NEW RULES OF FILING TAX RETURNS

Several changes have been made in the tax filing rules since last year. Findout what these mean for you.

A week may be a long time in politics, but when it comes to filing tax returns, some people may find that even four weeks aren’t enough. As the deadline forfiling tax returns approaches, thousands of Indians who have worked abroad will be scrambling to gather the information required to be filled in the new tax forms. This year’s budget had proposed that individuals who have assets abroad must file their tax return and mention details of their foreign assets in the forms. “This new requirement is likely to become a big nuisance. Even if you have $10 in a bank account abroad, it has to be reported in the tax form,” says Amarpal S Chadha, tax partner, Ernst & Young.

This is just one of the several changes in the tax filing rules this year. Some of these are minor and may not make a material difference. But most of them are significant and will broaden as well as deepen the information that an individual discloses in the tax returns. For the honest taxpayer, who pays his taxes and has nothing to hide, these changes should not matter. However, he will have to be a lot more disciplined in keeping records of financial transactions.

The new forms are a wake-up call for taxpayers who have not been entirely honest in paying their taxes. Nearly 5% of the respondents in an online survey conducted by ET Wealthlast week said that they have under-reported their income quite a few times. Another 10% said they have done so just once or twice. We believe there is also a large community of innocent offenders who don’t even know that they are falling foul of the tax laws.
    

These taxpayers must realise that Big Brother is watching. Earlier this year, the IT Department announced that nearly 27.5 lakh taxpayers made cash deposits of over 10 lakh in their bank accounts in 2009-10 and 2010-11. More than 6 lakh people purchased or sold property worth over 30 lakh. Over 15 lakh cardholders made payments of over 2 lakh in a year on their credit cards. All this information flows to the IT Department from banks, credit card issuers, property registration authorities, mutual funds and brokers. The department has put about 2.22 crore transactions under the scanner.
    

To ensure that your tax returns are flawless and you don’t end up on the wrong side of the law, ET Wealthreached out to experts to understand the changes in this year’s tax forms. Here is what they had to say.

E-filing for income over 10 lakh
Any individual or Hindu Undivided Family (HUF) with an annual income of 10 lakh and above will now have to compulsorily e-file the income tax return. Till now, only corporates were required to e-file their returns, whereas individuals and HUFs were free to file manual returns. The new rule might seem like a big change, but it actually affects a very thin creamy layer of taxpayers. Only 5.5% of the total 4.2 crore taxpayers have an income of over 10 lakh, and a vast majority of these taxpayers has already taken the e-filing route.
    

The government wants to nudge taxpayers to e-file because it improves tax compliance and reduces its own backoffice workload. It even lessens the chances of mistakes in the tax returns. When returns are filed physically, data entry operators manually feed the information into the system. In the process, they introduce many mistakes in the return, which leads to delays in refunds or, worse, a notice from the tax department.

Declaration of foreign assets
Resident Indians will have to declare foreign assets in their tax returns. The assets covered include bank accounts, immovable property and interest in any company. The taxpayer will have to mention the peak bank balance in his account during the year as well as the total investment in other assets at cost price. Even if you were merely the signing authority for a bank account in a foreign country, it has to be mentioned in the return. The government estimates that Indians have stashed roughly $500 billion in foreign tax havens. By introducing this change, the government intends to track the undisclosed income from these assets.

Details of tax relief claimed
The scrutiny of foreign income does not stop here. If the assessee has claimed relief for taxes paid abroad, he will have to mention details in his return. Till now, a taxpayer merely had to mention the tax relief he was claiming. Now, he will have to mention the name and code of the country visited, income earned, taxes paid, and the tax identification number in the foreign country.
    

Tax filing portal Taxspanner estimates that about 10 lakh employees of IT/ITeS companies have been abroad on projectbased assignments during the past 10-15  years. If these professionals opened bank accounts, invested in stocks or bought assets there, these details will have to be mentioned in their returns. What’s more, they have to file their returns even if they don’t come in the tax net. These will have to be filed online.

Ownership pattern of property
The new reporting requirements have also plugged a big loophole in the way income from property is reported. Till now, a taxpayer had to just mention the property and the income received as rent. Now he will have to disclose the ownership details in the tax return. If the property is jointly owned, the percentage share in the property and the details of the co-owner need to be mentioned. “This also means that the rental income will have to be proportionately divided among the joint owners,” says Ankur Sharma, co-founder and managing director of Taxspanner.com.

Deduction for donations
The taxpayers who have been generous during the year will now also have to be more careful. If they want to claim tax deduction for donations given to organisations, they must provide full details of the recipient. You are required to give the name and address of the organisation, its PAN, amount of donation and the amount eligible for deduction.
Bank details now mandatory

Till now, a taxpayer was required to mention his bank account details only if there was a tax refund due. In the new forms, you have to mention your bank account details even if there is no refund. Give the bank name, your account number and the MICR code.
    

Despite the changes, the basic rules remain the same. If you have some unpaid tax, pay it right away before you file your return. File by the due date to escape penalty. If you miss the 31 July deadline, you can always file by the end of the assessment year. You will, of course, forego some privileges enjoyed by taxpayers who file their returns by due date.
    

For instance, you will not be allowed to carry forward short-term and longterm capital losses (except from house property). This provision can be very helpful, especially if you have lost money in stocks. Also, you will not be eligible to file a revised return if you don’t file by the due date.

Source - BABAR ZAIDI – ET Wealth – 2/7/2012