As most individual taxpayers approach the deadline to file an income tax return, a lack of familiarity with income tax laws and frequent change of disclosure requirements on income tax returns tend to send shivers down my spine. Regulators have constantly sought to make the tax return preparation and filing process seamless through concepts such as the pre-filled ITR among others, especially for individuals who are often in a state of concern about whether their income tax return adequately discloses the information required for . Yet, ironically, regulators have also, over time, inflated the amount of disclosures in income tax returns, causing taxpayers to worry.
These emerging adjustments are the product of multifaceted goals including upgrading the return forms to comply with the revised tax laws, building a strong taxpayer database, detecting and understating cases of income misreporting, etc. Whatever the case, from the taxpayer’s perspective, One should be aware of the main disclosure requirements that are lol It may not have an impact on the final income tax liability but it is extremely important from a reporting point of view.
Foreign Assets and Foreign Income
An often overlooked section is reporting foreign assets and income in the designated Schedule-FA on an income tax return form. Because of its breadth, taxpayers typically go through the timeline of any ostensibly applicable mandate and in the process neglect to report certain foreign assets and income that is not apparent but can fall within its framework.
One such aspect is the disclosure of shares received pursuant to the exercise of employee stock options, by individuals domiciled in India from the foreign parent company of their employer companies. The individual should know that, upon the sale of such shares at a later date, to an outside buyer, the person may face a challenge in processing the internal transfer through AD Bank, due to non-disclosure of the shares owned by the foreign company in the acknowledgment filed for the previous years.
Recently, the markets have seen a boom in investments in cryptocurrencies due to the superior returns they offer. However, there is a lack of guidance on disclosure requirements with respect to these investments. Looking at these digital assets, it can be said that the location of the server and the law of the land regulating the transaction is the location where these cryptocurrencies are located. If one determines that the cryptocurrency is located outside India, these investments must also be reported to Schedule-FA on the return form.
Unintended default in reporting foreign assets and income by a taxpayer can be disguised as a covert move to de-disclose and attract a tax liability of 30 percent of the value of that foreign asset or income and an additional penalty of 3 times the tax calculated under the Black Money Act.
Generally, the taxpayer may end up paying an exorbitant cost of 120 percent of the value of the foreign assets or income due to the interruption in disclosure procedures while filing the income return.
Disclosure of unlisted shares
The “General” section of the ITR requires detailed disclosures of unlisted equity shares held at any time during the year. The intent of focusing on this reporting requirement is to warn the taxpayer to lay the groundwork before the deadline and to prepare with details such as company name, personal account number, cost of acquisition of shares underlying the opening balance, purchase price and study of sale transactions in such shares during the year, closing balances, etc. Duplicate details in Schedule-FA may be unavoidable when the unlisted equity shares are those of a foreign company.
Disclosure of all assets and liabilities
An increase in total income not only increases income tax liability, but also requires additional disclosure requirements in the ITR. When the total income of an individual exceeds ₹ 50 lakh, there is a requirement to disclose all assets held at the end of the relevant year along with corresponding liabilities in respect of such assets. Asset classes are divided into immovable, movable and financial assets and thus seek to form different parameters of an individual’s wealth. Providing income details in parallel with assets details enables taxpayers to detect discrepancies between reported income and assets owned and to examine non-reporting of income, if any. Here, taxpayers face difficulties in satisfying the demand for cost disclosure as the assets are inherited or granted. Taking into account the provisions in the IT Act, the cost can be revealed in the hands of the previous owner.
The ITR’s null or deficiency disclosures irritated taxpayers with notices of flaws exposing them to the returns review rules. Therefore, the payer must be diligent in understanding the information needs and putting points on the i and crossing the t well before the due date countdown begins.
Partner author, Nangia Andersen LLP; With inputs from Amita Jevrajani and Abhishek