Key changes and precautions taken in filing income Tax Return

Introduction

As we all know ITR season is going on and the last date for a individual to file their income tax return is 31^st July, If you file your Income Tax Return wrongly, just to claim TDS refund then it may cost you badly, and you would be compelled to pay huge fines and penalties, hence I would suggest you to  follow the guidelines along with the key changes which you should know for Financial Year 2023-24

Why it is crucial for taxpayers to be aware?

It is crucial for taxpayers to be aware of the latest changes and requirements to avoid heavy penalties and ensure correct and accurate return filing. The Central Board of Direct Taxes or Income tax department has introduced several changes to the ITR forms, making it essential for taxpayers to stay informed and choose the correct form based on their sources of income and financial investments and management.

The due date by which you can make your investments and plan your taxes was 31^st March 2024, now there is no option to reduce the taxes, hence it’s recommended not to evade them by any means, in case you have forgot to plan your taxes better to go with default tax regime i.e. new tax scheme.

What is the importance of filing the correct ITR Form?

Filing the wrong ITR form can lead to complications, including the need to file a revised return. While the Income Tax Department allows taxpayers to file revised returns multiple times within a fiscal year, intentional misreporting or tax evasion can attract penalties ranging from 100% to 300% of the tax amount due but not paid. Hence, selecting the appropriate form and adhering to the new requirements is critical.

What is fiscal year?

 A 12 month period i.e. from 1^st of April to 31^st of march which is chosen by government for assessing tax or revenue, and tax filings and assessments are done as per the “fiscal year” also called financial year

How to choose the Right ITR Form?

The tax department provides seven distinct ITR forms, each catering to different taxpayer categories:

First ITR-1 or also called SAHAJ which is applicable for individuals with income up to Rs 50 lakh from salary, one house property, and other sources (interest, etc.).

Second one is ITR-2 which is applicable for individuals and HUFs not having income from profits and gains of business or profession, but having capital gains

Third one is ITR-3 which is applicable for individuals and HUFs having income from profits and gains of business or profession, this form is used if a person is having income in every head

Forth one is ITR-4 or also known as SUGAM which is applicable for individuals, HUFs, and firms (other than LLP) having a total income up to Rs 50 lakh and income from business and profession computed under Sections 44AD, 44ADA, or 44AE, or also known as income assessed as presumptive.

Fifth one is ITR-5 which is applicable for persons other than individuals, HUFs, companies, and companies required to furnish returns under Sections 139(4A), 139(4B), 139(4C), or 139(4D), that means trusts, political parties, any institution exceeding maximum allowable limit of exemption, all colleges, universities, and institutions not required to file return of income and loss under any specific provision of section.

Sixth one is ITR-6 which is applicable for companies other than those claiming exemption under Section 11 i.e. trusts or charitable institutions

Seventh is ITR-7 which is applicable for persons including companies required to furnish returns under Sections 139(4A), 139(4B), 139(4C), or 139(4D) i.e. trusts, political parties, any institution exceeding maximum allowable limit of exemption, all colleges, universities, and institutions not required to file return of income and loss under any specific provision of section.

What are the key changes in ITR Forms for FY2023-24?

There are five significant changes introduced in the tax return forms for this assessment year. These changes reflect amendments made under the Finance Act 2023 and include additional reporting requirements.

First is the requirement of Legal Entity Identifier which is currently applicable to ITR forms 2, 3, 5, and 6. The taxpayers who are eligible to claim a refund of Rupees 50 crore or more are required to provide their Legal Entity Identifier (LEI), which is a unique 20-character alpha-numeric code used globally to identify the parties in financial transactions.

Second is the disclosure requirements for capital gains accounts scheme which is applicable to ITR forms 2, 3, 5, and 6. Hence as per this change, the taxpayers are required to furnish comprehensive details of the capital gains account scheme, which includes the date of deposit, account number, and IFSC code, not only the deposited amount as was previously required.

What is capital gains account scheme?

 The Capital Gains Account Scheme (CGAS), introduced by the Government of India in 1988, allows taxpayers to defer capital gains taxes by depositing their gains into a public sector bank account by the income tax return filing deadline. The scheme provides tax exemptions for these deposits and offers two types of accounts: Deposit Account A, which functions like a savings bank account, and Deposit Account B, which is a term deposit account. To open a CGAS account, taxpayers need to visit an authorized branch of a public sector bank (excluding rural branches) with the necessary documents. The funds can be kept in a CGAS account for 2 to 3 years from the date of the original asset transfer, with specific durations of 24 months for capital gains under sections 54, 54B, and 54F, and 36 months for those under sections 54, 54D, 54F, 54G, and 54GB.

Withdrawals from Type A accounts are unrestricted, whereas withdrawals from Type B accounts must first be transferred to Type A accounts. Closing a CGAS account requires approval, and the scheme allows for nominations to facilitate inheritance. However, loans cannot be taken out against these accounts. This structured approach ensures that taxpayers can effectively manage their capital gains and benefit from tax deferrals while adhering to the stipulated timelines and conditions.

Third is the contributions made to Political Parties as per the issue raised by Income tax department, we know people are nowadays faking deductions by paying cheque to unregistered political parties and taking cash from them in change, hence to find out these people easily and to cater this situation a new Schedule 80GGC have been introduced for ITR forms 2, 3, 5, and 6.

This schedule requires a detailed information on contributions made to political parties, including the date of contribution, contribution amount (with a breakdown of cash and other modes), eligible contribution amount, transaction reference number in case of UPI transfers, or cheque number/IMPS/NEFT/RTGS, and IFSC code of the bank.

Forth one is the deduction details for medical treatment as per the amendment, a detailed requirements for claiming deductions under Schedule 80DD for maintenance and medical treatment expenses for a dependent with a disability.

The details which are required include the nature of the disability, type of dependent (spouse, son, daughter, etc.), PAN and Aadhaar number of the dependent, date of filing and acknowledgment number of Form 10-IA, and the UDID number.

Last one is the contribution to agniveer corpus fund which means a new provision under Section 80CCH introduced by the Finance Act 2023. This is applicable to ITR forms 1, 2, 3, and 4, to allow individuals to claim deductions for amounts deposited in the Agniveer Corpus Fund. A new column has been added in “PART C – DEDUCTIONS AND TAXABLE TOTAL INCOME” to report the eligible amount for deduction.

What is Agniveer Corpus Fund?

The main aim of the Agnipath Scheme or the Agniveer corpus delt by Section 80CCH of Income tax act, this fund is to offer tax benefits to people who are enrolled in it as a means of recruiting for the Indian Armed Forces

People who are registered in the Agnipath Scheme on or after November 1, 2022, who are between the ages of 17.5 and 21. The Agnipath Scheme offers tax benefits to people who are enrolled in it as a means of recruiting for the Indian Armed Forces, To qualify, participants must deposit 30% of their monthly earnings into the Agniveer corpus fund.

Conclusion

With the ITR filing deadline fast approaching withing one month, taxpayers are advised not wait until the last moment to file their income tax returns. Filing ITR from a professional and to the earliest is recommended as it can help avoid errors and ensure compliance with the latest requirements, and reduce the chances for notice or further issues. Staying informed about the changes and selecting the correct ITR form based on individual circumstances is crucial to avoid penalties and ensure accurate reporting of financial details.