Person having high value transaction is compulsory required to file ITR even if the income is below the taxable limit (7th Proviso to section 139(1))

Seventh Proviso to section 139(1) of the income tax act, 1961

Finance (No. 2) Act, 2019 has inserted a new seventh proviso to section 139(1) to provide for mandatory filing of return of income for undertaking certain high-value transactions even though the person is otherwise not required to file a return of income due to the fact that total income is below the basic exemption limit.

The provision is called the seventh proviso because it is placed after the existing sixth proviso to section 139(1).

Currently, a person other than a company or a firm is required to furnish the return of income only if his total income exceeds the maximum amount not chargeable to tax, subject to certain exceptions. Therefore, a person entering into certain high-value transactions is not necessarily required to furnish his return of income. In order to ensure that persons who enter into certain high-value transactions do furnish their return of income, section 139 of the Income Tax Act, 1961 is amended so as to provide that a person shall be mandatorily required to file his return of income, if during the previous year, such a person undertakes certain high-value transactions.

High value transaction & compulsory filing of ITR

Section 139(1) provides for filing of return of income and prescribes the due date of filing of return of income. Certain exceptions have been given in the above-mentioned rules by way of proviso.

In her Budget speech, while presenting the Union Budget 2019 on 5th July 2019, Finance Minister Nirmala Sitaraman announced for compulsory filing of return for persons who undertake certain high-value transactions during a financial year.

The extract of the budget speech is reproduced below-

Compulsory filing of return: It is proposed to make return filing compulsory for persons, who have deposited more than Rs. 1 crore in a current account in a year, or who have expended more than Rs. 2 lakhs on foreign travel or more than Rs. 1 lakh on electricity consumption in a year or who fulfils the prescribed conditions, in order to ensure that persons who enter into high value transactions also furnish return of income. It is also proposed to provide that a person whose income becomes lower than maximum amount not chargeable to tax due to claim of rollover benefit of capital gains shall also be required to furnish the return.

The case of mandatory filing of return of income in the case of a person whose income is below the maximum amount not chargeable to tax due to claim of rollover benefit of capital gains is outside the purview of the seventh proviso to section 139(1). 

The seventh proviso to section 139(1) provides for furnishing of return by a person referred to in clause (b) of the said sub-section (1), who is not required to furnish a return under the said sub-section, if such person has undertaken the following high value transactions during the previous year —

1. Deposit of Rs. 1 crore or more in current accounts: All types of deposits whether in cash or by cheque or online fund transfer are covered. The deposit is not restricted to cash deposits only. Further, only the deposit in one or more current accounts is included. Savings Accounts and other accounts are outside the purview of this provision. The aggregate deposits in all the current accounts maintained in all of the banks including co-operative banks are required to be considered for determining the threshold of Rs. 1 crore.

2. Expenditure on foreign travel for more than Rs. 2 Lakh: It covers all the expenditure incurred by a person for travel to a foreign country for himself or any other person. Hence, the person who incurs the expenditure may or may not travel to a foreign country. It is not clarified what will constitute ‘foreign travel expenditure’. However, it should be noted that the legislation has used the expression ‘for travel to a foreign country’ and not the expression expenditure ‘on foreign travel’. It is not necessary that the expenses should be incurred in foreign currency. Further, it is immaterial whether the travel to a foreign country is a business trip or a personal leisure trip.

3. Expenditure on the consumption of electricity for more than Rs. 1 Lakh: The expenditure on the consumption of electricity is only covered under this provision. Expenses incurred for getting the electricity connection or deposits made with electricity authority are not covered. Further, it is immaterial whether the consumption of electricity is due to commercial usage or personal usage, expenses on both are covered. It is also not necessary that the expenses are incurred on the electricity connection which is in the name of the person himself. The provision covers where the expenses incurred for the consumption of electricity even if the connection is in the same of someone else but the electricity must be consumed by the person concerned. Further, if the person has more than one electric connection, all the expenses will be aggregated to determine the threshold limit of Rs. 1 Lakh.

4. Other prescribed conditions: CBDT is empowered to prescribe other conditions or high-value transactions under this seventh proviso. Till date, no such conditions have been prescribed.

Note: It is not necessary that all the conditions have to be fulfilled. Fulfilling any one of the above-mentioned conditions is sufficient to file a return of income.

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent years.

Further, a person referred to in clause (b) refers to a person other than a company or a firm. The seventh proviso to section 139(1) is not applicable to a company and a firm. It applies only to a person covered in section 139(1)(b) which includes an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person.

ITR Forms for AY 2020-21: The notified ITR forms ITR-1 to ITR-5 for the assessment year 2020-21 contains information on seventh proviso to section 139(1). These changes have been incorporated in the ITR forms for AY 2020-21. If a person is not required to file a return of income since his income is below the basic exemption limit but has undertaken the above-mentioned high value transactions, then such a person should file the appropriate ITR form.

For instance, if a salaried individual has income from salary and bank interest only which is less than Rs. 2,50,000 but has paid electricity bills for more than Rs 1 lakh in FY 2019-20. In such a case, he has to file ITR-1.

Are you filing return of income under Seventh proviso to section 139(1)?

The ITR forms in ITR-1 to ITR-5 have incorporated new fields in the Part-A General Information section with the title ‘Are you filing return of income under Seventh proviso to section 139(1) but otherwise not required to furnish return of income?’. 

This information is required to be given when the taxpayer is filing ITR-1 under Seventh proviso to section 139(1) only and otherwise not required to furnish return of income.

If the answer to the above query is in affirmative, then exclusive reporting is required for the followings-

(i) If amounts of deposit exceed Rs. 1 Crore in one or more current accounts, then report the actual amount of deposit.

(ii) If expenditure on travel to a foreign country for self or for any other person exceeds Rs. 2 Lakh, then report the actual amount of deposit.

(iii) If incurred more than Rs. 1 lakh on electricity consumption, then report the actual amount of deposit.

These information are required to be given if any of the replies is in affirmative i.e. if any of the conditions are satisfied.

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Company: Ankit Mahendra & Associates
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I am qualified chartered accountant, engaged in practice and experience in Income Tax return filing, tax audit, Goods & Services Tax return filing, GST audit, various registration and incorporation etc. View Full Profile

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