Home / Money / Personal Finance /  Taxpayers must be vigilant about the details in ITR

A well-known policy objective of the government is to widen the tax base and bring unaccounted income and wealth to tax. In doing so, the income-tax (I-T) department gathers information from different sources such as banks, mutual fund houses, and foreign tax authorities, besides the information furnished by the taxpayer. The information collected is validated and cross-verified using data analytics. The reporting requirements in the I-T return (ITR) forms have been enhanced over a period of time. The  information being collected directly from taxpayers now includes details of directorships held, details of investment in unlisted equity shares and a separate Assets and Liabilities schedule, which is applicable where the total income of the taxpayer during the financial year exceeds 50 lakh. This is clearly intended to identify shell companies, dummy directorships, unaccounted assets, etc. 

An individual who is a director or has invested in unlisted equity shares or has a total income exceeding 50 lakh can only file ITR-2 (no business income) or ITR-3 (with business income). An individual, who is a director in a company, has to furnish the name, type (domestic or foreign) and PAN of the said company. Such an individual is also required to furnish the director identification number (DIN) and indicate whether the company’s shares are listed in a recognized stock exchange in India.

If the individual is a director in a foreign company, then DIN is not required and the PAN of the foreign company should be mentioned only if such foreign company has been allotted a PAN. In case of an individual qualifying as non-resident, who is a director only in a foreign company and such foreign company does not have any income received in India, or accruing or arising in India, the directorship details of such a foreign company are not required to be reported in the ITR. A resident individual is required to furnish details of directorship for both Indian as well as foreign companies. 

Another additional requirement is linked with investment in unlisted equity shares. An individual who has invested in unlisted equity shares of a company is required to furnish details of name, type and PAN of the company, opening balance of the shares with cost of acquisition, details of shares acquired/ transferred during the year including date of subscription/purchase, face value per share, issue price per share and purchase price and closing balance of the shares with a cost of acquisition. This can include shares that were originally listed when acquired but subsequently got delisted. However, if the shares are listed on a recognized stock exchange in India or outside India, there is no requirement to report these shares. This is a hardship for individuals who qualify as non-resident, or resident but not ordinarily resident, who may have invested in unlisted companies outside India. Even though foreign assets are not required to be reported for such individuals, details of investment in unlisted equity shares outside India are still required to be reported. An individual qualifying as resident and ordinarily resident (ROR) is required to report unlisted equity shares, doubly, here and in the schedule for foreign assets. It is important to note that details of directorship and investment in unlisted equity shares are required to be reported if these were held for any period of time during the financial year. Even if the directorship was vacated or unlisted equity shares were sold during the financial year, the details are still required to be reported in the ITR.

Separately, an individual is required to report the value of immovable assets along with address, movable assets and liabilities in relation to the assets in the Assets and Liabilities Schedule. For a non-resident, only India assets are required to be reported. RORs have to report global assets. The value of assets is required to be at “cost". However, liabilities may more appropriately be reported at their closing / outstanding balance at year-end. In the case of jointly held properties, all co-owners are required to report the jointly owned asset in their respective ITR subject to meeting the condition of total income exceeding 50 lakh. 

These additional reporting requirements aim to bring in greater transparency, promote voluntary compliance, and help towards effective and efficient tax administration. There are no specific provisions to levy interest/ fine/ penalty in case of non-disclosure of directorship, investment in unlisted equity shares or assets and liabilities, but prosecution risk for furnishing false particulars or verification could be invoked by authorities. Hence, taxpayers must be vigilant and ensure that all details required are reported appropriately and completely in the ITR.

Sonu Iyer is tax partner and people advisory services leader, & Siddharth Deb is tax director, people advisory services, at EY India.

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