It is almost an annual ritual for the government to introduce new features to the income tax return (ITR) forms. But there is nothing arbitrary about this exercise; by constantly trying to simplify the ITR norms, the authorities hope to increase compliance.
This year, however, a few of the changes are on account the pandemic – and they are significant. If you are a taxpayer or will be filing returns for the first time, you should be aware of these tweaks. The changes relate mainly to reporting requirements, tax deductions and changes introduced in Budget 2019. What this means is if you fill the relevant forms incorrectly, i.e. not taking the new additions into account, you may face a penalty from the tax authorities.
The first major change concerns the last date for filing the returns for incomes made in the financial year (FY) 2019-20: the due date for the assessment year (AY) 2020-21 has been extended to December 31, 2020, and for tax audit cases to January 31, 2021.
There are other changes that are reflected in the ITR forms; given below are changes in ITR-1 and ITR-2 for AY2020-21. But first, see which form is applicable to you.
ITR-1 Eligibility
The ITR-1 is for individuals who are residents (other than not ordinarily residents) with a total income not exceeding Rs 50 lakh. This includes incomes from:
Salaries or pensions (i.e. not from a business or a profession, like doctor’s fees)
One house property (excluding cases where loss is brought forward from previous years)
Other sources (interest etc. but excluding winning from lottery and horseracing)
Agriculture, of up to Rs 5,000 (note: this sub-clause excludes company directors or those who have invested in unlisted equity shares)
You can club the ITRs for spouse or minors, provided their incomes are limited to the conditions mentioned above.
You will also be deemed not eligible for ITR-1 if you:
Have taxable capital gains (short-term and/or long-term)
Have assets (including financial interest in any entity) outside India, or signing authority in any account located outside India; this holds even if you are a resident.
If you are planning to claim relief of foreign tax paid or double taxation relief under section 90/90A/91 (which deal with incomes made abroad, each of these sections applicable for a specific situation).
ITR-2 Eligibility
ITR-2 is for people and HUF (Hindu Undivided Family) whose income is from any source except business or profession, and total income exceeds Rs 50 lakh. But the basic eligibility condition applicable for ITR-1 is applicable here as well – i.e. assessee’s income should be from salary or pension.
Some of the other conditions are similar, but with few variations. So ITR-2 will be applicable for you if your income also includes:
Income from more than one house property
Income from a lottery, horse racing and other legal means of gambling)
Income from agriculture of over Rs 5,000
Where ITR-2 radically differs from ITR-1 is that it covers:
Income from capital gains/loss on the sale of investments/property (both short-term and long-term)
Income from abroad and foreign assets
Residents not ordinarily resident (RNORs), and non-residents
Director of any company and an individual who is invested in unlisted equity shares of a company will be required to file their returns in ITR-2.
Changes in ITRs
Now to come to the major changes made in the ITR process. Under the current rules, you are not required to file returns if your gross taxable income (i.e. earning before deductions) is below the minimum tax-exempted threshold limit of Rs 2.5 lakh annually.
But from this year onwards, three new criteria have been introduced under the Seventh Proviso to Section 139(1) that makes it mandatory to file returns (for both ITR-1 and ITR-2) even if your income is below the exempted limit.
Seventh Proviso
These three new criteria come into play if you have:
Deposited above Rs 1 crore with a bank in cash;
Spent more than Rs 2 lakh on foreign travel, or
Spent more than Rs 1 lakh on electricity bills.
(For all three cases, remember to indicate the exact amount)
Additionally, you still have to file returns if the single house property you own is jointly held; it will not matter even if the total income from that property is not more than Rs 50 lakh. Moreover, if you meet the above conditions, capital gain exemption too will not be considered any longer while your minimum tax-exempted income is being calculated. This means you will have to file an ITR if your income before claiming exemption from long term capital gains under Section 54 to 54GB is more than the basic exempted limit.
Schedule DI
As a result of the income disruptions caused by the pandemic, many people were not able to invest in tax-saving instruments on time, so as to claim for deductions and exemptions under Schedule DI. Keeping this in mind, the government has relaxed the time limit. Now, any tax-saving investments made in the first four months of this financial year (April 1-July 31 period) will be considered for deductions in AY 2020-21.
This is for investments for claiming deductions under Chapter-VIA-B of the Income Tax Act – which includes Section 80C (LIC, PPF, NSC and so on), 80D (Mediclaim), 80G (donations) etc. To give an example, any sum donated by July-end can be claimed as deduction under section 80G while filing ITR for FY 2019-20. However, do note that this extension of four months does not raise the threshold limit available under the respective sections; for instance, the aggregate amount of deduction for investments in the extended period will still remain Rs 1.5 lakh.
Remember to disclose the amount of the investment, deposits, payments or donations towards tax-saving separately in the relevant section.
PAN/Aadhar
Section 139A has also been tweaked so that the Aadhaar number and the Permanent Account Number (PAN) can be interchanged. This will be of help to you if you have an Aadhaar card but not PAN, as now you can furnish the first in lieu of the latter – even where PAN is mandatory.
The following people can now furnish either Aadhaar or PAN:
Co-owner of a house property;
Tenant(s) of a house property;
Buyer of immovable property;
Tenants/buyer who has deducted tax at source;
Someone holding 10% or more of the voting power in case of an unlisted company;
Shareholders of unlisted companies including start-ups;
Someone whose income is clubbed with that of the assessee, and,
A spouse governed by the Portuguese Civil Code. Nature of Employment
Until last year, only four categories were available for selection in the ITR forms under the section “nature of employment”: government, public sector undertakings, pensioners and others. This year, the list has been expanded to add three more categories by splitting the “government” category, and an addition in the dropdown – as “not applicable – being added in case assessee does not belong to any of other categories.
The new ITR forms have the following six categories under “nature of employment”:
Central Government;
State Government;
Public sector undertaking;
Pensioners;
Others;
Not Applicable
Government employees can now identify which government is the employer – the central or the state.
Reporting Surcharge
The Finance Act 2019 had levied an additional surcharge of 25% on income exceeding Rs 2 crore and 37% where it topped Rs 5 crore. However, after domestic and foreign investors protested, this surcharge was withdrawn for specified capital gains under:
Section 111A, which deals with short-term capital gains on listed equity shares;
Section 112A, which deals with a long-term capital gain on listed equity, and,
Section 115AD(i)(ii)(iii), which deal with capital gains on securities by foreign institutional investors.
ITR-2 has now been revised for separate reporting of income chargeable under section 111A, 112A and proviso under section 115AD(i)(ii)(iii).
Unique Identification
The Institute of Chartered Accountants of India (ICAI) has introduced a Unique Document Identification Number (UDIN) for its members to check impostors posing as “Chartered Accountants” and issuing fake certification. ICAI members cannot certify ITR as a true copy, but they can make an opinion on it based on the authenticity of the data; UDIN is required for this.
The government’s income-tax e-filing portal has now made it mandatory to quote UDIN for documents certified/attested by a chartered accountant.
Filing ITRs
ITRs can be filed both offline and online, though going digital is much easier. If you are an HDFC Bank customer, you can e-file with three easy steps, as shown below:
STEP 1: Log in to NetBanking using your Netbanking ID and password;
STEP 2: Click on the “Offers” tab;
STEP 3: Click on the banner “Free e-filing of Income Tax” and proceed with the filing.
Here are some income tax details not to miss when filing your IT returns today!
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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.