Income Tax Return: Lack of instructions makes ITR filing difficult for AY 2020-21

Some changes have been incorporated in the ITR Forms due to extension of compliance deadlines on account of the Covid-19 lockdown.

Along with uploading Excel and Java utilities of the Income Tax Return (ITR) Forms on the website, the Central Board of Direct Taxes (CBDT) also publishes the PDF files containing instructions to help filing of the respective tax filing utilities.

However, despite the due date of filing returns being postponed by four months for the Assessment Year (AY) 2020-21 and the Income Tax Department having ample time after notifying the ITR Forms – especially ITR-1 – no instructions / clarifications have been issued so far to make the filing of return of income convenient.

For those taxpayers, who file their returns themselves, the instructions act as a ready reckoner and are very important, as some changes have been incorporated in the ITR Forms due to extension of compliance deadlines on account of the Covid-19 lockdown.

CA Geetanshu Bhalla, who is a practicing Chartered Accountant and Mentor at The Virtual Compliance, highlights some difficulties that the assessees may face due to lack of instructions/ clarifications and also recommends some steps to resolve the issues.

1. Missing of Instructions to fill the income tax return

Instructions related to the ITR filing not only clarify the facts that which schedule is mandatory to fill by whom or how to fill the particular schedule but also guide on various aspects related to filing of income tax return including the disclosure of value of assets and liabilities, exchange rate to be used for conversion of foreign assets, etc.

CBDT has not issued the instruction for filling the income tax return for AY 2020-21, despite the fact that the original due date of filing of income tax return has passed away long back.

Recommendation / Comments

Instructions are part and parcel of the income tax return forms as forms categorically ask the taxpayers to refer to the instructions to fill the income tax return. Delay in the issue of instructions may be considered as delay in notifying the Income Tax Return forms. CBDT should issue the instruction for filing the income tax return at the earliest.

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2. Foreign Asset disclosure

Resident and ordinarily resident taxpayers are required to disclose their foreign assets whether holding as beneficiary or otherwise while filing their income tax return. Non-compliance would cause an imposition of penalty of Rs 10 lakh on him under the Black Money Act in addition to allow the extended time period of 16+1 years to the income tax department to initiate the income tax scrutiny if income from such assets is evaded.

Recommendation / Comments

There are two important aspects related to this. One is the definition of accounting year and the other is the exchange rate to be used for conversion of foreign assets into INR. Last year, CBDT clarified both for AY 2019-20. However, this year, CBDT has neither issued any fresh clarification yet, nor it has clarified that last year instruction and clarification is also applicable for AY 2020-21. Delay in issue of such clarifications would result in undue hardship with the taxpayers left with small token of time for filing their income tax return. Accordingly, CBDT should issue clarification in this regard at the earliest.

Furthermore, take the case of Mr. Gupta (name changed), having several bank accounts and investments located outside India and such accounts and investments have peak balance on various different dates. As per last year guidelines, Mr. Gupta is supposed to collect exchange rate for each such day from SBI for conversion purposes, which is quite cumbersome and a waste of time and efforts for both taxpayers as well as banks. Hence, CBDT should provide the facility of exchange rate to be used for conversion on its E-filing portal to avoid the circumstances of hardship with the taxpayers.

3. Disclosure of directorship

Directors of the companies are required to disclose inter-alia the name of companies in which he is director.

Recommendation /comments

Last year, CBDT had issued the clarification exempting the non-resident directors to disclose the details of foreign companies in which they are directors provided such foreign companies do not have any taxable nexus with India. The said clarification was applicable for AY 2019-20. No clarification is issued till yet for AY 2020-21, accordingly, CBDT must issue the clarification in this regard at the earliest.

Moreover, take the case of Mr. Sharma (name changed) who is director of 2 USA-based companies in addition to 14 Indian companies. Now, at present, he is required to disclose all 16 companies despite the fact that details of 14 companies are readily available with MCA and the Govt of India. Hence, in my opinion, this clause should be restricted to seek the details of foreign companies in which Indian resident taxpayers are directors. Seeking the data which is already available not only wastes the time of taxpayers, but also the department time to process the data. Alternatively, the income tax department can provide the MCA data in the pre-fill utility and can ask the taxpayer to validate the same again.

4. Schedule AL – Assets and Liabilities at the end of the year

Taxpayers having total income exceeding Rs 50 lakh are required to disclose the details of movable and immovable assets, including liabilities, while filing the income tax return.

Recommendation /comments

Instructions to fill the income tax return must be issued at the earliest, otherwise several queries including valuation of such assets, etc would cause undue hardship for taxpayers.

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