Income above Rs 50 lakh?

Balwant Jain

The ITR (income tax return) forms for the financial year ended March 31, 2016 have been notified by the government well in time this time. Generally, the forms are on the same lines as that of the previous forms except that the taxpayers, either an individual or an HUF, have to furnish additional details of the assets and liabilities in case the taxable income exceeds Rs 50 lakh in the year. Let us discuss what details are required to be submitted and how to comply with this requirement.

Why these details are called for

Since the wealth tax has been abolished from the financial year 2015-2016, there are no means by which the Income Tax Department can have details of various important assets held by high net worth taxpayers. So through these details, the Income Tax Department will have a tab on your assets and accretion over years. Since the assets have to be stated at cost in the return, the changes over the years should be commensurate with the income returned by you over the years. With advanced use of technology, the I-T Department can easily find out any disproportionate increase in the assets over the years funded through undisclosed income.

Categorisation of taxpayers

For the purpose of details to be furnished, the taxpayers are divided into two categories. In the first category are the individual and HUF who are neither partner nor have any proprietary business or profession. In the second category are the individual and HUF taxpayers who have business income either as a partner of a partnership firm or as proprietor of any business or profession. However, people who are taxed under presumptive taxation scheme for their business of professional income, where a certain percentage of gross receipt is presumed to be the income or tax is payable at certain fixed percentage of the gross receipts, are included in the first category.

Details to be furnished by the taxpayers in category I

These taxpayers can file their income tax returns in ITR 1, 2A, 2 and 4S depending on the nature of income. They have to submit details of immovable assets like land and building in addition to submitting details of some specified movable assets like cash in hand, value of jewellery and bullion. The details of vehicles, aircraft, yatch and boats are also required to be furnished in the ITR. The amount of liability incurred against any of these assets is also required to be disclosed in the schedule of assets and liabilities.

Details to be furnished by the taxpayers in category II

For the taxpayers in the second category, who have to file either ITR 3 or 4, in addition to the above details have to furnish details of some additional financial assets like deposits in any bank account whether fixed deposit or current account or savings bank accounts. They also have to provide details of cost of insurance policies, loans and advances given and investments in shares and securities. Additionally, they have to provide details of archaeological collections, drawings, paintings, sculpture and any work of art.

The logic for such differential between two classes of taxpayers as regards the details of assets to be disclosed is not understandable.

Such assets may also be owned by the salaried people some of whom are well-paid, including top management of companies who receive salaries but practically are engaged in business.

The taxpayer has to provide the cost of these assets in case the same are not reflected in the balance sheet of the partnership firm in case of a partner and in the balance sheet of the proprietor business or profession.

Difficulties taxpayers may face

Since all these assets are required to be stated at cost, the taxpayers may find it difficult to find out the costs of the assets in case the same have been purchased long ago and the cost details are not readily available with the taxpayer. Likewise, if the assets have been received by the taxpayer as gift or as inheritance where the taxpayer may not even have means to find out the cost. Likewise for cash balance, it may not be possible to find out the actual cash balance in hand on March 31, 2016 in case the taxpayer has not maintained books of accounts and did not record actual cash balance on that date. Likewise for items like life insurance policies, it may be difficult for the taxpayers to arrive at the cost of the insurance polices because even the taxpayers who maintain books of accounts, the amount of life insurance premium paid is generally debited to the capital account. In case of multiple insurance policies where some of the policies might have matured, it is difficult to identify the premium with the pending policies in case such break-up of old payments of premium is not available. Moreover, for some life insurance policies like term plans which are pure insurance products and no element of investment, can be attributed therein so cannot be treated as an asset at all.

Suitable clarifications from the CBDT well in time will help the taxpayers in complying with the requirement in letter and spirit.

The writer is CA, CS and CFPCM. At present, he is working as Company Secretary of Bombay Oxygen Corporation Limited. The views expressed in this article are his own