ITR filing: Don’t make these mistakes to avoid getting tax notice
When Parbhod Anand sold his flat, he kept in mind tax implications of the transaction. The buyer was asked to deduct 1% TDS and deposit it under Anand’s and his wife’s names as they were the joint owners. Anand also reinvested the sale proceeds in another flat to save tax on capital gains.
So, it came as a shock when his wife got a tax notice last month. “The notice says she made capital gains from the sale of the flat, but the gains were reinvested to buy another house. What should we do?” wrote the couple to ET Wealth last month.
Where did Anands go wrong? The new flat is registered only in Anand’s name, so the capital gains booked by his wife from the sale of the jointly owned flat remain uninvested and, hence, are taxable.
This is just one of the many slip-ups that could result in a notice from the income tax department. The tax authorities have spruced up their efforts to catch the evaders. The new ITR forms seek detailed disclosures, leaving no scope for taxpayers to conceal income in their returns.
Moreover, the Central Board of Direct Taxes (CBDT) has made it mandatory for everyone to file their returns online, barring super senior citizens above 80 years of age. The tax records are integrated online, so even a small mismatch in detail can be detected and can result in an enquiry.
However, not all tax notices should be a cause for concern. For instance, in the case of the Anands, the purchase was made in December 2018. So they are yet to file returns for financial year 2018-19.
“The tax department usually issues notices after the return has been filed or after the assessment year has ended. This seems to be a gentle reminder that the wife should file her ITR and pay tax by disclosing this transaction,” says Karan Batra, a Delhi-based chartered accountant. “Tax authorities have started sending such intimations to a lot of assessees,” he adds.
Similarly, simple calculation errors may get you a demand notice, asking you to pay due tax. However, in the case of serious transgressions, your returns will not only be picked up for scrutiny assessment but also slapped with hefty penalties
In the following pages, we have listed out some tax filing mistakes that can result in a notice and the steps taxpayers should take to avoid getting one.
Changes in ITR forms
Multiple changes have been introduced in ITR forms for the assessment year 2019-20. The new forms seek detailed disclosures to plug tax leaks.
Until last year, you had to report a consolidated figure under the ‘income from other sources’ head. This year onwards, interest income from your deposits (fixed deposits and recurring deposits), bank accounts, income tax refund and pass-through income has to be declared separately under each head. This means that you can no longer hide or declare selective interest income in your returns.
“Taxpayers often quote unawareness about taxability of interest income as the reason for not reporting it correctly. With all the sources of interest incomes listed individually, this excuse is no longer valid,” says Sandeep Sehgal, Director, Tax and Regulatory, Ashok Maheshwary & Associates.
If you have sold immovable property, you also have to share PAN details, address and share in percentage, among other details of the buyer. “The onus of giving correct details of the buyer in the ITR form is on the tax filer. If there is any discrepancy in the buyer’s details, the tax filer can get a notice,” warns Sudhir Kaushik, CFO and Founder, Taxspanner. com. This also means that the taxman has one more way of getting your details if you are the buyer.
In another change, details of unlisted shares held at any time during the financial year must also be provided. “Those who hold employee stock options (ESOPs) in their unlisted company will get affected by this. Even shares listed outside India are covered under this option and may have to be disclosed,” says Archit Gupta, Founder and CEO, Cleartax.in.
The scope of disclosure for foreign assets has also been expanded. Under the new columns of depository and custodian accounts, you must report assets and bank accounts where you are a beneficiary or signing authority. If you have worked abroad, you may have an insurance policy or annuity contract. “People who go abroad for work often get enrolled in overseas social security plans. Such plans qualify as overseas assets and need to be reported in schedule FA,” says Kuldip Kumar, Partner and Leader, Personal Tax, PwC.
Equity and debt interest from overseas investments is the other new entrant that needs to be reported very carefully. “A lot of information gets automatically exchanged between countries under the information exchange agreements. In case of a mismatch in information, the return might be picked for scrutiny,” cautions Kumar.
Since the new forms seek detailed disclosures, you should start collecting all your bank account statements, records of financial transactions and documents related to foreign assets much before the last day of filing returns. Failure to report any information amounts to concealment of income and is liable for stiff penalties.
Misreporting LTCG on equity
This is the first year when taxpayers will report long-term capital gains (LTCG) from equity investments. LTCG above Rs 1 lakh in a year will be taxed at 10%. These gains are to be reported in schedule CG, section B4. You don’t need details of dates or name of the security transferred, but have to key in accurate details about total consideration value, fair market value (FMV) and cost of acquisition. You can easily get the statement on capital gains from your broker or mutual fund house…Read More>>