ITR Form for AY 2020-21: new disclosures that taxpayers need to make in new ITR forms

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The changes in this year’s ITR forms are significant because it is seeking more disclosures.
  • More disclosures are aimed at improving income tax compliances & e-assessments.
  • In AY 2018-19, 58.7 million returns were filed, out of which about 23.7 million people filed returns with no tax liability

While it may be commonplace in Uncle Sam’s country, India is slowly getting used to the idea of disclosing more information to the taxman. In the last five years, income tax return (ITR) forms have started asking for more details to ensure that your spending patterns match your tax return profile.

However, the department seeking details of a valid passport or foreign travel with spends of over ₹2 lakh has left many with a feeling of discomfort as it further complicates the filing process. Many experts also worry about the privacy and security issues. “Data protection law for individuals in our country is not like that in developed countries such as the US. Also, given that the Personal Data Protection Bill 2019 is under consideration, many people are worried and skeptical when it comes to divulging so much information,” said Divya Baweja, partner, Deloitte Haskins and Sells LLP, an accounting firm.

Whether asking for more information will bear fruit and result in better tax compliance continues to be a question mark. The fact remains that you need to provide additional details, for which you have to be on top of many things, including your spending patterns. Now, if you have spent more than ₹2 lakh on foreign travel or ₹1 lakh on electric bills in the current financial year (FY), you will need to furnish these details. The new ITR forms notified by Central Board of Direct Taxes (CBDT), for the upcoming assessment year (AY) 2020-21, require you to disclose such information. If your spending patterns don’t line up with your tax declarations, it may land you in hot water.

The objective is to gather more and more information and make the process of selecting cases for scrutiny easier.

New ITR Forms: ITR-1 &  ITR4

ITR-1 which is also known as “Sahaj” can be used by an individual whose incomes primarily include salary income and whose total income does not exceed Rs.50 lakh during the FY. On the other hand ITR-4 can be used to file returns by resident individuals, Hindu Undivided Family (HUFs) and firms (other than LLP) having a total income of up to Rs.50 lakh from business and profession and filing return under presumptive taxation scheme.

There are two major changes in the ITR Forms – first, an individual taxpayer cannot file return either in ITR-1 or ITR4 if he is a joint-owner in house property, second, ITR-1 form is not valid for those individuals who have deposited more than Rs.1 crore in bank account or has incurred Rs2 lakh or Rs1 lakh on foreign travel or electricity respectively.

Additional info

So far, the government has notified ITR-1 and ITR-4 forms for tax filing for FY 2019-20 or AY 2020-21. However, you will have to wait to file returns as online utilities are not yet updated. The new ITR forms ask you to provide a valid passport number, if you have one; and details of your employer like name, nature of business, address and TAN.

The objective is to gather more and more information about an individual, which will help the tax department carry out specific enquries and make the process of selecting cases for scrutiny easier. “These alterations may be happening because the government is slowly moving towards e-assessments and is thus seeking greater clarification from taxpayers in the return itself to save time and costs,” said Shailesh Kumar, director, Nangia Andersen Consulting Pvt. Ltd, a business tax advisory firm.

Other experts echo the thought. “The changes reflects the continuing journey of the government towards simplification and automation. It has already started providing pre-filled return forms. These disclosures will help capture the complete details of taxpayers and the validation of their financial information, wherever such information is available from more than one source,” said Kuldip Kumar, partner and leader, personal tax, PwC, an accountancy firm.

Data is the new oil

In a computerised environment, tax returns are now filed online and data is something that the government wants to be best friends with to tackle the problem of tax evasion. At the front-end, it is seen as asking for more information from you, the tax payer. However, this isn’t the first time the ITR forms have been amended. Every year, CBDT notifies the forms carrying amendments in accordance with the Finance Act. The aim is to increase the tax base as only a tiny percentage of the population files returns. Also, among the people who file returns, about 40% show that they have no tax liability.

At the back-end, the government is taking steps to strengthen the compliance ecosystem. For instance, in 2004, as a measure to widen the tax base, the concept of Annual Information Return (AIR) filing was introduced. AIR is a statutory requirement where mutual funds, institutions issuing bonds and registrars or sub-registrars, and so on are required to record and report high-value financial transactions of individuals to the tax department.

In 2006, a project for enabling e-filing of ITR was launched. Further, in 2007, the government launched integrated taxpayer data management system (ITDMS). Under this system, data from multiple sources is collected in a complex process for drawing a complete profile of the taxpayer. A non-filers monitoring system (NMS), focusing mainly on non-filers with potential tax liabilities, was also initiated by the department. The system assimilates and analyses in-house information as well as transactional data received from various sources like ITR and AIR filed by third parties and other departments to identify people who had undertaken high value financial transactions but did not file their returns.

Taking it further, in the year 2017, the tax department initiated “project insight” to strengthen the non-intrusive information-driven approach for improving tax compliance and effectively utilizing information in tax administration. Under this project, an integrated data warehousing and business intelligence platform, which includes Income Tax Transaction Analysis Centre (INTRAC) and Compliance Management Centralized Processing Centre (CMCPC), has been set up. According to the department’s website, INTRAC leverages data analytics in tax administration and performs tasks related to data integration, compliance management, enterprise reporting and research support. CMCPC uses campaign management approach (consisting of emails, SMS, reminders, outbound calls and letters) to support voluntary compliance.

Will disclosures help?

The government wants you to divulge more information for better scrutiny. However, some experts feel that this will only increase the burden on the tax payers, who are already struggling with a very complicated system of tax filing. “This is overreach and intrusion, and it’s a wasteful exercise. For instance, many people from India go to gulf countries for labour work; if such people get notices, they won’t know how to respond. There is a lot of duplication. The department has already acquired most of this information through AIR filed by different entities,” said Himanshu Sinha, partner, Trilegal, a law firm.

While giving out more information makes things more difficult, such information will be able to trace non-filers and is intended to bring more compliances.

Government mulls ceiling for audit firms amid crack down on lapses

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Governance lapses, negligence has loaded the banks with one of the world’s worst piles of bad debt.
A government-appointed panel on regulating auditors and the networks had suggested that the fee from non-audit services should not be more than 50% of the audit fee.

India is considering tougher rules for audit firms, including a cap on the number of listed companies they can examine, according to a person with knowledge of the matter, as the government seeks to tighten oversight after a recent spate of governance lapses.

In India, 70% of the about 1,800 companies that trade on the National Stock Exchange are audited by firms affiliated to EY, Deloitte & Touche, KPMG and PWC, according to Delhi-based Prime Database. Current rules stipulate that individual auditors can examine accounts of up to 20 companies, though there is no limit on number of audits for the company.

The Big Four in India operate through a network of local chartered accountants firms. One way for them is to partner as a member of a local firm. They can also allow their brand name to be used by sub-licensee of a member local firm. The ministry hasn’t decided if the cap on audits will be at the group level or on each member firm, the person said.

The government is planning to expand the list of services which can’t be offered by statutory auditors under the Companies Act. Currently, statutory auditors can’t offer nine services, directly or indirectly, including internal audit, investment banking, and actuarial services. There is no restriction on providing services such as taxation or restructuring and valuation.

One option is to tweak the present cap on fees that can be generated through offering non-audit services, the person said. This cap, fixed in 2002, says fees from non-audit work can’t be more than the aggregate statutory audit fees. A spokeswoman for the corporate affairs ministry declined to comment.

A government-appointed panel on regulating auditors and the networks had suggested that the fee from non-audit services should not be more than 50% of the audit fee.

Deloitte Ban
Governance lapses and negligence has loaded the nation’s banks with one of the world’s worst piles of bad debt. In some cases, allegations of fund diversion have surfaced, while the founders of some shadow banks have faced accusations of accepting kickbacks in exchange for loans.

The corporate affairs ministry earlier this month sought a ban on Deloitte Haskins & Sells and BSR & Co. for their role as auditors to IL&FS Financial Services, a part of the IL&FS Group that was seized by the government last year after a string of debt defaults.

Deloitte in an emailed statement said it’s fully compliant with Indian audit standards, while BSR said it would defend its position in accordance with the law.

Meanwhile, the banking regulator forbid EY affiliate S. R. Batliboi & Co. from taking on bank audits for a year and, in 2018, the markets watchdog banned the local unit of PricewaterhouseCoopers LLP for two years in relations to work from a decade earlier.

Source: Economic Times

Here’s how a missing column in GST return form is creating trouble for India Inc

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Many cos don’t know whether the govt will rectify this problem by Friday and are following different options for resolving the quandary.

A top conglomerate may have to shell out a bit extra in advance tax this quarter due to an unusual glitch in the tax returns form. Another Delhi-based firm, which does not want to bear any extra tax, may simply deduct the dues before the GST kicked in on July 1 and pay a smaller net amount.

The absence of a column in the new GST form for claiming credit on sales made before July 1 this year is causing a lot of worries for India Inc as the filing deadline for the first month of tax returns under GST comes up this week.

Many companies don’t know whether the government will rectify this problem by Friday, the deadline for filing returns, and are following different options for resolving the quandary. Multinationals and some of India’s biggest companies are not taking into account past input credit while paying GST while smaller companies that can’t afford to let their working capital rise are paying the tax after deducting the input tax credit.

GST“A procedural lapse by the government doesn’t take away companies’ right to what’s prescribed in the law. GST law prescribes that companies can adjust past credits with July and August liabilities,” said the CFO of a Delhi-based company.

 

Industry trackers, however, say that doing so may be “technically incorrect.” “Certain businesses may prefer being cautious and pay the tax for July and August without considering the opening credit balance, while other businesses would adjust the credit and pay the tax, leading to disparities in tax treatment from the first GST return,” said MS Mani, partner, Deloitte Haskins & Sells.

The deadline for filing the GST Transition Credit Form, titled GSTTran 1, is September 28, while that of making payments for July and August is much earlier. There is no column in GSTR 3B form where companies can mention the advance taxes paid before July 1. The government had said last week that it would sort out the issue, but with just four days left for filing the GSTR 3B form companies are not waiting for clarification.

“Companies are puzzled by what they should be doing and why they could be required to fork out large sums as GST in July and August and the apparent inability of the government to simply permit the utilisation of the opening credit while computing the tax liability for July and August,” said a tax expert advising four of the biggest Indian companies.

Back of envelope calculations by two tax consultants show Indian companies may end up paying anywhere around Rs 13,000 crore more to government for July and August. If this happens, working capital costs are likely to rise across the board.

“There would be a significant impact on the working capital of several companies if they are not permitted to use the opening balance of credits. It does appear that the legislative intent of permitting carrying forward of credit from the earlier regime without any timing intervals has not been appropriately reflected in the GST returns for July and August,” said Mani.The government may just see a windfall gain for July and August GST in advance tax collection thanks to this procedural lapse.

ET View: Clear the Air
 The GST Council should clear the air to avoid disputes. The purpose of GST is to provide set offs across the production and value chain to avoid tax on tax and cascading tax rates for goods and services. Rightly, the compliance regime was easy to start with. A true picture on how well GST is working would be known when companies start getting refunds on the taxes paid by them. So, procedural lapses, if any, must be corrected to remove any confusion for companies.

CBDT tightens screws on shell companies

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The Central Board of Direct Taxes (CBDT) on Tuesday issued the much-awaited “guiding principles” for determination of a Place of Effective Management (PoEM) of a company, scotching speculation that the Budget may see its removal from the statute book.

Put simply, PoEM means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made.

The CBDT guidelines come barely two months before the end of fiscal year 2016-17, in which PoEM had become legislatively effective, giving little time for Indian multinationals to prepare for the new regime.

The main objective of introducing PoEM was to ensure that companies incorporated outside India but controlled from India do not escape taxation here. It also brings in the concept of residency of corporates with internationally accepted principles, say tax experts.

Girish Vanvari, National Head of Tax, KPMG in India, said that the guidelines stress on substance over form. “They attempt to differentiate between shareholder control, management control and routine decisions. Whilst the guidelines are comprehensive, they are subjective on substance and can be challenged for interpretation in many places,” he said.

Narrower application

Rohinton Sidhwa, Partner, Deloitte, Haskins & Sells LLP, said that what has been released has a narrower application than what was originally proposed. They are also supplemented with examples on isolated facts that will not lead to a PoEM as also illustrative interpretations. The legislative amendment was effective from April 1, 2016, whereas the guidelines are being released only today, Sidhwa pointed out.

Hitesh Sawhney, Partner — Direct Tax, PwC, said thatCBDT has clarified that the intent of PoEM provisions is to target shell companies/companies that are created to retain income outside India and not Indian MNCs engaged in business overseas.

Stress on substance

Aseem Chawla, Managing Partner, ASC Legal, a law firm, said that the finalised guidance relies on substance over form and that routine operational decisions shall not be relevant for PoEM determination.

“Also a panel of three commissioners is to affirm the proposed decision of the assessing officer on the PoEM of a foreign company. Hopefully, this will not impinge upon the right to appeal by the foreign company before a judicial forum,” he added.

Now that the final guidelines are out, will the government go ahead with a Controlled Finance Corporation (CFC) structure or not? Says Daksha Baxi, Executive Director, Khaitan & Co: “My personal view is that CFC is a better anti-avoidance provision, less prone to subjectivity and therefore less litigative.” It seems that at least for the current year, where PoEM is applicable, the government wants to ensure that the provision can be properly implemented, she said.

Rahul K Mitra, Head of Transfer Pricing & BEPS, KPMG in India, said: “With guidelines for PoEM out, it looks like they may not be introducing CFC.”

Jiger Saiya, Partner – Direct Tax, BDO India, echoed his thoughts, saying the “government seems inclined towards implementing the PoEM framework rather than introducing an alternative measure.”

Source: http://www.thehindubusinessline.com/economy/cbdt-tightens-screws-on-shell-companies/article9499358.ece

Government may offer foreign auditors direct access

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In a move that signals the government’s intent to allow foreign audit firms to register and operate directly in the Indian market, the Ministry of Corporate Affairs has written to the Institute of Chartered Accountants of India (ICAI) to seek its views and recommendations on the government proposal.

Currently, Indian laws don’t allow any multinational accounting firm to be registered in India as auditors. The thinking within the government is that as part of an ongoing reforms process, the services sector should also be liberalised and global auditing firms could be allowed to operate directly here to make the profession more competitive and robust.

The ministry has written to the institute on August 10, said ICAI president M Devaraja Reddy . The institute is set to discuss this proposal in a meeting to be held on August 24 and then respond to the the request, he added.

The government will have to amend the Chartered Accountants Act, 1949 that regulates the accounting profession in India to allow foreign firms to operate in India.

Currently, MNC professional services firms that offer auditing services in India, including the Big Four – EY, PwC, Deloitte and KPMG – audit Indian companies through a bunch of their network or affiliate firms.

Though for all internal purposes, the accounting practice in any of the Big Four is treated just as any other practice area like tax, transactions, or advisory , but on paper, the affiliate firms are run as separate partnerships.

If the Indian government does allow direct entry, more global firms are likely to invest big in their India network and also the market could see the entry of new players.

“Given the significant exposure of global investors in Indian firms, it’s natural to ask for an auditor who they are more comfortable with. More global players will mean more choice and better quality of services. It will also enhance the credibility of Indian markets,” says the CEO of a global firm.

For Indian audit firms, the move could spell further trouble, as they have been steadily losing the most lucrative audit assignments to the Big Four over the past two decades.The four global firms now dominate the book-keeping business in India. As it is, the mandatory audit rotation brought in by the Companies Act 2013, is set to kick off from April 1, 2017 and that will further see a movement of big accounts away from Indian firms towards the Big Four and other two prominent network firms, Grant Thornton and BDO.

In major markets, the global giants have a monopoly over the audit business – 99 per cent of companies in FTSE are audited by the Big Four firms, while 86 per cent of those listed on the NYSE work with these audit firms.

But in India, 62 per cent of the BSE 500 companies, including some of India Inc’s biggest firms, are still not audited by the Big Four.For example, Reliance has had Chaturvedi & Shah as auditors for decades, L&T books have been audited by Sharp & Tannan and Hindalco had stayed on with Singhi & Co for long time.In China, the Big Four lost domination to local firms after the government brought in regulations that were unfavourable for the global players. Indian accounting firms are also betting on government regulations that will keep their interests protected.

“The government will have to find a middle ground. It will have to create a regulatory framework that allows the global firms to invest and practice, also keeping in mind the concerns of the Indian accounting firms which service a large section of Indian companies, both big and small,” said the CEO of a leading Indian accounting firm.

Govt allows Aadhaar e-KYC for new mobile connections

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Forget the bulky paperwork, you can now apply, validate and activate new pre-paid and post-paid mobile connections using your Aadhaar card and fingerprint at the point of sale.

 

The government today issued e-KYC guidelines to make the online process of application and authentication faster and simpler for subscribers. In contrast to the existing document-based process, the move is intended to cut down time for SIM activation as KYC is verified instantly.

 

In e-KYC, a customer through her Aadhaar number and biometrics will online authorise UIDAI to provide demographic details such as name, address, date of birth and gender, along with the digitally-signed photograph, to the mobile operator.

 

“Digitally-signed electronic KYC data provided by UIDAI is machine readable, making it possible for licensees to directly store it as customer record in their database for the purpose of issuing a mobile connection,” a DoT notification said. COAI Director General Rajan Mathews felt that the move will be helpful for all stakeholders as it simplifies activation, eases verification process and enhances security.

 

“Earlier, the entire verification process would last 8-10 hours and it will now be greatly reduced,” he hoped. Bharti Airtel plans to start rolling out Aadhaar-based e-KYC solutions this week, MD and CEO (India and South Asia) Gopal Vittal said.

 

Vodafone India termed the e-KYC solution as “an instant, secure and green mobile subscriber verification project” and said all stakeholders will benefit from it. Customers will soon be able to walk in with their Aadhaar card in any of the Vodafone stores and walk out connected within minutes, the company statement read.

 

“For the consumer, instant activation means better experience and security of personal confidential information. For Vodafone, it will improve quality of sales as well as regulatory compliance. For the regulator, it not only means a green initiative, but hassle-free governance and accurate audit results,” said Sunil Sood, MD and CEO, Vodafone India.

 

According to Hemant Joshi, Partner, Deloitte Haskins & Sells, the move will bring down the cost of subscriber acquisition significantly as telecom companies will not have to spend on physical transportation of forms, verification, scanning and storage. “Also, it would help easier compliance and reduction in litigation on account of audit carried out by term cell,” Joshi said.

Source: http://www.moneycontrol.com/news/business/govt-allows-aadhaar-e-kyc-for-new-mobile-connections_7288301.html

Audit giants see dominance waning

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India’s audit landscape is undergoing a quiet change as the new rules for time-based rotation of auditors gather pace.

Early audit changes this year indicate the larger entities, such as Deloitte’s network, could face some pressure on their dominance. And, those lower down the order could gain ground. Leading firms are looking at increasing the focus on quality and are exploring new opportunities, such as private equity-backed ones in the unlisted space. Smaller entities such as Walker Chandiok, part of the Grant Thornton network, have ramped up their staff strength to handle new clients.

Close to 400 companies listed on the National Stock Exchange (NSE) have already changed auditors over the past three years, with clients changing hands among top audit firms. There is also pressure on pricing as the war for market share begins to intensify among top audit firms. This has resulted in a spike in demand for experienced auditors, with joining remuneration seeing 20-30 per cent jumps.

Audit giants see dominance waning
The revamped Companies Act of 2013 said every Indian company with a paid-up equity capital of Rs 20 crore or more was required to replace auditors after two five-year terms in succession. The law had given a three-year transition period for those which had to change auditors, ending March 2017. In the current financial year, 2016-17, around 40 NSE-listed companies have already switched to new auditors. More announcements are expected over the coming three months, shows data from Prime Database. In 2014-15 and 2015-16, a total of 339-NSE listed companies had settled for new auditors.

“We will be rotating off some of the larger companies. Simply because of the number and size of listed companies we audit, there will be changes in our audit market share,” said Shyamak Tata, partner, Deloitte Haskins Sells. He said large-scale changes in their portfolio were only expected from the third year onwards.

The Deloitte group’s network of audit companies is expected to see the largest churn. It has the biggest number of marquee audit clients. The network earned Rs 300 crore in fees for the year 2014-15, representing 15 per cent of the total pie of the Rs 2,000 crore audit fee market for 1,451 NSE-listed firms. It also audited the highest number of listed entities, at 149. The EY network made Rs 121 crore from the 108 companies. The PwC network audited 65 listed ones but had the lowest fee income among the ‘Big Four’ in audit, of Rs 65.6 crore. The KPMG network audited the lowest number of listed entities, at 58; however, it earned more than PwC at Rs 99.4 crore. Companies are still in the process of reporting the FY16 numbers.

Churn on
Early numbers suggest this pecking order is already going through a churn. A Business Standard analysis of data provided by Prime Database showed of the 41 auditor changes reported so far this year in listed companies, the KPMG network was the biggest gainer, with 11 new firms for the financial year ending March 2017. It was rotated out of two existing clients, a net gain of eight for FY17. The EY network added six and lost two, while Walker Chandiok gained a lone company. The PwC and Deloitte networks have lost more than they’ve gained so far this year. At the end of the changes, other smaller audit firms had 23 clients, up from 18 in FY16, among these 40 companies.

Grasim, Cipla, Biocon, Vedanta, Hindustan Zinc, United Spirits and Century Textiles are some of the large companies that have reported auditor changes for the new financial year.  In FY16, as many as 168 listed companies changed their auditors. The Deloitte network was the top gainer among the first five, gaining 17 and losing 11. The KPMG network was also a net gainer, with seven gains and four losses. EY, PwC and Walker Chandiok lost more than they gained.

In FY15, when 171 companies changed auditors, Walker Chandiok’s client list swelled by eight. While the EY network and Deloitte registered a net gain of one each, the KPMG and PwC networks recorded a net loss of four and one, respectively.

Strategy
Deloitte, expecting a strong attack on its dominance, is looking for greener pastures. “We are large in the listed company space, and have a majority share across industry sectors.  Our audit breadth and experience in this changing regulatory environment provides us, currently and over the next two-three years, an opportunity to provide audit services to untapped listed and unlisted entities, with a bias in favour of unlisted clients,” said Tata.

Other large entities are also gearing up for the transition. Russell Parera, partner, Price Waterhouse Chartered Accountants LLP, said his network had embarked on a transformation programme focussing on people, technology and processes for close to two years. “We have taken significant efforts in training our people for this change. Also, with rotation kicking in, it is going to be important to focus on investing in relationship building.”

The PwC network also bets on technology as another aspect, which will go a long way in these ever-evolving market scenario. “Today, technology has become a crucial enabler, with more data audits getting conducted. It is also relevant in cross border and multi-location audits to ensure consistency. We as a firm have been preparing for this change,” Parera added.  Tata of Deloitte spoke of pricing pressure in certain pockets. “We are seeing this as a section of the market looks to gain market share.  There will be some short- term blips. However, with continuing investment in innovation and quality, which will lead to enhancing value to clients, over the short term, this will correct. We already have a large pool of audit talent. We are looking at consolidating and not dramatically increasing the headcount. Audit will remain the primary identity of our firm and, with our focus on quality, we will retain our leading position in the overall  space.”

Impact
According to Akhil Bansal, deputy chief executive of KPMG India, with European audit rotation also coming into effect, the impact of Indian mandatory company rotation regulations will be felt around the globe. “The choice of the audit firm in India might influence the choice in Europe and other geographies,” he added. Bansal said the impact of mandatory firm rotation will also be felt on other services, including internal audit, due to stringent independence requirements. “It is important that the companies make their choice of audit firm early, since the best resources will be committed to clients who are first off the block,” he said.

Audit companies have been preparing for this, with investment in personnel, training and ramping up headcount numbers. For instance, the Grant Thornton network plans to double its auditor numbers across its network from 1,500 to 3,000. Vishesh Chandiok, national managing partner, Grant Thornton India LLP, said: “Several local Indian firms are very competent and the belief that only us international firms are the option is misplaced. Not all 50,000 firms for each company but certainly 50 firms can audit most companies, not only four of five firms.”

The EY group, which has 3,000 auditors across its network, added 400 over the past 12 months. “Internally, our focus continues to be on strengthening our teams with more hiring, greater investments in training, sharpening technical and industry capabilities  and increasingly, using more technology and, data analytic tools when performing audits,” said  Sudhir Soni, national leader, SR Batliboi, the Indian member-firm of EY Global.

Most audit companies have resorted to internal promotions and inducting of new talent to expand resources.

With the threshold for audit rotation being low, most audit companies are looking at tapping the unlisted private audit space in a big way. That’s a space the Deloitte network companies plan to play the game hard, indicated Tata. The client churn among audit firms is expected to last over the next two-three years, before it stabilises.

Source: http://www.business-standard.com/article/companies/audit-giants-see-dominance-waning-116062600777_1.html