Changes in ITR Forms AY 19-20-Tax Evasion & Detection of Revenue Leakage

Central Board of Direct Tax has been conferred power by the Income Tax 1961, under section 139 read with section 295  to notify Income Tax Return(ITR) forms every year. This year on 1st April 2019, CBDT issued notification for amending Income Tax Rules, 1962, amending the ITR Forms for the Financial year 2018-19 i.e, Assessment Year 2019-20.

One of the objective of the CBDT to make amendments in the ITR every year is to plug the revenue leakage and also to check tax evasion. This can be deduced from the fact that CBDT over the years have constantly modified the the ITR forms in order to capture more and more  details from the Assesses. For the AY 19-20, the trend has been continued. CBDT has increased the scope of disclosure and the scope to uncover the under-reporting or wrong-reporting of income. It won’t be an a wrong statement to state that CBDT has envisaged to turn the ITR forms into Scrutiny forms.

For the AY 2019-20, following forms has been notified for ITR Filing.

(There is no change in structure of ITRs from the AY 2017-18)

Name of the Form	Particulars
ITR 1	For Individuals being a Resident (other than Not Ordinarily Resident) having Total Income upto Rs.50 lakhs, having Income from Salaries, One House Property, Other Sources (Interest etc.), and Agricultural Income upto Rs.5 thousand (Not for an Individual who is either Director in a company or has invested in Unlisted Equity Shares)
ITR 2	For Individuals and HUFs not having income from profits and gains of business or profession
ITR 3	For individuals and HUFs having income from profits and gains of business or profession
ITR 4	For Individuals, HUFs and Firms (other than LLP) being a Resident having Total Income upto Rs.50 lakhs and having income from Business and Profession which is computed under sections 44AD, 44ADA or 44AE (Not for an Individual who is either Director in a company or has invested in Unlisted Equity Shares)
ITR 5	For persons other than (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR 7
ITR 6	For Companies other than companies claiming exemption under section 11
ITR 7	For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) only

In this article we shall discuss few specific points added in the ITR Forms for the AY 2019-20, with the primary Intention to plug revenue leakage and to check the tax evasion.

1. Income From Salary

Up to Assessment Year 2018-19, an individual was required to report salary amount excluding all exempt and non-exempt allowance, perquisites and profit in lieu of salary. These items are reported separately in same schedule and had no impact on calculation of net salary income.

Now, from AY 2019-20, an individual has to mention his gross salary and then the amount of exempt allowances, perquisites and profit in lieu of salary shall be deducted or added to arrive at the taxable figure of salary income. Further, the new ITR forms seek separate reporting of all deductions allowable under Section 16, namely:

1. Standard deduction

2. Entertainment allowance

3. Professional tax

Same reporting Mechanism has been introduced in form 16 by making relevant changes in the columns of Salary.

The simultaneous amendments in ITR 1 as well as Form 16 have now left no scope for an Individual  to manipulation in allowances potion of the salary in order to reduce tax liability.

Another such change made in the Schedule S of the relevant ITR Forms by making the submitting the TAN (Tax Deduction & Collection Account Number) of the Employer instead of PAN of the employer which was earlier asked in the ITR. This will enable Department to Cross verify figures of the Salary mentioned by the employer in its TDS Returns – Form 24Q with the the salary declared by the employee i.e Assessee in its ITR. Moreover Dept will also be able to check whether Employer has deducted TDS from the Salary of the Employer wherever applicable.

2) Income From House Property

• Reporting of rental income from ‘deemed let out’ property in ITR 1 & 4

Till AY 18-19, Individual assessee, who had more than one  house property, could declare properties other than the one which he had declared as Self Occupied  as “ Deemed Let Out” Property in only ITR -2. There was no option such choose to choose Deemed Let property in ITR 1 and ITR 4. As a result assessee earlier could not declared Deemed Rent for such Deemed Let Out House Property if he was eligible to file ITR 1 or ITR 4.

From AY 19-20, such anomaly has been removed and now ITR 1 & ITR 4 have now 3 options available for selecting Type of Property.

1. Self-Occupied

2. Let out

Deemed let out  

This change will plug revenue leakage as now Individual assessee shall have to declare the deemed rent under all the ITR’s as applicable which earlier was available in ITR 2 only.

•  Reporting of arrears/unrealised rent received during the year  in ITR 1 & 4

Similar anomaly was there till AY 18-19, as Individual assessee  was unable to file return in ITR 1/4 if he had received any amount in form of arrears/unrealised rent.

From AY 19-20, the said anomaly is rectified and now Individual Assessee shall be able to report income from arrears/unrealised rent in ITR 1 & 4 also.

This change will plug revenue leakage as now Individual assessee shall have to declare the deemed rent under all the ITR’s as applicable which earlier was available in ITR 2 only.  

3) Income From Business & Profession

• Name and Address of the Debtors in case of Bad Debt

Till AY 18-19, Any person claiming bad debts of the amount of more than Rs. 1 lakh, in respect of debtor, was required to report PAN of such debtor (if available) in ITR forms. However, no information about these debtors were required to be furnished in old ITR forms if PAN is not available. From AY 19-20,  Name and Address of the debtor shall be required to be furnished in case PAN of such debtors isn’t available.

This change will enable the department cross verify the genuineness of the debtors and and ultimately prevent revenue leakage preventing assessee to claim false Bad debts.

• Reporting of turnover and profit from speculative activities under profit & loss account

Till AY 18-19, Separate Disclosure Income from Speculation Business was not asked in Schedule P&L particularly in case when books of Accounts were not maintained.  Such income was to be merged with Normal Business Income.

In new ITR forms, a separate schedule has been inserted in Schedule P&L for persons earning income from speculative activities. Following information is required to be reported in that schedule:

1. Turnover from speculative activities

2. Gross profit

3. Expenditure

4. Net income from speculative activities

The separate disclosures have been asked about the speculative income and losses, because losses from speculative business can be set-off only against speculative income and the unabsorbed losses can be carried forward only for 4 years vis-à-vis 8 years in case of losses from non-speculative business. Now assessee shall not be able to set off losses of Speculative Business with the Normal Business losses in the current year. Moreover assessee shall not be able to merge its Speculative Business Loss with Normal Business Loss and  carry forward it till 8 years.

• Reporting of GSTIN & GST turnover

In AY 18-19, assessee who had opted presumptive taxation scheme had to report GSTIN of the assessee and turnover as per GST return filed by him.

However, from AY 19-20,  this reporting has been extended for all the assessee who is claiming Business & Profession Income.

This shall now help department to cross verify the discrepancies in the Turnover reported in the Income Tax as well as GST and curb any taxpayer to under report the Revenue.

4) Changes pertaining to Residuary Income

• ITR 1 and ITR 4 ask for nature of residuary income

Up to Assessment Year 2018-19, taxpayers were required to disclose the aggregate amount of income taxable under the head other sources. However, from Assessment Year 2019-20, it is mandatory for an assessee to specify the nature of income taxable under the head income from other sources and the deductions claimed in respect of family pension in accordance with Section 57(iia). Such extra disclosures have been asked by the Dept. to check that the ineligible persons are not using the ITR 1 & ITR 4 for Filing the return.

With this change, assessee shall have to mandatory file ITR 3 and report all the necessary income property and this shall curb efforts of tax evasions as now assessee shall not be able to claim ineligible expenses under section 57 by filing ITR-1 & ITR 4.

5) Changes pertaining to Exemptions and Deductions

• Details of agricultural land to be furnished if agricultural income exceeds Rs. 5 lakhs

Till AY 18-19, agriculture Income was to be reported in Schedule EI (Exempt Income) without any details of land and its location.

From AY 19-20 additional details regarding agriculture income has to be reported if  net agricultural income earned during the year exceeds Rs. 5 lakhs:

1. Name of district (with PIN code) where agricultural land is located

2. Measurement of agricultural land in Acre

3. Whether land is owned or held on lease

4. Whether land is irrigated or rain-fed

Such disclosure will ensure genuineness of the Agriculture Income being earned by the assessee and also give details to the department regarding land ownership of agriculture land and shall prevent massive tax evasion.

• New Schedule for claiming deduction under Section 80GGA

Section  80GGA provides  deduction of donations  made towards scientific research/rural development. The deduction is allowed to all assessee other than those who are earning business income.

Till AY 18-19,  assessee was required  to mention only donation amount under relevant columns of Schedule VI-A. From AY 19-20, a separate Schedule has been inserted in ITR forms to claim deduction under section 80GGA. The new schedule seeks detailed information  of donations made for scientific or rural development. An assessee claiming deduction is required to furnish following information:

a) Relevant Clause under which deduction is claimed

b)Name and address of donee

c)PAN of donee

d)Amount of donation made in Cash and in other mode

The additional disclosure shall prevent rampant tax evasion by curbing ineligible deductions claimed by the assessee under the said section.

• Reporting of donation made in cash to curtail deduction under Section 80G

Section 80G allows deduction for donations made to certain notified funds, charitable institutions or other institutions/ funds set up by the Government of India. The Finance Act, 2017 had reduced the limit of cash donation from Rs. 10,000 to Rs. 2,000. Thus, with effect from Assessment Year 2018-19, no deduction is allowed for cash donation made in excess of Rs. 2,000.

From AY 19-20, ITR forms have incorporated new columns to specify the amount of donation made in cash and in other mode.  Cash donation made in excess of Rs. 2,000 shall not be allowed as deduction from gross total income and thus prevent revenue leakage.

This change has been done to curb revenue leakage by preventing ineligible deductions claimed by the assessee by making donations in cash.

6) Miscellaneous Changes

• Actions to identify ghost directors and shell companies

From AY 19-20, if an individual was director in a company at any during the previous year, he has to provide the following information:

1. Name of Company

2. PAN

3. Whether shares of the company are listed or unlisted?

4. DIN

The Government has made changes in ITR forms to identify the shell companies and ghost director in order to curb black money.

• Residential Status

  From AY 19-20, besides specifying the residential status as resident, resident but not ordinarily resident or non-resident, the assessee shall be required to provide additional information with respect to his residential status, such as, his no. of days stay in India, jurisdiction of his residence and tax identification number in case he is a non-resident.

Such additional details of non residents shall prevent allow government to verify genuineness of the declaration of Residency of the person which generally have substantial impact on taxability of Income of the assessee.

• Scope of foreign assets expanded

The Government has expanded the scope of reporting in new ITR forms in respect of foreign asset held by a person. Till AY 18-19, only  information regarding foreign bank accounts were required to be furnished under ITRs

From AY 19-20, In this respect, additional disclosures shall have to be made in Schedule FA:

1. Details of Every foreign depository accounts

2. Details of Foreign custodial accounts- Name and code of the country in which such account is held, account opening date and peak balance during the year etc.

3. Details of Investments made in Foreign entity via equity and debt instruments of the said entity.

4. Details of Foreign cash value insurance contract or annuity contract held by the assessee such as name of the financial institution, cash value of the contract and gross amount paid with respect to the contract during the period, etc

5. The expansion in scope of Schedule FA shall plug revenue leakage by allowing government to keep track of Global assets of the Resident Assessee and hence shall prevent assessees to conceal their global assets.    

• Reporting of registration number and other information by Start-ups

Section 80-IAC was inserted in Income-tax Act with effect from Assessment Year 2017-18 to provide a deduction of up to 100% of profits and gains derived by an eligible start-up. Deduction under section 80-IAC is allowed to an eligible start-ups if it has been approved by the DPIIT. However till AY 18-19, No information about the registration with the DPIIT was required to be mentioned in the previous year’s ITR forms.

So in order to track eligibility of a start-up and to prevent tax evasion, from AY 19-20,start ups shall be now required to report  following information in new ITR forms:

1. Registration no. allotted by DPIIT

2. Certificate Number of the certificate received from Inter Ministerial Board

3. Date of filing of form 2 with DPIIT

• Investment in unlisted companies

Investment in unlisted shares has been a major source of tax evasion since many years.  Where a company issues shares at a price which is less than its FMV and the difference between the FMV and issue price exceeds Rs. 50,000 than the difference is charged to tax in the hands of the shareholder under the head income from other sources. In order to keep check on issue of shares by a closely held companies and investment made therein by shareholders,from AY 19-20,  a new table has been inserted in new ITR forms to seek the following details in respect of unlisted equity shares held at any time during the previous year by an assessee:

1. Name of the company

2. PAN of the company

3. No. and cost of acquisition of shares held at the beginning of the year

4. No. of shares, face value, issue price (or purchase price) and date of purchase of shares acquired during the year

5. No. and sale consideration of shares transferred during the year

6. No. and cost of acquisition of shares held at the end of the previous year

With additional disclosures, it shall be easy for the department to keep eye on  transaction of investment in unlisted companies and prevent tax evasion.

From the above changes in the ITR forms, it an be deduced that Department is tactfully making changes in the ITR Forms with the intent to get more and more information from the tax payer in order to prevent the tax evasion and plug the revenue leakages so that collections of direct tax collections can meet sucessfully and the fiscal deficit can remain under control.