As far as filing of income-tax returns goes, all governments face a twin challenge.
On the one hand, they wish to make the process simpler so that more people are encouraged to file returns.
On the other, there is also the compulsion to ensure that the tax department has enough and more information to be able to do a proper assessment.
The latest income-tax returns (ITR) forms — Sahaj (ITR-1) and Sugam (ITR-4) — introduced by the Central Board of Direct Taxes seek to tackle both these issues.
Consequently, there could be an impression that they aren’t exactly what their names suggest.
These new forms require substantial additional disclosures from assessees that weren’t needed in the earlier forms.
The good part is that these forms have been notified well in advance.
Assessees can preplan and begin collating the required data to file their returns in time.
Disclosures to help in reconciliation
The current government has been steadfast in bringing in a lot of policy changes. It has made significant policy changes like triggering demonetisation of Rs 500 and Rs 1,000 notes in November 2016, facilitating e-assessments, and rolling out of Goods & Services Tax in July 2017.
At the same time, it has given due attention to subtler things by making necessary amendments in each Finance Act.
The changes brought much-needed clarity in grey areas and plugged loopholes.
Not only this, appropriate rigour has been introduced in day-to-day tax administration as well.
The agenda has been to continuously bring transparency as well as accountability into the system that has usually been touted as being sluggish and vague.
The proposed changes give a flavour of the broad objectives of the government of going electronic in all possible ways. They also promote the culture of reducing face-to-face interactions with the assessees.
They also facilitate having a one-stop destination to gather necessary information right at the time of filing of tax returns, which is sharply in contrast with the earlier methodology of collecting detailed data only at the time once assessment is triggered.
They will also lead to correlating and reconciling of inter-connected information of a particular assessee from various touch points like GST turnover details vis-a-vis details in tax returns (albeit at the peril of small assessees being saddled with more effort at their end).
These forms also fortify the essence of timeliness of compliances, by automatically including the late filing fee aspect in the return form itself.
New details sought in ITR-1
Until now, the Sahaj form was used by salaried employees, who had only one house property and interest income.
The details of ‘salary’ only required the information on the taxable salary.
Similarly, the ‘income from house property’ also required the taxable amount only in earlier forms.
These bare minimum requirements made it easy for individual assessees having limited sources of income to carry out the tax return procedure on their own, and hence was called Sahaj.
Under salary income, the new ITR-1 now requires assessees to provide the break-up of salary further into pure salary component, taxable allowances, the value of perquisites, profit in lieu of salary and deductions claimed under Section 16 of the Income Tax Act, 1961.
At the same time, from the perspective of ‘income from house property’, the new form now requires the break-up of annual value, municipal taxes paid, standard deduction and interest on borrowed capital.
More disclosures from small businesses
Sugam, on the other hand, deals with the returns that are to be filed by the assessees under the presumptive tax arena.
The presumptive tax regime allows the relevant assessees with small business operations to pay a fixed percentage of their total turnover as tax, without maintaining extensive books of accounts.
The earlier Sugam required the assessee to only furnish details of sundry debtors, sundry creditors, stock-in-trade and cash balance.
The new ITR-4, on the other hand, requires an array of additional information like partners or members’ own capital, secured loans, unsecured loans, advances, other liabilities, total capital and liabilities, fixed assets, inventories, cash-in-hand, loans and advances and other assets.
This is in addition to the earlier information regarding sundry debtors, sundry creditors, stock in trade and cash balance.
Assessees need to provide GST-related details
In addition, there are disclosures or compliances that have been added that will impact all proposed return forms, namely, compulsory fees under Section 234F for delayed furnishing of return, GST number of the assessee, turnover based on GST return filed by the assessee and full bifurcation of CGST, IGST and SGST amounts.
In case of assessee having capital gains income, or income from other sources, and claiming any treaty benefit, s/he will need to give details like rates according to the Income Tax Act versus the rate according to the treaty, the particular section of the Income Tax Act, and applicable rate.
While the objective of the government is to promote better compliance and ensure adequate disclosures, the additional information in ITR-1 comes at the cost of ‘optically’ complicating the forms — optically because the majority of the information break-up sought will be available in Form 16 itself.
The set of assessees that may be impacted more than optically will be the ones subject to presumptive taxation (Sugam).
The new disclosure requirements cast an onerous responsibility on them to indirectly maintain books of accounts, which they were not required to until now.