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Personal Tax Alerts

Harmonizing global and local perspectives

2020

3 June 2020

CBDT notifies income tax return forms for FY 2019-20

Tax return forms that are to be used for filing the return of income for FY 2019-20, notified

Background:

The Central Board of Direct Taxes (CBDT) has notified new Income-tax return (ITR) forms (ITR 1 to ITR 7) for FY 2019-20. Consequently, Form ITR 1 notified in January 2020 will become redundant.

The CBDT has also released the Excel utility for Form ITR 1.

The new forms and Excel utility require certain additional details to be disclosed.

This Alert captures the key changes in ITR-1 (Sahaj) and ITR-2 with focus on salaried taxpayers.

Applicability:

ITR 1 (Sahaj)

As compared to the preceding tax year, there is no change in applicability of ITR 1.

ITR 2

Individuals who are not eligible to file ITR 1 and individuals having income under any head other than business or profession, can use ITR 2. In other words, there is no change to the category of persons who can use ITR 2, as compared to the preceding tax year. 

Key changes:

Common changes in Forms ITR 1 and ITR 2

Clause / Schedule

Changes/details to be disclosed

Changes on account of amendment in law / provisions effective from / for FY 2019-20

Part A – Return to be furnished under the seventh proviso to Section 139(1)- High spenders

Where the taxpayer is not required to file a tax return under section 139(1) but filing return of income due to fulfilling one or more conditions mentioned in the seventh proviso to section 139(1), he /she is required to furnish actual amount in respect of  

·     Expenditure incurred of an amount or aggregate of amount exceeding INR 2 lakhs for travel to a foreign country for self or for any other person

·     Expenditure incurred of amount or aggregate of amount exceeding INR 1 lakh during the financial year on consumption of electricity

·     Deposit of amount or aggregate of amounts exceeding INR 1 Crore in one or more current account during the year

New Schedule DI (Details of investment).

Details of investment made during April 2020 to June 2020 but claimed in FY 2019-20 in respect of

·     Tax saving investments eligible for deduction under part B of chapter VIA (such as deduction under section 80C, 80D, 80G etc);

·     Payment for acquisition /purchase /construction for the purpose of claiming capital gain exemption under section 54 to 54GB (in ITR 2).

Deductions under section 80EEA and 80EEB

Itemised deduction under part B of chapter VIA now specifically capture deductions under section 80EEA (interest on housing loan under affordable housing scheme) and section 80EEB (interest deduction for buying electric vehicle).

Furnishing of PAN replaced by PAN / Aadhaar

In light of permissible use of PAN and Aadhaar interchangebly, the form requires Aadhaar number or PAN to be reported as against only PAN earlier for the following:

ITR 1:

·     TDS deducted by tenant (Schedule TDS) under section 194-IB

ITR 2:

·     Return filed by a representative assesse (Part A –General)

·     Details of co-owners / tenants (Schedule HP)

·     Details of buyer in case of transfer of immovable property (Schedule CG)

·     Details of income of specified person (spouse, minor child etc) includible in income of assessee as per section 64 (Schedule SPI)

·     Information regarding apportionment of income between spouses governed by Portugese Civil Code (Schedule 5A)

·     TDS credit claim relating to other person (Schedule TDS)

Other changes

Nature of employment / Nature of employer

ITR 1 – Part A- General Information

Minor changes have been made to the nature of employment to include category of employment as ‘not applicable (eg. Family Pension)’ besides dividing government employees category into ‘Central Government’ and ‘State Government’.

Accordingly, it may be noted that though family pension is taxable as ‘Income from Other Sources’ and not as ‘Income from Salary’, the employment category has to be selected in the ITR form for such income.

For ITR 2- Schedule S (Salary income)

Currently, it is mentioned that a drop-down will be provided in the utility with respect to nature of employer.


Specific changes in Form ITR 1 (on the basis of Excel utility)

Clause / Schedule

Changes/Details to be disclosed

 

 

Schedule 80D

Separate schedule has been introduced for reporting tax deduction on account of health insurance, preventive health check-up and medical expenditure.

The schedule has two sections

·       for self / family 

·       for parents

Each section is further split into two categories, viz. Senior Citizen and Not a Senior Citizen

Under each of these sections following details have been sought :

   i.     Health Insurance

 ii.     Preventive health check-up

iii.     Medical expenditure (This deduction can be claimed on which health insurance is not claimed at (i) above) 

This break-up and drop-down are now aligned with the provisions of section 80D as compared to the preceding year’s drop-down.

Schedule DI

Currently, the field for filling the details of tax saving investment made during April 2020 to June 2020 is disabled in the Excel utility and hence, one cannot update it. We assume that this will get resolved in the updated version.

 

Specific changes in Form ITR 2

Clause / Schedule

Changes/Details to be disclosed

Changes on account of change in the law / provisions effective from / for FY 2019-20

Income from Pass Through entities (PTI)

Capital gains and other income earned by taxpayer from PTI requires following bifurcation under the respective income schedule as well as in Schedule PTI:

·     Long term capital gains into gains under section 112A and others

·     Short term capital gains into gains under section 111A and others

·     Income from other sources into dividend (referred to in section 115-O) and others

Carry Forward Loss -Schedule CFL

Losses to be carried forward in the hands of taxpayer needs to be bifurcated as normal (i.e. loss other than loss from PTI) and PTI.  

 

Difference in final ITR-1 issued vis-à-vis ITR-1 issued in January 2020

In order to further simplify the tax return form, the new Form ITR 1 has excluded the below requirements which were present in Form ITR-1 issued in January 2020.
• Passport number;
• Details of employer including address and TAN of the employer; and
• Address of house property and details of tenant.

Comments:

Considering the extension of due date for filing tax returns for salaried employees to 30 November, 2020, timely issue of new forms will give sufficient time to individuals to collect additional information that needs to be reported in the tax return forms. Further, introduction of Schedule DI will facilitate tracking the claim made in FY 2019-20 on account of investments made beyond 31 March, 2020. This is a welcome move.

 

Source: GSR 338(E) dated 29 May 2020

20 May 2020

Relief measures announced by FM on reduction in contribution of provident fund on account of COVID-19

Employer and employee contribution to PF are reduced from 12% to 10% of monthly pay in respect of wages payable for the months of May, June and July 2020

Background:

• The Finance Minister (FM) on 13 May 2020 announced the first tranche of economic stimulus package wherein it was indicated that the statutory rate of employer and employee contributions to provident fund (PF) will be reduced from 12% to 10% for the next 3 months.

• The EPFO has issued a notification on 18 May 2020 with respect to the reduced rates of contribution.

Highlights of the notification:

• Both employer and employee contributions to PF will be reduced from 12% to 10% in order to increase liquidity in the hands of employers and employees.

• The reduction in rates will be applicable for the wages payable for the months of May, June, July 2020.

• The reduced rate for provident fund contributions will not apply to:
─ The Central Public Sector Enterprises (CPSEs)
─ Public sector undertakings (PSUs)
─ Establishments eligible for relief under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) wherein the government is bearing both employer and employee contributions till August 2020.

Comments:

• The reduction in the statutory rate has been brought in by the government with an intent to reduce employer cost on PF as well as increase the employee take-home pay. However, companies will need to determine their approach on continuing to contribute at 12% or reducing their contributions to the statutory level of 10%, keeping in mind the existing contractual terms with their employees, the impact on retiral benefits, the potential tax implications for employees and the administrative challenges of changing the payroll system for a short period of time. Suitable consent from employees may be required.

• The notification does not differentiate between domestic and international workers (IWs) and the reduced rates of 10% will be applicable for IWs as well. Besides, establishments having their own trusts, will also be covered by the above relaxation.

 

Source: F. No. S-35019/01/2020-SS-II
 

11 March 2020

Salary received in India by a non-resident for services rendered overseas not taxable in India

Salary received in India for the services rendered outside India could be claimed as exempt (under the DTAA) in India if the salary is taxed outside India

Facts of the case:

The taxpayer is an individual employed with M/s General Electric International Inc. in India (GEII India) and was seconded to GEII Australia in 2014.

He stayed in India for 151 days and left India for employment on 30 August 2014. Accordingly, he qualified as a non-resident for India tax purposes for the year 2014-15.

The taxpayer filed his return of income for the said year including only salary received for the period 01 April 2014 to 30 August 2014. The salary paid in India (for the services rendered in Australia) for the period 31 August 2014 to 31 March 2015 was claimed as not taxable by virtue of the provisions of Article 15(1) of the Double Taxation Avoidance Agreement (DTAA) between India and Australia.

Since the salary for the relevant period, i.e. 31 August 2014 to 31 March 2015 was received by the taxpayer in India, the Assessing Officer (AO) had included the same as income taxable in India.

The Commissioner of Income-tax (Appeals) upheld the order of the AO, further to which the taxpayer preferred the appeal before the Tribunal.

Issue before the Tribunal:

Whether the salary received into the India bank account by the taxpayer for services rendered in Australia could be subjected to tax in India?

Ruling of the Tribunal:

The Tribunal ruled that the salary in contention was not taxable in India on account of the following:

  • Salary income could be deemed to accrue or arise in India only if it is earned in India in respect of services rendered in India1;
  • Based on a combined reading of Article-1 and Article-15 of the DTAA, it can be concluded that treaty benefit shall be applicable to persons who are residents of India as well as Australia;
  • Article 15 of India-Australia DTAA categorically mentions that salary income (for the period of services rendered in Australia) shall be taxable only in Australia in case of an individual who is a resident of Australia;
  • The taxpayer’s case is factually distinguishable from the ruling relied on by the Revenue. 
  • The issue in dispute is covered by the rulings of various High Courts234 as well as the CBDT circular on taxation of salary received by a non-resident seafarer.

Comments:

The above ruling reaffirms that salary received in India by a non-resident for services rendered overseas is not taxable in India and clears the ambiguity on taxation of such salary income.

 

1Section 9(1) (ii) of the Act
2DIT (IT) Vs. Prahlad Vijendra Rao, 198 Taxman 551
3CIT Vs. Avtar Singh Wadhwan [2001] 247 ITR 260(Bom)
4Sumanabandhyopadhyay & Anr Vs. DDIT (IT) TS-281-H.C.-2017 (Cal)
5Circular No. 13/2017 dt. 11.04.2017

 

4 February 2020

Compensation pursuant to non-compete / non-disclosure agreement is not taxable

Compensation for non-competing/ non- disclosure is non-taxable capital receipt as it is neither intended to compensate for loss of employment nor is it in lieu of salary

Background:

  • Sunderraj Srinivasan (the taxpayer), an employee of Siemens Ltd. (the Company) voluntarily resigned from the Company on 26 February 2010 and received an amount of INR 60,39,750 (including Rs. 60,00,000 towards one-time compensation) from the Company. The Company has withheld taxes on the entire amount treating it as salary and issued Form 16.
  • The one time compensation was payable subject to terms and conditions as laid down by the Company.
  • While filing the return of income (ROI) for the tax year 2010-11, the taxpayer reported the employment income excluding the one-time compensation received and claimed refund of taxes withheld.
  • The Assessing Officer (the AO) treated the one time compensation received as ‘profit in lieu of salary’ and disregarded the contention of the taxpayer that it is capital in nature. Accordingly, the AO has included the said amount as taxable income in the hands of the taxpayer.
  • An appeal was preferred before the Commissioner of Income-tax (Appeals) [the CIT(A)] wherein the CIT(A) upheld the order of the AO and dismissed the taxpayer’s plea. Aggrieved by the order of the CIT(A), the taxpayer preferred an appeal before the Mumbai Income-tax Appellate Tribunal (ITAT/ Tribunal).

Issue for consideration:

Whether the CIT was right in taxing one-time lump sum compensation received by the taxpayer as profit in lieu of salary?

Ruling of the Mumbai Tribunal:

  • The Tribunal noted that, the employer had paid a lump-sum one-time compensation to the taxpayer in view of his long service subject to the latter entering into a separate non-competing and non-disclosure agreement as per his role and responsibility.
  • The Tribunal relied on the decision in the case of M. G. Mohan Kumar vs. DCIT wherein under similar facts the Bangalore Tribunal had held that the non-compete agreement cannot be inferred in any way intended to compensate the taxpayer for the loss of employment or in lieu of salary.
  • Accordingly, the Tribunal held that one-time lump sum compensation received by the taxpayer is capital receipt and not taxable as profit in lieu of salary.

Comments:

This is one of the favourable rulings in respect of compensation received by an employee signing non-compete / non-disclosure agreement. Considering that any compensation or other payments received in connection with the termination of employment or the modification of terms and conditions of employment, are taxable as income from other sources2 from financial year 2018-2019 individuals needs to exercise caution while applying this decision to their situation.

 

Source: Shri Sunderraj Srinivasan Vs. ITO (ITA N0.7243/Mum/2016)

1[2016] 73 taxmann.com 99 (Bangalore – Trib.)

2Section 56 of the Income-tax Act applicable from FY 2018-19 onwards

13 January 2020

CBDT notifies ITR-1 and ITR-4 for AY 2020-21; subsequently grants relaxation in eligibility conditions for filing of income-tax return forms

Tax authorities notify new tax return forms – SAHAJ and SUGAM; rolls back order to allow an individual, who jointly owns a single house property, to file his/her return of income in ITR-1 or ITR-4, as may be applicable.

Background:

  • The Central Board of Direct Taxes (CBDT) notifies forms to be used for income tax return filing by various categories of taxpayers annually. In line with this, the CBDT had recently notified two income tax return filing forms- ITR-1 (SAHAJ) and ITR-4 (SUGAM) for Assessment Year (AY) 2020-21.
  • Currently, ITR-1 can be used by an ordinarily resident individual with total income of up to INR 50 lakh comprising of income from salaries, house property and other sources. However, the individual should not own more than one house property or have winnings from lottery/horse races.
  • ITR-4 can be used by ordinarily resident individuals, Hindu Undivided Family and firms (other than LLP) having a total income of up to INR 50 lakh including that from business and profession, computed under presumptive basis* in addition to the income computed under the head salaries, house property and other sources.
  • Individuals not meeting the above requirements may have to file other forms as may be applicable to them.

Key changes:

  • According to the CBDT notification, an individual who owns a house property in joint ownership was not eligible to file return of income in ITR-1 or ITR-4.
  • Similarly, an individual who is otherwise not required to file return of income but has to do so as per the seventh proviso to section 139(1) of the Income-tax Act, 1961 (the Act), was not eligible to file return of income in ITR-1.
  • After examining concerns raised by individual taxpayers falling in the above categories, the CBDT has lifted the restrictive conditions.
  • As a result, an individual who jointly owns a single house property can continue to file his/her return of income in ITR-1 or ITR-4, as may be applicable. Likewise, an individual who is required to file return of income as per the seventh proviso to section 139(1) of the Act can file so in ITR-1, subject to satisfying other conditions as prescribed in the Act.
  • Other significant changes (ITR – 1 and ITR – 4)#:

 Clause/Schedule

 Changes/Details to be disclosed

 

Part A - General information Passport details

 

 Whether individual holds Indian Passport, and if yes, passport number is to be disclosed
 Part B – Details of employer

 Comprehensive details of employer including address, nature and TAN to be provided.

 Allows for disclosure of Gross Salary in case of more than one employer.

 Allowances exempt under Section 10 of the Act to be included in gross salary first.

 Part B - House property details

 Address of house property has to be provided.

 In case of a let out property, details of tenant have to be disclosed in addition to amount of rent,  if any which cannot be realised.

 

In addition to the aforementioned, a few more reporting requirements as detailed below have been prescribed for ITR -4

 Clause/Schedule

 Changes/Details to be disclosed

Part A – Return furnished under the seventh proviso to Sec.139(1) – for HighSpenders

 

Whether the taxpayer has -

  • deposited amount or aggregate of amounts exceeding INR. 1 Crore in one or more current account during the previous year? (If yes, amount to be disclosed)
  • incurred expenditure of an amount or aggregate of amount exceeding Rs. 2 lakhs for travel to a foreign country for self or for any other person? (If yes,amount to be disclosed)
  • incurred expenditure of amount or aggregate of amount exceeding Rs. 1 lakh on consumption of electricity during the previous year? (If yes, amount to be disclosed)

 Part B – Income from other sources  Details of deduction claimed u/s 57(iv) in relation to interest received u/s 56(2)(viii) are to be reported. 

 

  • The amended tax return forms will be effective 1 April, 2020.

Comments:

The recent press release by CBDT comes as a relief to individual taxpayers. It allows applicable category of taxpayers to file their return of income in simplified tax forms before the due date, thereby enabling easier and timely compliance.

Source:

  • GSR. 9(E) dated 3 January 2020
  • CBDT Press release dated 9 January 2020

 


*As per Section 44AD, 44ADA and 44AE of the Income Tax Act, 1961

#Changes mentioned are as per GSR. 9(E) dated 3 January 2020. Considering that the CBDT has now relaxed the criteria for applicability of tax return forms, we could expect additional clauses in the ITR-1 to be notified.

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