New ITR forms make it difficult to evade tax on HRA: Here's why

The new income tax return (ITR) form-2 requires tax payers to give their tenant's PAN while providing details of income from house property. This detail was optional till the last financial year. 

This reflects the Government's increased focus on combating tax evasion and ensuring that more and more tax payers honestly file their tax returns. Driven by the desire for greater efficiency and improved compliance, the Revenue Authorities are increasingly relying on digital tax data gathering and analysis of the same, to assess taxpayers. The Government's focus on e-assessments is another endeavour to use information technology to effectively assess tax returns and plug tax avoidance. 

The new tax return forms for Financial Year (FY) 2017-18, which were released on 3 April 2018, attempt to digitally collect as much information as possible, to process the tax returns efficiently. 

Here are some of the changes in the new ITR forms and their impact on salaried taxpayers: 

Similar to last year, Form ITR-1 (Sahaj) can be filed by individual taxpayers who have Income from salaries, one house property, other sources (interest etc.) and whose income is less than Rs 50 lakh. This is a simplified form, but can be used only by an Ordinary Resident (OR) in India. By removing Non-Resident (NR) and Not Ordinarily Resident (NOR) taxpayers from the scope of ITR-1, the Revenue Authorities have made sure that all the returns filed under ITR-1 are simple and have the same scope of income. This should help the authorities process these returns faster. 

The new ITR-1 seeks additional details on 'Income from Salaries' and 'Income from House Property' which were not required to be furnished last year. Tax payers would now be required to provide the breakup of salary, for example taxable allowances, value of perquisites, deduction for professional tax etc., and details of income from house property such as gross rent received, tax paid on property, interest payable etc. This would give a better picture of how income from these heads have been computed.

The new ITR-2 form can be used by individuals and Hindu Undivided Families (HUFs) who do not have any income from business or profession, unlike last year where information regarding partnership firm could be furnished in ITR-2 itself. This change has separated the taxpayers with any kind of income from business or profession, who would now be required to file either form ITR-3 or ITR-4- Sugam, which require extensive details to be furnished. 

Individuals qualifying as NR can receive their refund in a foreign bank account, by providing the details of any one foreign bank account, in the new ITR-2 form which specifically mentions the same. 

The new ITR-2 form seeks details in line with the new clause introduced by Finance Act 2017, for taxing any sum of money or property received (in excess of Rs 50,000) without consideration under specified circumstances [i.e. Section 56(2)(x)]. This will enable the Revenue Authorities to collate details of such income and ensure that the same have been offered to tax. 

As per the Finance Act 2017, taxpayers would need to pay a fee of Rs 5,000, if their tax return is filed after the due date (i.e., 31 July) and before 31 December of the subsequent FY. The fee payable would be Rs 10,000 if the tax return is filed after 31 December of the subsequent FY. The new ITRs have appropriate space to capture this information wherever applicable. Taxpayers should be mindful of this change, as till FY 2016-17, there was no fee payable for delay in filing of tax return till the end of the subsequent FY (i.e., 31 March). This would ensure that tax returns are filed in a timely manner and the Revenue Authorities have adequate time to process the same. 
The new ITR-2 form requires tax payers to furnish the PAN of the tenant while providing details of income from house property, if available. Providing this detail was optional till FY 2016-17. This move should give more data to the Revenue Authorities to enable them to reconcile the PAN of the tenant and the landlord, where an exemption for House Rent Allowance (HRA) is claimed, since employees need to furnish PAN of their landlord to the employer. 
The new forms also requires the PAN of the tenant to be furnished (in the TDS Schedule) by landlords, since individual tenants paying rent in excess of Rs 50,000 are required to deduct tax at source from FY 2017-18 onwards. 

Verification in the new ITR forms have added a new line, where the person signing the tax return needs to declare in what capacity he is filing the tax return and that he is competent to prepare the return and verify it. This puts more onus on persons preparing and filing the tax return by ensuring that they confirm the information submitted through the tax return. The previous forms only asked the taxpayers to verify that the information submitted through the tax return is correct. 

We may get more insights on the changes once the instructions to these forms are released by the Revenue Authorities.