Disclose all foreign assets and incomes meticulously

Mention interest on contribution above ~2.5 lakh to EPF under ‘income from other sources’ in the income-tax return form

The Central Board of Direct Taxes (CBDT) had notified the income-tax return (ITR) forms for FY 2021-22 (Assessment Year 2022-23) in the first week of April. These new forms contain around 30 changes. Taxpayers should understand the ones relevant to them before they file their returns.

Old and new tax regime

Taxpayers can choose between the old and the new tax regime. Now, in ITR Form 3, the taxpayer can specify: the chosen tax regime; whether the taxpayer wants to choose the new tax regime now; and whether she wants to continue with the new tax regime or opt out of it. To provide this information, mention the Form 10IE filling date.

Moiz K Rafique, managing partner, Privy Legal Services LLP, says, “This gives a taxpayer the flexibility to choose the tax regime that works best for her. And in the same form, if you don’t opt for the presumptive tax scheme, you’ll now have to provide further information that will help in checking the applicability of audit more efficiently.”

Interest from Employees Provident Fund (EPF)

An employee whose contribution to EPF exceeds ~2.5 lakh per financial year (from FY 2021-22) will be liable to pay tax on interest earned on contribution above this limit. The limit will be ~5 lakh if the employer doesn’t make a contribution.

Suresh Surana, founder, RSM India says, “The new ITR forms have made changes in the ‘Income from Other

Sources’ schedule. Such employees must report the amount of excess contribution and interest earned from it.” Thus, the taxable interest income from EPF will be added under the head income from other sources.

Foreign assets in Schedule FA

In the old ITR forms, Schedule FA (Foreign Assets) required a taxpayer to report foreign assets only if she had held them at any time during the “relevant accounting period”, which was not defined. The new ITR forms have replaced the expression “relevant accounting period” with “calendar year ending as on December 31, 2021”.

Naveen Wadhwa, deputy general manager, Taxmann says, “The assessee must furnish details of all foreign assets held between April 1, 2021 and December 31, 2021 in the return to be filed for AY 2022-23.”

This change removes the scope for misunderstanding or miscalculating the reporting period. Reporting is required even if the taxpayer is a beneficial owner of foreign assets or has a financial interest in a foreign entity. Foreign assets such as depository account, immovable property, trust created outside India, etc, must be disclosed in Schedule FA. Wadhwa says, “The reporting requirement is mandatory only for a taxpayer who is a resident. One who is not ordinarily resident or is a non-resident doesn't need to file Schedule FA.”

In all ITR forms, new rows have been included where details have to be reported of income accrued on foreign retirement accounts, and any such income on which tax

relief has been claimed under Section 89A.

Purchase and sale of land or building

If you sold land or building in 2021-2022, then it is mandatory to declare the purchase and sale dates in the ‘Capital Gains’ schedule of the amended ITR forms. Bharath Gangadharan, senior associate, SKV Law Offices says, “This additional disclosure will help the tax authorities verify the taxpayer’s eligibility for exemption under sections 54, 54EC, and 54F of the I-T Act, 1961.” These amendments have come into force with effect from April 1, 2022. Section 54 and its sub-sections offer a seller of residential property relief from

capital gains tax. Deemed dividend

Earlier, no separate disclosure was required of dividend income taxable under the law. Suvigya Awasthy, associate partner, PSL Advocates & Solicitors says, “Under the new regime, such type of dividend has to be separately disclosed in the form of ‘deemed dividend’. This move reflects the exhaustive approach being adopted by the government and increases the work for assessees. But it is also likely to benefit them.”

Kumarmanglam Vijay, partner, JSA, however, says, “Given that tax is deducted on such deemed dividends and details of such deemed dividends are available with the tax authorities in Form 26AS, this change seems to be adding to the compliance burden of taxpayers with little additional benefit to the I-T authorities.”

Disclosure of interest paid

The new ITR forms have inserted a new row in Part AOI (Other Information) requiring the assessee to disclose the amount of interest paid on loan or advance taken from a deposit-taking non-banking financial company (NBFC) or a systemically important nondeposit taking NBFC. Maneet Pal Singh, partner, IP Pasricha & Co says, “With such disclosures, the taxpayer will be able to report the amount deductible in the current financial year which was disallowed in the preceding financial year under the specific head, mitigating the chances of furnishing inaccurate particulars.”

Significant Economic Presence of NRI

The new ITR forms require non-resident Indians (NRIS) to disclose whether they have a Significant Economic Presence (SEP) in India. Aditya Chopra, managing partner, Victoriam Legalis-advocates and solicitors says, “Significant Economic Presence will be determined on the basis of the following parameters: transaction of goods, services or property carried out by an NRI with a person in India, including the provision of download of data or software in India, if the aggregate of payments arising from such transactions exceeds ~2 crore; systematic and continuous soliciting of business activities or interaction with 300,000 users in India.”

NRIS must ascertain whether they fall under the purview of SEP and make the necessary disclosures in the new ITR forms.