Income tax return
This query is : Resolved
25 July 2014
If HRA exemption exceeds Rs. 5000, can we use ITR-1,since ITR-1 cannot be filled if exempt income exceds Rs.5000.
26 July 2014
kindly use ITR2........
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26 July 2014
You can use ITR1. HRA is a deduction and not exempted income.
26 July 2014
Sanjay,
While it is agreed that there is debate/confusion/lack of clarity as to what incomes Rule 12 of Income-tax Rules 1962 refers to, I believe saying that HRA is a deduction and not exemption would be against section 10. Any item covered under Section 10 is an exemption and not a deduction.
While it is agreed that there is debate/confusion/lack of clarity as to what incomes Rule 12 of Income-tax Rules 1962 refers to, I believe saying that HRA is a deduction and not exemption would be against section 10. Any item covered under Section 10 is an exemption and not a deduction.
26 July 2014
Dear Nikhil ji. It can be exmption but it is not exempted income in any sense. And for me there is no confusion in this regard. Previous year I filed many ITR1 with HRA and Conveyance Allowance deduction much more than Rs 5000. All the returns has been duly processed and whereever there is refund, same has been received. Even 143 (1) has been received.
27 July 2014
Dear Friend,
the problem is that the ITR-1 you file doesn't even provide for explicit mention of the HRA exemption amount as ITR-1 directly picks the final taxable salary amount (net of all exemptions and deductions only). So you cannot claim that ITD accepted your view. Its just that they never scrutnized it. It would be worth seeing whether they will accept your view if they ever call up any of the return filed by you for scrutiny!
I don't see any reason to state that 143(1) intimation is mere checking of arithmetical inaccuracies and incorrect claims apparent from any information in the return. That means even the return is not even cross-checked with Form 16 (available to department). It is in no manner an assent or approval to the claims made which cannot be verified without 143(3) scrutiny.
google this issue, you will find decent number of articles talking about lack of clarity on the issue under consideration. And please note that Rule 12 doesn't talk about exemption or exempted but simply "income not chargeable to tax" which includes whole of section 10.
This article on taxmann clearly states that if you are claiming any exemption under section 10 and amount exceeds Rs 5000, ITR1 cannot be used. please refer http://www.taxmann.com/topstories/222330000000003481/2013-14-faqs-on-income-tax-returns.aspx
The same view is reflected at finotax.com 9(another respectable tax related website) as http://finotax.com/income-tax/e-form
Further, parizad Sirwalla, reiterates the same view at http://www.livemint.com/Money/XU7RSXmWMUnkR8UeqX9qGM/Provide-mediclaim-premium-receipt-to-claim-tax-benefit.html
http://itrvault.in/Uploaded_Documents/Attachment_Documents/IT_Returns_notified_with_changes_for_AY_2013-14.pdf
Now I am definitely not as clear about tax laws as taxmann or Parizad , but I find no reason to argue with their logic as section 10 title itself is "Incomes not included in total income"
The idea behind this amendment was to force more disclosures and leave ITR1 for smallest of smallest tax payers.
the problem is that the ITR-1 you file doesn't even provide for explicit mention of the HRA exemption amount as ITR-1 directly picks the final taxable salary amount (net of all exemptions and deductions only). So you cannot claim that ITD accepted your view. Its just that they never scrutnized it. It would be worth seeing whether they will accept your view if they ever call up any of the return filed by you for scrutiny!
I don't see any reason to state that 143(1) intimation is mere checking of arithmetical inaccuracies and incorrect claims apparent from any information in the return. That means even the return is not even cross-checked with Form 16 (available to department). It is in no manner an assent or approval to the claims made which cannot be verified without 143(3) scrutiny.
google this issue, you will find decent number of articles talking about lack of clarity on the issue under consideration. And please note that Rule 12 doesn't talk about exemption or exempted but simply "income not chargeable to tax" which includes whole of section 10.
This article on taxmann clearly states that if you are claiming any exemption under section 10 and amount exceeds Rs 5000, ITR1 cannot be used. please refer http://www.taxmann.com/topstories/222330000000003481/2013-14-faqs-on-income-tax-returns.aspx
The same view is reflected at finotax.com 9(another respectable tax related website) as http://finotax.com/income-tax/e-form
Further, parizad Sirwalla, reiterates the same view at http://www.livemint.com/Money/XU7RSXmWMUnkR8UeqX9qGM/Provide-mediclaim-premium-receipt-to-claim-tax-benefit.html
http://itrvault.in/Uploaded_Documents/Attachment_Documents/IT_Returns_notified_with_changes_for_AY_2013-14.pdf
Now I am definitely not as clear about tax laws as taxmann or Parizad , but I find no reason to argue with their logic as section 10 title itself is "Incomes not included in total income"
The idea behind this amendment was to force more disclosures and leave ITR1 for smallest of smallest tax payers.
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27 July 2014
Then there is nothing called deduction every deduction is income not chargeable to tax.
My point is....
TDS return filed by employer and HRA is shown. Employee files ITR1 and same gets processed without any query raised by department. If HRA and Conveyance Allowance are treated as exempt income then there is no use if having ITR1.
Taxmann people are not god they are also human being like you and me. I had seen this link earlier but I am sticking to my view on this.
Anyways Nikhil Bhai I appreciate your views. And its good to have debate.
My point is....
TDS return filed by employer and HRA is shown. Employee files ITR1 and same gets processed without any query raised by department. If HRA and Conveyance Allowance are treated as exempt income then there is no use if having ITR1.
Taxmann people are not god they are also human being like you and me. I had seen this link earlier but I am sticking to my view on this.
Anyways Nikhil Bhai I appreciate your views. And its good to have debate.
27 July 2014
as I said earlier, there exist confusion because of different possible views and lack of CBDT clarification on this issue.
Please note that there are plenty of assessees who are still covered under ITR1 despite this rule. My office filed atleast 4 such returns today itself.
You are using the word deduction and exemption interchangeably. 30% deduction under section 24 is a deduction. Chapter ViA is deduction section.
Section 10 is not a deduction section. therefore you are wrong to say there is nothing called deduction.
Look at section 24 for eg: "Deductions from income from house property"
Section 80C : "Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc."
Please note that there are plenty of assessees who are still covered under ITR1 despite this rule. My office filed atleast 4 such returns today itself.
You are using the word deduction and exemption interchangeably. 30% deduction under section 24 is a deduction. Chapter ViA is deduction section.
Section 10 is not a deduction section. therefore you are wrong to say there is nothing called deduction.
Look at section 24 for eg: "Deductions from income from house property"
Section 80C : "Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity shares or debentures, etc."
27 July 2014
and actually the best way to understand this is to look at salary disclosures required under ITR2. Had the intention been to consider HRA, conveyance allowance etc as deductions, ITR2 salary disclosures would have been similar to ITR1.
All I want to say is that in law every word has its own importance. Regardless, you have a right to stick to your opinion. I, in my view, firmly believe that your opinion is contrary to language and spirit of Rule 12.
All I want to say is that in law every word has its own importance. Regardless, you have a right to stick to your opinion. I, in my view, firmly believe that your opinion is contrary to language and spirit of Rule 12.
27 July 2014
Got your point.
But then why no queries/objection is raised by IT Department since they have the details of salary structure from TDS return filed by employer and where HRA is shown and the Assessee is filing ITR1.
ITR1 is working fine. But technically now I agree that ITR1 is not applicable.
Thanks for healthy debate.
But then why no queries/objection is raised by IT Department since they have the details of salary structure from TDS return filed by employer and where HRA is shown and the Assessee is filing ITR1.
ITR1 is working fine. But technically now I agree that ITR1 is not applicable.
Thanks for healthy debate.
27 July 2014
As I said this is because only 143(1) has been issued and not 143(3). In 143(1), they dont even cross check with Form 16.
If ever a case is picked up for scrutiny, then this issue will come up. Another reason is that ITR1 and ITR2 are practically used for salaried assessees in addition to capital gain cases. In these cases, chances of tax evasion is much less in comparison to ITR3, ITR4 cases. So percentage wise scrutiny is much less.
As tax consultants, our job is to be technically correct.
If ever a case is picked up for scrutiny, then this issue will come up. Another reason is that ITR1 and ITR2 are practically used for salaried assessees in addition to capital gain cases. In these cases, chances of tax evasion is much less in comparison to ITR3, ITR4 cases. So percentage wise scrutiny is much less.
As tax consultants, our job is to be technically correct.
27 July 2014
One more Doubt Nikhil Ji.
In ITR2 it says "Allowances exempt under section 10" and then there is a separate sheet for Exempted Income. I somehow get the feeling that by exempted Income IT department mean the Income which we have to disclose in EI Sheet.
So when ITR says Allowance Exempt can it be treated as Exempted Income?
Some allowances are fully exempt, some partially exempt, some fully taxable. So can exempted allowance be treated as exempted Income.
Say I receive Rs 6000 as uniform allowance and same is actually incurred by me. So can you call it a exempted income?
Please clarify.
In ITR2 it says "Allowances exempt under section 10" and then there is a separate sheet for Exempted Income. I somehow get the feeling that by exempted Income IT department mean the Income which we have to disclose in EI Sheet.
So when ITR says Allowance Exempt can it be treated as Exempted Income?
Some allowances are fully exempt, some partially exempt, some fully taxable. So can exempted allowance be treated as exempted Income.
Say I receive Rs 6000 as uniform allowance and same is actually incurred by me. So can you call it a exempted income?
Please clarify.
27 July 2014
I believe you are referring to Sheet "PartB- TI-TTI -Sal". Here "allowance exempt under section 10 refers to items given by the employer such as HRA etc.
EI sheet refers to other section 10 items such as interest on tax exempted bonds such as REC, Dividend Income, LTCG Agriculture Income.
So both parts of the ITR2/ITR4 deal with separate items of Section 10.
Unfortunately yes, uniform allowance is also covered under section 10 only. So it would also fall under Rule 12.
In reality, I do agree that CBDT should come out with a clarification and for practical considerations leave out employer paid allowances out of Rule 12. But even this is fraught with possible complications. Now consider this possibility. Your employer gives you HRA and you dont provide him rent slips. So, he wont give effect to HRA exemption in Form 16. But you reserve right to claim this exemption in the tax reutrn. Now if you decide to claim exemption in your tax return, Income-tax department has no way to verify it as Form 16 doesnt cover it and you have filed ITR1.
The act is clear, as far as I understand. Section 10 is exempt. Section 17, 24, 56, 80 are all deductions.
EI sheet refers to other section 10 items such as interest on tax exempted bonds such as REC, Dividend Income, LTCG Agriculture Income.
So both parts of the ITR2/ITR4 deal with separate items of Section 10.
Unfortunately yes, uniform allowance is also covered under section 10 only. So it would also fall under Rule 12.
In reality, I do agree that CBDT should come out with a clarification and for practical considerations leave out employer paid allowances out of Rule 12. But even this is fraught with possible complications. Now consider this possibility. Your employer gives you HRA and you dont provide him rent slips. So, he wont give effect to HRA exemption in Form 16. But you reserve right to claim this exemption in the tax reutrn. Now if you decide to claim exemption in your tax return, Income-tax department has no way to verify it as Form 16 doesnt cover it and you have filed ITR1.
The act is clear, as far as I understand. Section 10 is exempt. Section 17, 24, 56, 80 are all deductions.
28 July 2014
Yes Nikhil Ji CBDT Should come out with clarification in this regard.
Rule 12 states
"has income not chargeable to tax, exceeding five thousand rupees"
Now allowances given to meet to meet the expenses related to duty of employees can not be treated as his Income. Income Not chargeable to tax should mean---Interest from PPF,REC Bond, Dividend Income, Agriculture Income, LIC Maturity Receipt u/s 10(10D) etc.
Income chargeable under the Head ‘Salaries’ is arrived after deducting Allowances exempted u/s 10. Therefore my interpretation is allowances exempt in not same as exempted income. I am keeping it out of definition of Income not chargeable to tax since in Rule 12 it is not specifically stated that all section 10 items be considered for determining Income not chargeable to tax.
I am just making a difference between exempted allowances and Exempted Income.
Rule 12 states
"has income not chargeable to tax, exceeding five thousand rupees"
Now allowances given to meet to meet the expenses related to duty of employees can not be treated as his Income. Income Not chargeable to tax should mean---Interest from PPF,REC Bond, Dividend Income, Agriculture Income, LIC Maturity Receipt u/s 10(10D) etc.
Income chargeable under the Head ‘Salaries’ is arrived after deducting Allowances exempted u/s 10. Therefore my interpretation is allowances exempt in not same as exempted income. I am keeping it out of definition of Income not chargeable to tax since in Rule 12 it is not specifically stated that all section 10 items be considered for determining Income not chargeable to tax.
I am just making a difference between exempted allowances and Exempted Income.
28 July 2014
I understand your argument. But section 10 doesn't differentiate. You are confusing that allowances are given to meet the expenses are related to duty. At best only some allowances fall in your definition Such as 10(14). HRA, education allowance, medical reimbursements etc have nothing to do with the duty.
Actually if you every income in section 10 is exempted income only. Let say LTCG on share sale. Not all share sale is exempted. Only conditions when conditions provided in section 10 are satisfied, only then such LTCG is exempted. same applies for agriculture income.
If we go by your definition, all such incomes are also not exemption but exempted income. This would go on for for 10(23) etc etc.
Regardless, I don't think section 10 makes any such differentiation. What I am trying to say is that you reading of allowances are deduction, according to me, is not correct. Any item covered in section 10 is not included in the income and hence is exempted.
Mere placement of certain sub-sections in Salary sheet doesn't change there nature. If you see ITR2, HRA allowance, LTA, conveyance allowance etc are not first added to income and then deducted. They are just reported as exempted allowances received.
Actually if you every income in section 10 is exempted income only. Let say LTCG on share sale. Not all share sale is exempted. Only conditions when conditions provided in section 10 are satisfied, only then such LTCG is exempted. same applies for agriculture income.
If we go by your definition, all such incomes are also not exemption but exempted income. This would go on for for 10(23) etc etc.
Regardless, I don't think section 10 makes any such differentiation. What I am trying to say is that you reading of allowances are deduction, according to me, is not correct. Any item covered in section 10 is not included in the income and hence is exempted.
Mere placement of certain sub-sections in Salary sheet doesn't change there nature. If you see ITR2, HRA allowance, LTA, conveyance allowance etc are not first added to income and then deducted. They are just reported as exempted allowances received.
29 July 2014
Sanjay bhai Rule 12 uses words "has income not chargeable to tax...."
u can refer to chapter heading just before sec 10 starts it uses the words "income that do not form part of total income" it means its not includible in the cal of total income which implies its totaly EXEMPTED"
u can refer to chapter heading just before sec 10 starts it uses the words "income that do not form part of total income" it means its not includible in the cal of total income which implies its totaly EXEMPTED"
30 July 2014
It can be argue that in such case ITR 2 is to be filled citing strict interpretation of Rule. If such interpretation is hold true, the very purpose of introducing the form SAHAJ will be defected.
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