Currently, a person other than a company or a firm is required to furnish the return of income only if his total income exceeds the maximum amount not chargeable to tax, subject to certain exceptions.
Seeking to expand the tax payer basefurther, Budget 2019 proposes to make income tax return filing mandatory for certain persons even if their income is below the taxable limit. These include those: depositing of Rs 1 crore plus in current accounts, spending Rs 2 lakh plus on foreign travel; incurs electricity bills of Rs 1 lakh or more and claiming capital gains tax exemption on investment in house etc if before exemption income is above maximum chargeable to tax. These changes will apply from the current financial year onwards once the budget proposals are passed by Parliament.
“Currently, a person is required to file a tax return only if his total income exceeds maximum amount not chargeable to tax subject to certain exceptions. With the objective of ensuring governance, the scope of tax-return filing requirement has been widened for individuals and HUFs by including these categories who were otherwise not required to file a tax return. This amendment will ensure that people who have ability to incur large expenditure do not escape from paying tax and filing of tax returns,” says Shalini Jain, tax partner, EY India.
Sonu Iyer, Partner & National Leader, People Advisory Services, EY India says, “High Income earners with income over 2 crores will pay taxes at an maximum marginal rate of 39% whilst those with income over 5 crores will pay maximum marginal rate of tax 42.74%. The fine print also talks about mandatory requirement to file tax returns for the following new categories of tax payers who carry out high value transactions:
1. Electricity consumption bill over 1 lakh
2. Foreign travel for self or someone else over 2 lakhs or more
3. Deposit of an amount or an aggregate of the amounts exceeding Rs. 1 crore in a current account
4. Other conditions as may be prescribed
5. Persons claiming the benefits of tax exemption for long term capital gains under various provisions under section 54 of the Income Tax Act.”
Currently, a person other than a company or a firm is required to furnish the return of income only if his total income exceeds the maximum amount not chargeable to tax, subject to certain exceptions. Therefore, a person entering into certain high value transactions is not necessarily required to furnish his return of income. In order to ensure that persons who enter into certain high value transactions do furnish their return of income, it is proposed to amend section 139 of the Act so as to provide that a person shall be mandatorily required to file his return of income, if during the previous year, he-
(i) has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current account maintained with a banking company or a co-operative bank; or
(ii) has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
(iii) has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
(iv) fulfils such other prescribed conditions, as may be prescribed. Further, currently, a person claiming rollover benefit of exemption from capital gains tax on investment in specified assets like house, bonds etc., is not required to furnish a return of income, if after claim of such rollover benefits, his total income is not more than the maximum amount not chargeable to tax .
In order to make furnishing of return compulsory for such persons, it is proposed to amend the sixth proviso to section 139 of the Act to provide that a person who is claiming such rollover benefits on investment in a house or a bond or other assets, under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB of the Act, shall necessarily be required to furnish a return, if before claim of the rollover benefits, his total income is more than the maximum amount not chargeable to tax.
These amendments will take effect from 1st April, 2020 and will, accordingly apply in relation to assessment year 2020-2021 and subsequent assessment years.