CBDT has released the new ITR forms – ITR-1 and ITR-4 – for FY 2023-24 early this year. These forms are applicable for filing income tax return before July 31, 2024, unless extended.
New ITR forms AY 2024-25: Taxpayers will now be required to provide information regarding cash receipts and all their bank accounts within the country according to the latest Income Tax Return (ITR) Forms for the Assessment Year 2024-25, as notified by the Central Board of Direct Taxes.
CBDT has released the new ITR forms – ITR-1 and ITR-4 for FY 2023-24 early this year.
These forms are applicable for filing income tax return for AY 2024-24 with the last date of July 31, 2024, unless extended.
One noteworthy feature of the new ITR forms is that The Finance Act, 2023 has modified Section 115 BAC, establishing it as primary tax regime for individuals, HUFs, AOPs, BOIs, and AJPs. Under this amendment, if an assessee prefers not to adhere to the new tax regime, they must expressly opt out and select the Old Regime for their taxation.
The ITR 1, also known as Sahaj, can be filed by individuals with an income up to Rs.50 lakhs. This includes income from salary, one house property, other sources such as interest, dividends, etc and agricultural income up to Rs.5,000.
Taxpayers will need to provide details of all their bank accounts operational in the previous year along with the type of account.
The updated income tax return forms also include a special section for deductions for Agniveers, the youth serving in the armed forces under the Agnipath scheme, as per Section 80CCH.
Individuals, Hindu undivided families (HUFs), and firms, excluding limited liability partnerships (LLPs), with a total income up to Rs.50 lakhs and income from business and profession, can file ITR 4, also known as Sugam.
In the previous year, the forms were notified in February. Previously, there was a separate column for cryptocurrency. However, in the new ITR, a new disclosure has been added to specify “receipts in cash’ in the New ITR 4 Form.
Here are some cases in which the assessee cannot file ITR 1 –
Any individual having an income of more than INR 50 lakhs.
An individual holding a directorial position in a company or having unlisted equity shares during the financial year.
Non-residents and Resident but not ordinarily resident (RNOR).
Individuals with income from more than one house property
Income from lottery, horse races, and legal gambling.
Short-term and long-term capital gains
Agricultural income is more than 5000.
Income from business and profession
Any resident having assets outside India
Individuals claiming Foreign Tax Credit under sections 90, 90A and 91.
Deferred Income Tax on ESOP.
Here are some cases in which the assessee cannot file ITR 4 –
If the turnover of the business exceeds Rs. 2 crores (3 crores for FY- 2023-24), the taxpayer will have to file ITR-3
If your total income is more than INR 50 lakhs
Have income from more than one house property and own a foreign asset
The AIS captures information on almost all financial transactions done in the previous financial year. The idea is to give taxpayers a comprehensive statement on their transactions that they can refer to while filing their income tax returns
The income tax department (I-T dept) on Monday rolled out the new annual information statement (AIS) on the compliance portal. This annual statement provides a comprehensive view of information to a taxpayer and the facility to submit online feedback.
The new annual information statement (AIS) includes additional information linked to interest, dividend, securities transactions, mutual fund transactions, foreign remittance information and other such transactions.
The income tax department has clarified that till the new annual information statement is validated and is completely operational, Form 26AS will continue to be available on the TRACES portal. The tax department also added that the reported information has been processed to remove duplicate information.
If the taxpayer feels that the information is incorrect, relates to another person/year, duplicate or such other a facility has been provided to submit online feedback. “The taxpayers are requested to view the information shown in annual information statement (AIS) and provide feedback if the information needs modification,” the Central Board of Direct Taxes (CBDT) said.
The new AIS can be accessed by clicking on the link ‘Annual Information Statement (AIS)’ under the ‘Services’ tab on the new Income tax e-filing portal (https://www.incometax.gov.in).
How AIS will be helpful?
AIS provides for a simplified taxpayer information summary (TIS) which shows the aggregated value for the taxpayer for the ease of filing returns.
If the taxpayer submits feedback on the annual information statement (AIS), the derived information in TIS will be automatically updated in real-time.
This derived information in taxpayer information summary (TIS) will be used for pre-filling of return which shall be implemented in a phased manner.
If the ITR has been filed but some information has not been included, the return may be revised to reflect the correct information as shown in TIS.
In case there is a variation, the taxpayer may rely on the information displayed on the TRACES portal for the purpose of filing of ITR.
In comparison to Form 26AS, AIS is a more comprehensive single reference document and can be modified by taxpayers if the information is incorrect.
Annual Information Statement (AIS) provides complete and detailed information related to interest, dividend, securities/ mutual funds transactions.
The Double Tax Avoidance Agreement (DTAA) is essentially a bilateral agreement entered into between two countries. The basic objective is to promote and foster economic trade and investment between two Countries by avoiding double taxation.
WHAT IS DOUBLE TAXATION OF INCOME?
When the same income is taxed more than once, due to levying of tax by two or more jurisdictions, on the same income asset or financial transaction, this results in double taxation. This may happen, when an assessee – an Individual or a company, is taxed more than once for the same income in India, either on the basis of place of residence or on the basis of source of accrual, which leads to double taxation.
Countries have started entering into Double Taxation Avoidance Agreements (DTAA) with other countries to resolve double taxation issue so as to ease out the tax burden of their taxpayers. This relief for taxes paid in foreign country is given to taxpayer while taxing the same income in India, which is termed as Foreign Tax Credit (FTC).
B. HOW DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) WORKS?
In any country, the tax is levied based on 1) Source Rule and 2) the Residence Rule.
The source rule holds that income is to be taxed in the country in which it originates irrespective of whether the income accrues to a resident or a non-resident whereas the residence rule stipulates that the power to tax should rest with the country in which the taxpayer resides.
If both rules apply simultaneously to a business entity and it were to suffer tax at both ends, the cost of operating on an international business would become prohibitive and would deter the process of globalization. It is from this point of view that Double Taxation Avoidance Agreements (DTAA) have become significant.
Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.
Impact of Double Taxation Avoidance Agreement:
1. WHERE DTAA EXISTS (SECTION 90):
There are two methods of granting relief under Double Taxation Avoidance Agreement.
Exemption method – A particular income is taxed in one of the both countries and exempted in the other
Example- For the Income from Dividend, Interest, royalty and fees for technical services Source Rule is applicable in treaty with Greece, Libyan and United Arab Republic. So for citizen of these 3 countries if the dividend, interest, royalty or fees for technical services is arising in India, then it will be solely taxable in India only and for a resident if such income is arising in any of these 3 countries then the income will solely be taxed in these 3 countries and it will not at all be taxable in India.
Tax Credit method- The income is taxed in both the countries as per the treaty and the country of residence will allow the tax credit / reduction for the tax charged in the country of Origin.
Example- Mr. A (an Indian resident) has received salary from a US company for job in US. Since Mr. A is a resident so his global Income will be taxable in India. In this case, source country is US (since the service has been rendered in US) and resident country is India. So at the time of computation of tax liability of Mr. A, the tax paid in US will be allowed as set off against his total tax liability but limited to the tax payable on such foreign income at Indian tax rates.
Therefore DTAA determines which method to be used first and, if the income is taxable only in one country then exemption method shall be used, but if the same is taxable in both countries then tax credit method comes into play.
In case where Bilateral agreement has been entered under section 90 of the Income Tax Act, 1961 with a foreign country then the assessee has an option either to be taxed as per the Double Taxation Avoidance Agreement (hereinafter referred as “DTAA”) or as per the normal provisions of Income Tax Act 1961, whichever is more beneficial to assessee.
Example- As per DTAA between India and Germany, tax on Interest is specified @ 10% whereas under Income Tax Act 1961, it depends on slab rates for individuals & HUF and flat rates (generally 30%) for other kind of assessees (like firm, company etc). Hence, one can follow DTAA and pay tax @ 10% only.
2. WHERE DTAA DOES NOT EXIST (SECTION 91):
i. If any person who is resident in India in any previous year, in respect of income which arose outside India (and which is not deemed to accrue or arise in India), and paid in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation, then he shall be entitled to the deduction from the tax payable in India,
ii. Deduction shall be lower of:
Tax calculated on such double taxed income at the Indian rates.
Tax calculated on such double taxed income at the rate of tax of the said country
Example :Suppose Indian Sportsman, resident of India who earns foreign income in form of match fees being professional and dividend income as his other foreign income from the below mentioned countries, then in such case following provisions and method shall govern his taxability:
Therefore, both Tax Credit method u/s 90 and Section 91 deals with Foreign Tax Credit, but still having DTAA is beneficial because assessee is taxed at rate beneficial to him, which is not so in case of NO DTAA.
C. HOW CREDIT OF FOREIGN TAX IS AVAILED IN INDIA?
Rule 128 governs the credit of taxes paid on income earned in foreign country. An assessee shall be eligible to claim credit of foreign tax paid if he complies with provisions stated under Rule 128 of the Income Tax Rules which are discussed as follows:
1. Analysis of Rule 128 introduced under Indian Income Tax Rules
Applicability of the rules
The rules came into force with effect from 1.4.2017 applicable only for resident assessee for the amount of foreign taxes paid by him in a foreign country. The credit is available only if income corresponding to the taxes is offered for tax or assessed to tax in India during the year in which the credit is claimed.
In the cases where the income for which the foreign taxes paid or deducted is offered to taxes for more than one year, the credit will be given across the years in the same proportion to which the income is offered to tax in India during the year in which credit is claimed.
2. Foreign Tax Credit Defined under sub-rule 2:
i. FTC in case of DTAA countries: Taxes that are covered under the said agreement.
ii. FTC in case of other countries (No DTAA): Tax payable under the law in force in that country in the nature of income-tax referred in Section 91.
The LOWER OF tax payable under the act on such income or the foreign tax paid is eligible as FTC. However, while considering the foreign tax paid, it cannot exceed the amount arrived as per DTAA with that country.
3. Utilization of Foreign Tax Credit:
FTC is eligible for adjustment against the tax, surcharge and cess payable under the IT Act. FTC cannot be adjusted against interest, fee or penalty payable under the IT Act. FTC is not available in case foreign tax or part thereof is disputed by the assessee in any manner.
4. Exception & Conditions relating to Foreign Tax Credits:
Credit is allowed in the year in which the income is offered/assessed in India upon the assessee within six months from the end of the month in which dispute is finally settled and assessee furnishes:
Evidence of settlement of dispute
Evidence that the liability for payment of such foreign tax has been discharged and
Undertaking that no refund in respect of such amount is directly or indirectly been claimed. Further, credit for each source of income shall be calculated separately for a specific country and then aggregated. The rate of exchange to be taken for this purpose is TT buying rate on the last day of the month immediately preceding month in which the tax is paid or deducted.
5. Documents required under Foreign Tax Credit:
Furnish FORM 67 duly verified and certified by a Chartered Accountant on or before furnishing return of income u/s 139(1)
Furnishing following certificates or statement specifying:
Nature of income and,
Amount of Tax paid of which statement given by:
Tax authority of that country, or
Person responsible for deduction of such tax, or
Signed by the assessee:
In this case, it should be accompanied with – an acknowledgment of online payment or receipt or bank counterfoil for proof of payment of tax, if tax is paid by the assessee
In case of tax deduction, proof of such Tax deducted at source
D. JUDICIAL PRECEDENTS UNDER FOREIGN TAX CREDIT
1. WIPRO LIMITED F TS – 565 – HC – 2015 (KAR)
The judgment of WIPRO provides that merely because the taxpayer’s income is exempt from tax due to a limited tax holiday provided under the ITA, does not mean that foreign tax credit can be simply denied.
2. TATA SONS [2011] 43 SOT 27 (MUM AT)
Though DTAA with USA provides credit only the tax paid with the Federal Government, credit was extended to the Taxes paid to State taxes as well. It has considered the relief u/s 91 which was beneficial to the assessee than that of the DTAA.
3. VIJAY ELECTRICALS [2015] 54 COM 19 (HYD AT)
Tax credit is available even if the same is not deposited with the overseas Government in the year in which the income is taxable.
To provide relief to corporates with income abroad, the tax department has notified ‘Foreign Tax Credit’ rules allowing companies to claim credit for taxes, surcharge and cess paid overseas. The rules, which come into effect from April 1, 2017, allow taxpayers to claim credit of foreign tax under dispute once it is finally settled.
Foreign tax credit (FTC) will be available against tax, surcharge and cess payable under the Act, including minimum alternate tax (MAT) but not in respect of interest, fee or penalty.
The rules also provide that disputed foreign tax will be allowed as credit for the year in which the income is taxed in India, subject to certain conditions.To avail of the credit, the taxpayer will have to furnish evidence of settlement of the dispute and evidence of payment of the foreign tax. The taxpayer is also required to provide an undertaking that no refund, directly or indirectly, will be claimed for this foreign tax.
“The rules are progressive and provide much-needed clarity as well as certainty in claiming FTC,” said Rakesh Nangia, Managing Partner, Nangia & Co.
Taxpayers claiming FTC shall now be required to file a Statement of Income from a foreign country with details of tax paid in the prescribed Form 67.
“Rules also provide for situations of carry backward of loss of the current year resulting in refund of foreign tax,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
The Central Board of Direct Taxes (CBDT) has also allowed tax payers to give self-certified statement, giving the nature of income and the amount of foreign tax deducted or paid accompanied with the counterfoil or acknowledgment of taxes paid and/or proof of taxes having been deducted at source, for claiming FTC.
“This process is much simpler than the complex and difficult procedure involving obtaining a certificate from a foreign tax authority,” Nangia said.
The tax credit, the rule said, “shall be the aggregate of the amounts of credit computed separately for each source of income arising from a particular country or specified territory outside India”.
