The new income tax return (ITR) forms released by the Central Board of Direct Taxes require some income tax assessees to disclose their assets and liabilities. Earlier, this was mandatory only for those who had income from proprietorship or partnership business.
But now the rule has been extended to all assessees. Apart from ambiguity over valuation of assets and liabilities, filing tax returns has now become more complicated.
What has to be disclosed
Any individual or Hindu undivided family (HUF) with total income of more than Rs.50 lakh in a year has to adhere to the new disclosure clause. A new section-Schedule AL-has been added to the various forms such as ITR1, ITR2 and ITR2A. It was already there in ITR3 and ITR4. According to the new norms, under Schedule AL, an assessee has to disclose the value of assets and liabilities that she owned as on 31 March 2016, while filing ITR for assessment year 2016-17.
The assets whose values need to be disclosed include immovable assets such as land and buildings, and movable assets such as cash in hand (including savings accounts balance), jewellery, bullion, vehicles, yachts, boats and aircrafts.
Besides assets, assessees also need to disclose liabilities (loans) in relation to the disclosed assets. So, if an assessee has a home loan against a house, she needs to disclose the cost of the house as well as the loan.
"The information that needs to be disclosed is similar to what one had to disclose earlier while filing wealth tax returns. But since wealth tax has been abolished, the government should clarify the objective behind asking for such information," said Kuldip Kumar, partner, personal tax, PwC India.
"The only objective that one can understand behind the exercise is that it is to check whether the assets that the assessee owns are in line with the income of the assessee or are disproportionate to the income," added Kumar.
Others agree that this may be a way to keep track. "The income tax department wants to keep a tab on the income and assets, to put a check on tax evasion," said Homi Mistry, partner, Deloitte Haskins & Sells LLP.
Problem for assessees
According to the disclosure rules, only the cost of the assets have to be disclosed and not the market value as on 31 March 2016. This means that if you owned, say, a house on 31 March 2016, which you had bought in 2005 for Rs.50 lakh, then you need to write Rs.50 lakh under the immovable assets column, irrespective of what the market value of the house was as the last day of March 2016.
However, in many cases, the assessee may not know the cost of the asset, for example, an inherited ancestral property, or jewellery or gold received as gifts. "Though the valuation mechanism is yet to be prescribed, it is likely be challenging for salaried individuals to determine the value of assets they hold, especially jewellery and others," said Neha Malhotra, executive director, Nangia & Co.
If you know the cost of your assets, you can put in the details. But if you don't know, the task becomes difficult. "For an ancestral property bought before 1981, one can take the fair market value in 1981 as cost. For a property bought after 1981, one has to know the cost paid by the previous owner to acquire it," said Mistry. However, "An assessee can even take the value of the asset as 'nil', if she is not at all sure of its cost," he added.
One option is to get the property valued by a valuer. But "obtaining a valuation report in respect of all assets would add to the annual compliance burden, which was intended to be removed by abolition of wealth tax," said Malhotra.
In some cases, "if cost of purchase is not assessable, an assessee can also put the current insured value as the cost," said Mistry. Despite the problems expected, industry participants believe the step is in line with the government's objective to curb black money and tax evasion. In fact, the "(tax) department may extend this and, in coming years, an assessee may have to disclose her financial assets such as investments in mutual funds, fixed deposits and insurance policies, as is in the case of assessees filing returns under ITR3 and ITR4," said Mistry. At present, details of assets and liabilities to be provided under "Schedule AL" is more exhaustive for those using ITR 3 an ITR 4.
While you don't have to provide a detailed breakup in the ITR of how you valued assets and liabilities, keep the calculation documents with you. In case of scrutiny, you can furnish the details.
Although the mandatory disclosure rules will help keep a tab on people's incomes and net worth, more clarity is needed on the details.
In arrangement with HT Syndication | MINT
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