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November 24, 2022

CA association propose 11 changes to the new common ITR form

by CA Shivam Jaiswal in Income Tax

CA association propose 11 changes to the new common ITR form

We introduce ourselves as a non-profit organization working for the betterment of working conditions of our members being Chartered Accountants from Surat as well as across India. We represent on regular basis, issues, ideas, suggestions in the form of demands, fulfilment of which not only helps our working conditions, but also achieve department’s commitment towards Citizen’s Charter.

Under the able leadership of Shri Atal Bihari Vajpayeeji, we saw the introduction of the simplest form of IT Return i.e. Saral. Now after a couple of decades later, we once again have the opportunity to simplify the returns. To this, we would like present a very crisp, limited, yet comprehensive requirement which members of our Association has brainstormed for the effective collation of meaningful and fruitful information assimilated through the means of Income Tax Returns. For the time being we are not representing issues in mal-functioning/ill- functioning of CPC, Procedural issues in TDS/OLTAS, policy flaws in the delegated legislations under Income Tax Act, all of which may be reserved for a later date. We put forth our suggestions to the Common ITR as follows:

1. Financials Statements Portal:

The present format of ITR as well as the one proposed in the draft Common ITR, requires the assessee to furnish Financial Statements in a format adapted to the requirements of the department for variety of reasons including meaningful analysis. On one hand the department is in the rush to design the form and make it bulky and less user friendly, whereas on the other hand, the assessee face unwanted litigation when their case is selected for scrutiny based on absurd information. Contribution of financial statement is noteworthy in the profiling of any entity and its obvious importance need not be reiterated.

All departments including but not limited to GST, Income Tax, MCA, RERA etc require financial statements to be furnished as a part of their annual filing or monitoring process. Even banks require financial statements as a part of their due diligence process while granting or renewing of credit facilities. All the above departments, agencies and private bodies require financial statements in different formats. At times, many queries of mismatch are raised when details of such financial statements are regrouped and reclassified as per the requirement of different departments. It may be noted that:

  1. The assessees, either advertently or inadvertently, submit information in different formats without even noticing that they result into submission of materially different and misleading information
    • Information which is meant to be compiled by and is the prerogative of the management end up being an endorsement by an auditor.
    • Regrouping under deadlines may lead to wrong grouping, which further leads to wrong data analytics by the department. The concept of GIGO (Garbage-in-Garbage-Out), holds good here.
    • The grouping as per ITR also requires technical expertise of some degree. A layman is unable to fill up Profit Loss and Balance Sheet under the ITR, if devoid of any technical knowledge.

On account of the above, the user-friendly touch of Income Tax Return is lost, and the ITRs become bulky and users of IT Return are unable to analyse any meaningful information from the financial statements forming part of the present system of IT Returns or the one proposed.

Suggestion: Development of Financials Statements Portal

The Requirements of:

  1. Manufacturing Account (Schedule MF.1 to MF.7);
  2. Trading Account (Schedule TR.1 to TR.12);
  3. Profit and Loss (Schedule PL.1 to PL.31);
  4. Balance Sheet – Individual (Schedule BSI.1 to BSI.16);
  5. Balance Sheet – Companies (Schedule BSC.1 to BSC.43);
  6. Balance Sheet – Other than Individuals (Schedule BSO.1 to BSO.25);
  7. Balance Sheet – IND AS (Schedule BSAS.1 to BSAS.66)
  8. Assets and Liabilities at the end of the year (for individuals and HUF) (Schedule ALI.1 to ALI.16);
  9. Assets and Liabilities at the end of the year (for unlisted companies) (Schedule AL1.1 to AL1.10); and
  10. Assets and Liabilities at the end of the year (for startup) (Schedule AL2.1 to AL2.0)

should be dropped from the proposed ITRs whether regular or Common. In its stead, financials           statements portal be developed to capture only the financial statements of any person or entity and reference to such captured financial statement can be quoted in the Income Tax Returns as well as various other use cases.

The Salient features of such a proposed Financials Statements Portal may be:

  1. The assessees (whether big or small) or their authorized representatives (who may be their accountants, employees or CFOs) upload the information on the portal;
  2. The information required in (a) above is the unaudited trial balance cum balance sheet containing items of both Balance Sheet and Profitability Statement with basic grouping as per Generally Accepted Accounting Practices and which is as per a pre-decided machine-readable format XML or JSON or any other new format;
  3. The information thus uploaded is finally recorded on the portal on successful authentication by Aadhar OTP based Digital Signature system;
  4. A unique Financial Statement ID (FSID) is generated on the portal which can be used by the assessee on various portals;
  5. The use case of such a system can be – in case where accounts are subject to audit; quoting to the Tax Auditor, Company Auditor, Stock Auditor, or while filing Income Tax Return, or preparing AOC-4 in case of Companies or Form No.8 in case of LLP, under RERA or GST or any other Central or State Law
  6. Once the audit of the financial statement is complete, the authorized tax auditor and/or company auditor can flag the said FSID as audited. This methodology is in line with the concept that the auditors basically audit the financial statements for their true and fair position, whereas the preparation of financial statement is always the sole responsibility of the assessee.
  7. Various regulatory authorities can utilize the information thus uploaded for information interchange, freely.
  8. Non-regulatory authorities like banks, financial institutions, depository participants, insurance companies, government and semi-government tendering authorities etc, may also use such information subject to limited inquiry. For eg. To ensure security and privacy measures, such non-regulatory authorities may be allowed max 5-10 queries, where system simply confirms the pre-supplied figures inquired for by such institutions as being correct or incorrect.
  9. The system can be monetized for its usage charging Rs.500 to Rs.1000 for upto 5 to 10 queries.

Advantages if such system is implemented could include:

  1. Duplication and errors of data entry for providing financial statements in varied forms under different laws can be avoided.
  2. By quoting a single FSID, user organisations can ascertain the authenticity of the information being processed by them.
  3. Instead of religiously relying on the assessees to provide uniform financial statements to every Government organization in a bonafide manner, it would act as a deterrent to any multiplicity of financial statements vis-à-vis ensuring uniformity of information across organisations, thus establishing the true position of any person or entity.
  4. Unfair advantages are not taken by citizens of India, during tendering, sanction of credit facilities or covering insurance risks etc
  5. .Accountability and timeliness in completing the financial statement is established, which in turn ensures that process of Return Filing by stakeholders is completed on time, instead of assessees relying on due date extension requests, which recur each year.
  6. Monetization of FSID Search on one hand would act as a deterrent on the private and semi-government bodies on the security and privacy matter, whereas on the other hand, it would earn revenue similar to the present CIBIL system.

2. Obvious Information causing redundancy:

 Information requests in ITR causing data redundancy should be avoided. Examples of such   information sought in the draft Common ITR are:

  1. Aadhar No. of the assessee’s Key Management Personnel is not necessary (under Schedule KMP.4), since it is already linked to the PAN and visa- versa
  2. Directorship and ownership details (Schedule DIR.1 to DIR.4) are also redundant, since such information is already mapped at the MCA level.

 Asking for such information may result into a lapse either advertent or inadvertent, from the assessee’s side. It should not be the intention of the Income Tax Administration to ask for information which may turn out to be half correct, when such information is already available with the department.

Suggestion: Redundant information as above should be removed from the Common ITR or regular ITRs.

3. Aadhar No. of Auditor:

It is well understood, that Aadhar Number of any individual is a sensitive information resulting into its misuse. Auditor’s personal information is more susceptible to risks due to their position as independent person in the auditing entity. Mentioning of Auditor’s Aadhar Number in Schedule AUD.8 is thus not relevant when it comes to submitting it in his client’s IT Return.

Suggestion: Requirement for mentioning Auditor’s Aadhar Number should be dropped to stop any misuse as envisaged above, and also keeping in mind that the UDIN issued and generated by The Institute Of Chartered Accountants Of India, can at all times be validated by any user organization to verify the correctness of the information.

4.  GST Reconciliation:

GST Reconciliation required under Schedule GST (including items GST.1 to GST.6), asks for information related to reconciliation of GST turnover with the ITR. It is worth noting that such information is already provided by the assessee, in case he is covered under GST in form GSTR-9C, which again is applicable to assessees where turnover is above Rs.5 Crores. This will cause hardship in filing every IT Return where the assessee is covered under GST, irrespective of the turnover.

Suggestion: Requiring such information in an ITR Return format is irrelevant and can be made more meaningful with the implementation of Financials Statements Portal under Para 1 above. For the time being such requirement should be dropped.

5. Quantitative Details of Inventory:

Quantitative details of inventory were asked in earlier ITRs as well as in the present ITRs. However, such information (in Schedule QD.1 to QD.11) is redundant in view of the same information being asked in the Tax Audit, making the ITRs bulkier and complicated.

Suggestion: Requirement related to quantitative details of stock should be dropped altogether.

6. Opting out For like10IB/10IC/10D/10IE/10IF:

Under the new regime of taxation, assessees are required to opt for the scheme  under which they elect to be assessed. Such cases are:

Section No.Relevant Form to Opt the SchemeScheme Details
115BA10-IBOption to Mfg Companies to be tax at 25% subject to conditions
  115BAA10-ICOption to Companies to be tax at 22% subject to conditions
115BAB10-IDOption to New Mfg Companies to be tax at 15% subject to conditions
115BAC10-IEOption to Individuals/HUFs to be taxed under new tax regime
115BAD10-IFOption to Co-operative Societies to be taxed at 22% subject to conditions

Tax payers are facing hardships when they opt for the scheme in the ITR, but fail to file the relevant form. In such event, they are slapped with the heavy demand resulting out of simple procedural lapse of non-filing of relevant form, which although is half complied by opting in and submitting relevant section in the ITR, yet they are kept away from the assured legal right to be taxed as per the special option rate they have selected in their ITRs.

Suggestion: The contents and requirements of the form are also paltry; the information whereof is already present in the ITR. Forms mentioned above i.e. Forms 10IB/10IC/10ID/10IE/10IF create confusion and hence should be dropped and the requirements of opting as mandated by the relevant section should be implemented in the IT Return itself in Schedule NTR, while selecting the relevant section code from the dropdown in the ITR. Further, the requirements of above forms may be altogether be done away with retrospective effect, giving relief to the tax payers.

7.   Foreign Remittance:

From the positioning of the Schedule FR.1 to FR.4, it seems it is applicable to both resident as well as non-resident. If it is applicable to resident then the questions asked create confusion.

Suggestion: It should be clarified that Schedule FR is applicable only to Non- Residents and positioned accordingly.

8.   Audit under Other Acts:

Schedule OA.1 to OA.4 requires information relating to Acts under which audit is “required” with respect to the assessee whose ITR is being filed. This information can be supplied. However, further it is asked the date of audit and UDIN. It must be noted that, an assessee may default in complying with the provisions of that “Other Act”, however such a default should not disentitle or prevent him from filing ITR under the provisions of Income Tax Act.

Suggestion: The requirements of Date of Audit and UDIN should not be made mandatory.

9. Reconciliation of Unlisted Shares:

Schedule US.1 to US.13 asks for details of reconciliation of unlisted shares held by taxpayer. It must be noted that the quantity of shares held by the taxpayer may change not only on account of financial consideration, but may also change on account of non-financial reasons like bonus, share split and even on basis of natural love and affection through gift or will.

Suggestion: Separate bifurcation for gift/will received and changes in quantity of shares due to bonus and share split should be incorporated to make it more user friendly.

10.  Agriculture Income:

Schedule AGR.1 to AGR.15 requires information to be furnished for agriculture income received which is to be declared as exempt income u/s 10(2). This implies that these details are to be given irrespective of the quantum of agriculture income even for small and marginal farmers. This will create a hardship on the assessees.

Suggestion: Earlier these details were required to be given only in case of instances where agriculture income exceeded Rs.5 lacs. Keeping in view the set threshold existing as on date, such details may be asked for only in case of Rs.5 lacs or any other higher threshold which the Board may think fit.

11.  Capital Gains:

Details required in case of short-term capital gains from equity shares under Schedule 111A.1 to 111A.9 and Long-Term capital gains under Schedule 112A.1 to 112A.13 has to be given scrip-wise as can be understood from the contents. Such a bifurcation of information by the assessees is not possible due to voluminous nature of information when shares are bought and sold in the same year

Suggestion: At present, the computation of capital gain for both long term and short term are given in toto, thus making the present ITR more user friendly. Introduction of scrip-wise requirement would discontinue such a user-friendly approach and should be avoided by continuing the existing method of computation of capital gains both Long Term and Short Term.

We look forward to the fruitful implementation of the new Common ITR, especially with the suggestions made by our association, such that the ITRs to come in future are devoid of any clutter or burden on the assessees. We wish your department best of luck, especially with the level of service available from your current managed IT service provider for portals.


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