prpri Budget proposal for expanding tax payers’ base Budget proposal for expanding tax payers’ base

The number of Individuals who file their ITR is very miniscule in the country.  Out of around 125 Crores of population the number of Individuals who filed their income tax returns for the financial year ended 31st March 2016 was only 4.67 crores i.e. less than 4% of the population. The government has been taking various measures to bring in more individuals in the tax net. The recent budget also proposes certain measure to increase the  number of Individuals who file their ITR.. Let us discuss the proposals

Who is required to file an ITR presently

Presently you are required to file an ITR if your income from all the sources exceeds the amount of basic exemption limit. Presently this limit is Rs. 2.50 lakhs for individuals who are below 60 years of age. For the individuals who are over 60 but below 80 years, it is Rs. 3 lakhs and for individuals over 80 years the same limit is Rs. 5 lakhs. This limit is to be arrived at before any deductions, which you are entitled for items  of investments and expenditures like Life Insurance Premium, Medical Insurance Premium, Donations, repayment of home loans, tuition fee for children, Contributions to various accounts like NPS, PPF, EPF etc.

Moreover all the resident Individuals who are not required to file the ITR  under the income criteria are required to file their ITR if they have any source of income from outside India or own any asset outside India or is a signatory to any account maintained outside India .

Changes proposed in the budget

In order to augment the tax payers’ base the government has proposed to expand the scope of the persons who are required to file their ITR. There are two categories which are proposed to be included in the persons who are required to file their Income Tax Returns.

Under the first category of persons, who are proposed to be added, are included on the basis of criteria other than income criteria. The tax laws had similar provisions till 2005 which was called one by six scheme. Under this proposed category a person will be required to file his/her ITR if he satisfies any of the three conditions. The first condition is you will have to file your ITR in case you have incurred any expenditure over Rs. 2 lakhs on foreign travel either for yourself or any other person during the year. The second conditions covers the cases where a person has  incurred an amount over one lakh rupees in respect of consumption of electricity in the previous year.  And finally you are also required to file your ITR if you have deposited an amount in excess of Rs. one crore in aggregate in one or more current account whether maintained with bank, post office or any cooperative bank. Please note that you are not covered if you happen to deposit this amount in a saving bank account.

Under the second category person proposed to be covered are covered based on composition of their income.  Since exempt incomes do not form part of your income, presently you are not required to consider these exempt income while ascertaining whether you are required to file an ITR or not based on the aggregate of your total income.  The proposed changes propose to include all the long term capital gains which an assessee can claim as exempt if the tax payer makes an investment in specified assets.  So the proposal provides that an Individual who has earned any long term capital gains makes an investment in a residential house, or capital gains bonds or invests in a start up and thus claim exemption under Section 54, 54F, 54EC and 54G will have to consider these exempt capital gains while arriving at the exemption limit discussed above. Similarly long term capital gains arising on sale of agricultural income or on compulsory acquisition of land and/or building shall also be included in the amount even if you are claiming exemption by investing in another agricultural land or other land and/or building respectively under Section 54B and 54D. Likewise any long term capital gains arising claimed exempt under Section 54GA shall be included.

Due to  present taxable income criteria, there were cases where long term capital gains were perceived as claimed without filing any ITR and thus went out of the scrutiny net of the income tax department. Now all the cases of sale of house property will be covered under the mandatory filing of ITR provisions even if the long term capital gains have been invested for acquiring any  residential house or any qualifying asset. This provision will certainly result in enhanced revenue for the government as this will bring in many cases in the tax network which went unreported in the past.

These new provisions will apply for the ITR which will become due on 31st July 2020 for the current financial year ending non 31st March 2020 and not the one which we all have to file by 31st July this year. So for the time being you need not worry.

The author is tax and investment exepert and can be reached at and @jainbalwant on twitter.

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July 2021