs.2 lakh (except where buyer has deducted tax on such payments).

 

The government is focussing on non-traditional methods of garnering tax revenue and is adopting an active strategy to tap wealth stashed in illegitimate investments or parked abroad illegally. Media reports on Liechtenstein, HSBC accounts and Panama Papers, and the wave of tax activism are clearly adding to the political pressure on governments to better track income and ensure tax payment. The Supreme Court of India is also active on this front and has set up a Special Investigation Team on black money. Digitisation and increasing connect between tax authorities worldwide have come in as handy to improve tax enforcement.

 

However, some of these changes may pose difficulty to taxpayers. For instance, if assets were acquired many years back and records are not easily traceable or the taxpayer has received assets by way of gift or inheritance.

 

It also needs to be clarified whether cash reporting includes reporting of foreign currency held in India within the permissible limits of exchange control legislation. Foreign currency has traditionally been seen as a 'commodity' in judicial precedents, so a view may be that the intention of this amendment is to keep such foreign currency outside the purview of reporting under Schedule AL. Also, it is uncertain how these challenges will go down with assessing officers, and whether estimated values will be acceptable at the lower tax authority level.

 

This fast paced environment of tax reform also mandates the taxpayer to be better prepared for compliance. A tax scrutiny poses not only a risk of penalties, but also public naming and shaming.

 

With time, I am hopeful, that the government will clarify on such ambiguities. The success of these steps will lie in 'balance' between appropriate tax reporting by the tax payer and display of maturity and security by the government in handling information so that the taxpayer is not harassed.

-----------------------------------------------
Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saver Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

-----------------------------------------------

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now