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Taxpayers must be vigilant about the details in ITR

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A widely known coverage goal of the authorities is to widen the tax base and convey unaccounted earnings and wealth to tax. In doing so, the income-tax (I-T) division gathers data from totally different sources similar to banks, mutual fund homes, and overseas tax authorities, in addition to the data furnished by the taxpayer. The data collected is validated and cross-verified utilizing information analytics. The reporting necessities in the I-T return (ITR) varieties have been enhanced over a time frame. The  data being collected straight from taxpayers now contains details of directorships held, details of funding in unlisted fairness shares and a separate Assets and Liabilities schedule, which is relevant the place the whole earnings of the taxpayer throughout the monetary yr exceeds 50 lakh. This is clearly meant to establish shell corporations, dummy directorships, unaccounted belongings, and so on. 

An particular person who’s a director or has invested in unlisted fairness shares or has a complete earnings exceeding 50 lakh can solely file ITR-2 (no enterprise earnings) or ITR-3 (with enterprise earnings). An particular person, who’s a director in an organization, has to furnish the identify, kind (home or overseas) and PAN of the stated firm. Such a person can be required to furnish the director identification quantity (DIN) and point out whether or not the firm’s shares are listed in a acknowledged inventory trade in India.

If the particular person is a director in a overseas firm, then DIN will not be required and the PAN of the overseas firm ought to be talked about provided that such overseas firm has been allotted a PAN. In case of a person qualifying as non-resident, who’s a director solely in a overseas firm and such overseas firm doesn’t have any earnings obtained in India, or accruing or arising in India, the directorship details of such a overseas firm usually are not required to be reported in the ITR. A resident particular person is required to furnish details of directorship for each Indian in addition to overseas corporations. 

Another further requirement is linked with funding in unlisted fairness shares. An particular person who has invested in unlisted fairness shares of an organization is required to furnish details of identify, kind and PAN of the firm, opening stability of the shares with price of acquisition, details of shares acquired/ transferred throughout the yr together with date of subscription/buy, face worth per share, concern value per share and buy value and shutting stability of the shares with a value of acquisition. This can embrace shares that had been initially listed when acquired however subsequently obtained delisted. However, if the shares are listed on a acknowledged inventory trade in India or exterior India, there is no such thing as a requirement to report these shares. This is a hardship for people who qualify as non-resident, or resident however not ordinarily resident, who could have invested in unlisted corporations exterior India. Even although overseas belongings usually are not required to be reported for such people, details of funding in unlisted fairness shares exterior India are nonetheless required to be reported. An particular person qualifying as resident and ordinarily resident (ROR) is required to report unlisted fairness shares, doubly, right here and in the schedule for overseas belongings. It is vital to notice that details of directorship and funding in unlisted fairness shares are required to be reported if these had been held for any time frame throughout the monetary yr. Even if the directorship was vacated or unlisted fairness shares had been bought throughout the monetary yr, the details are nonetheless required to be reported in the ITR.

Separately, a person is required to report the worth of immovable belongings together with tackle, movable belongings and liabilities in relation to the belongings in the Assets and Liabilities Schedule. For a non-resident, solely India belongings are required to be reported. RORs must report world belongings. The worth of belongings is required to be at “price”. However, liabilities may more appropriately be reported at their closing / outstanding balance at year-end. In the case of jointly held properties, all co-owners are required to report the jointly owned asset in their respective ITR subject to meeting the condition of total income exceeding 50 lakh. 

These additional reporting requirements aim to bring in greater transparency, promote voluntary compliance, and help towards effective and efficient tax administration. There are no specific provisions to levy interest/ fine/ penalty in case of non-disclosure of directorship, investment in unlisted equity shares or assets and liabilities, but prosecution risk for furnishing false particulars or verification could be invoked by authorities. Hence, taxpayers must be vigilant and ensure that all details required are reported appropriately and completely in the ITR.

Sonu Iyer is tax partner and people advisory services leader, & Siddharth Deb is tax director, people advisory services, at EY India.

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