Major Changes in new Income Tax Returns for AY 2021-22

The Central Board of Direct Taxes (CBDT) has notified the Income Tax Returns for the Assessment Year 2021-22. It has been notified vide vide Notification No. 21/2021, dated 31-03-2021. No major changes are made in the returns of this year due to the ongoing COVID-19 Pandemic.

Here's a list of applicable ITRs as per the Income of the Assessee

The CBDT has announced some changes which were formed based on the amendments made by the Finance Act, 2020 to the Income-tax Act.

Some of the Significant Changes in Returns are as follows

No ITR-1 and ITR-4 can be filed in case of deferment of tax on ESOPs

The Finance Act, 2020, has allowed to defer the payment or deduction of tax on ESOPs allotted by an eligible start-up referred under Section 80-IAC.

Thereafter, Rule 12 is been amended saying that an assessee in whose case payment or deduction of tax in respect of such ESOPs has been deferred, will not be allowed to furnish his return of income under ITR Form-1 and ITR Form-4. Accordingly, other appropriate ITR will have to be opted.

Changes related to it has been made to ITR-1 and ITR-4.

Also, For employees who have received ESOPs from an eligible start-up referred to in section 80-IAC, the Part B of Schedule TTI now requires disclosure of the amount of tax which has been deferred relating to income on ESOP received as perquisite.

Consequential changes due to change in dividend tax regime

Before, the Company paid Dividend Distribution Tax (DDT) on Dividends and the shareholders were applicable for tax only in case of dividends which exceeded the threshold limit of Rs. 10 lacs.

In The Finance Act, 2020, there was a major change in the entire Dividend Tax regime by way of abolishing DDT. Due to which, Schedule OS (Other Sources) has been revised to provide for dividend taxable in the hands of the shareholders.

Also, a quarterly breakup of dividend income would be required to be provided in all the ITR forms which would further enable computation of interest liability under section 234C.

Along with it, Schedule EI (Exempt Income) which provided for exemption of dividend income up to Rs 10 lacs has also been revised accordingly.

No option to carry forward TDS deducted under Section 194N

Section 194N of the IT Act provides for deduction of TDS in case of cash withdrawal by any person exceeding the specified limit as mentioned therein.

In case of tax deducted under Section 194N, credit for tax deducted shall be allowed in the assessment year relevant to the previous year in which such tax has been deducted and, accordingly, if any excess TDS is deducted during the year under such section, then it shall be claimed as refund in the same year only.

Therefore, ITR-2 to ITR-7 have been amended in order to restrict the carry forward of such TDS to subsequent assessment years.

Separate effect of Marginal relief on Surcharge needs to be disclosed

Before this change, no separate effect of marginal relief was required to be shown in the ITR while computing total tax of the assessee.

Now, the ITR Forms for the Assessment year 2021-22 have been amended which requires the assessee to show the effect of marginal relief on the tax payable by disclosing “surcharge computed before marginal relief” and “surcharge computed after marginal relief” separately.

Adjustment of unabsorbed depreciation if assessee has opted for Section 115BAC or 115BAD

Section 115BAC and 115BAD - special tax regimes provide for concessional tax rates and therefore the taxpayer is not allowed for some deductions and exemptions under the IT Act.

As these tax regimes have been made applicable by Finance Act, 2020, the ITRs have been accordingly revised to incorporate the optional tax regimes. So accordingly, the taxpayer would have to provide information Part-A (General Information) whether they would be opting for the Concessional Tax regime or not.

To avail these sections, the assessee has to give up on the additional depreciation if it is forming part of unabsorbed depreciation for earlier years. However, a one time adjustment in the opening WDV is allowed in such case and accordingly the Schedule UD in ITR 3 has been revised to provide for such revision in the unabsorbed depreciation which represented additional depreciation on account of opting for section 115BAC.

If one opts for these alternative tax regimes, any carried forward losses attributable to such exemptions and deduction which were foregone are not allowed to be set off.

Reporting of details of tax deducted under section 194M

Section 194M requires the TDS to be deducted at the rate of 5% from the payment made to a contractor or commission agent or broker or professional by an Individual/HUF (who are not subjected to the tax deduction provisions under section 194C, 194H & 194J) and then for details of tax deducted under section 194M, certificate in Form 16D will be issued under Rule 31.

The ITR forms have been accordingly amended to provide reference of Form 16D in case of tax deducted at source under section 194M.

Also need to check that no such deduction under this section shall be made if such sum or total of such sums, credited or paid to a resident during a financial year does not exceed Rs 50 lakh.

Some other changes

Introduction of Section 80M

Section 80M was introduced by the Finance Act, 2020 to provide a deduction to a domestic company for the amount received as dividend from another domestic company, a foreign company or a business trust. The deduction is allowed when the company further distributes the dividend to the shareholders.

Schedule DI

Which required bifurcation of the tax investments in check with the extended due dates of last year has been removed from the ITR Forms as it is no longer applicable.

Increase in safe harbour limit prescribed under Section 50C

The Finance Act, 2020, has increased the tolerable limit from 105% to 110% from Assessment Year 2021-2022. Consequential changes have been made to ITR-2, 3, 5 and 6.

Cash donation u/s 80GGA

Additional disclosures of the date on which such cash donation u/s 80GGA has been made, would be required. The sae details has to be collected from the clients.

Additional reporting requirement of nature of security

Schedule 112A and Schedule 115AD require reporting of various details in respect of long term capital gains arising on transfer of securities, being equity shares, units of equity-oriented mutual fund or units of business trust, provided transfer of such capital asset is chargeable to Securities Transaction Tax (STT).

A new column has been added for both the schedules regarding reporting the nature of security elaborating whether it is a share or unit.

Computing cost of acquisition u/s 112A and 115AD

In case of sale of Equity shares/Units of Equity Oriented Mutual Fund/Units of Business Trust, which were acquired before 31.01.2018, the cost of acquisition is computed after considering the Fair Market Value as on 31.01.2018.

The ITR has been amended to allow tax payer to insert Sale Price, FMV and Cost of Acquisition in order to effectively calculate the capital gain.

Other than above, some of the other minor changes have also taken place in the ITRs.

Let us know what is your opinion on the overall changes in the Income Tax Returns for this year!

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