Category: Income Tax

Chapter XII of the Income Tax Act, 1961, delineates the procedural framework for determining income tax in specific scenarios, encapsulated in Sections 110 to 115. This discourse meticulously explores the fiscal amendments within Chapter XII, illuminating their profound implications.

Refinements to Section 111A

Section 111A, addressing the taxation of short-term capital gains, witnesses a pivotal amendment. The Finance Bill revises the first proviso to section 111A(1), stipulating that the taxpayer’s liability on the total income encompasses:

• Income tax on short-term capital gains at 15% for transfers preceding July 23, 2024, escalating to 20% for transfers from July 23, 2024, onwards.
• Taxation on the remaining income as though it constituted the entirety of the taxpayer’s earnings.

Enhancements to Section 112

Section 112 prescribes the tax obligations for various entities on long-term capital gains. The Finance Bill substitutes comprehensive new clauses under Section 112(1), redefining the rates applicable to distinct taxpayer categories.

• For individuals or Hindu Undivided Families (HUFs), the tax rate on long-term capital gains is 20% for transfers before July 23, 2024, and 12.5% subsequently.
• For domestic companies, the taxation mirrors the rates stipulated for individuals/HUFs.
• For non-residents and foreign companies, the tax rate remains at 20% for transfers before July 23, 2024, and adjusts to 12.5% thereafter. For unlisted securities or shares, the rate is 10%, disregarding specific provisos of section 48.
• For residents, the tax rates align similarly, with specific provisions for listed securities or zero-coupon bonds.

Revision of Section 112A

Clause 31 of the Finance Bill revises Section 112A, which pertains to long-term capital gains exceeding ₹1,25,000. The amendment specifies:

• A 10% tax rate for transfers before July 23, 2024.
• An increased rate of 12.5% for transfers from July 23, 2024, onwards.

Overhaul of Section 113

Section 113 deals with the taxation of undisclosed income in search cases. The amendment omits the terms “undisclosed” and specific references to assessment years tied to searches initiated under sections 132 or 132A.

Amendment of Section 115AB

Clause 33 modifies Section 115AB, impacting long-term capital gains. The new rates are:

• 10% for transfers before July 23, 2024.
• 12.5% for transfers on or after this date.

Update to Section 115AC

The Finance Bill’s Clause 34 redefines Section 115AC, focusing on long-term capital gains from specified income sources, adopting the same revised rates of 10% and 12.5%.

Modification of Section 115ACA

Section 115ACA, addressing income from global depository receipts or their capital gains, is amended under Clause 35 to reflect the updated tax rates of 10% before July 23, 2024, and 12.5% thereafter.

Adjustment of Section 115AD

Section 115AD concerns the tax on foreign institutional investors’ income from securities or capital gains. The revised rates under Clause 36 stipulate:

• 15% for short-term capital gains before July 23, 2024, and 20% subsequently.
• For long-term capital gains exceeding ₹1,25,000, the rates are 10% before July 23, 2024, and 12.5% thereafter.

Redefinition of Section 115BAC

Clause 37 revises Section 115BAC, establishing new income tax rates for individuals, HUFs, and other entities. Effective from April 1, 2024, the rates are as follows:

Sl. No.	Total Income	Rate of Tax
1	Up to ₹3,00,000	Nil
2	₹3,00,001 to ₹6,00,000	5%
3	₹6,00,001 to ₹9,00,000	10%
4	₹9,00,001 to ₹12,00,000	15%
5	₹12,00,001 to ₹15,00,000	20%
6	Above ₹15,00,000	30%

For the assessment year beginning April 1, 2025, the revised income brackets are:

Sl. No.	Total Income	Rate of Tax
1	Up to ₹3,00,000	Nil
2	₹3,00,001 to ₹7,00,000	5%
3	₹7,00,001 to ₹10,00,000	10%
4	₹10,00,001 to ₹12,00,000	15%
5	₹12,00,001 to ₹15,00,000	20%
6	Above ₹15,00,000	30%

This exhaustive overview elucidates the significant fiscal modifications within Chapter XII of the Income Tax Act, 1961, underscoring their impact on diverse taxpayer categories.

Filing income tax returns can be a complex and often challenging task for taxpayers, especially with frequent updates to tax laws and regulations. The Assessment Year (AY) 2024-25 introduces several changes and clarifications that taxpayers need to be aware of to ensure a smooth and accurate filing process. This document provides a comprehensive list of common issues encountered while filing ITR for AY 2024-25 and offers detailed answers to frequently asked questions (FAQs). By addressing these common queries, taxpayers can avoid potential pitfalls and ensure compliance with the latest tax requirements.

Q.1: Taxpayer is unable to choose ITR 1/ 4 from drop down for AY 2024-25 as the option is greyed off while filing return?

Ans: In case the taxpayer has special rate of income and TDS is deducted for such income (e.g., 115BB), then ITR 1 and ITR 4 are not applicable. The respective dropdowns are greyed off. The taxpayer is required to file ITR Form 2 or 3 as applicable.

Q.2: Schedule VIA for claiming deductions is not enabled while filing the ITR for AY 2024-25?

Ans: From AY 2024-25, the new tax regime has become the default tax regime and VIA deductions cannot be claimed, except deduction u/s 80CCD(2)/80CCH/80JJAA as per Section 115BAC of the Income Tax Act, 1961. To claim any deductions (as applicable), the taxpayer needs to choose the old tax regime by selecting “Yes” in ITR 1 / ITR 2 or “Yes, within due date” in ITR 3 / ITR 4 / ITR 5 under the “opting out option” in the Schedule ‘Personal Information’ or ‘Part-A General’.

Q.3: While filing the ITR, the taxpayer is getting a bank account validation error. How to resolve the issue?

Ans: The taxpayer should check if valid bank account details are added under the ‘My Bank Account’ tab in the ‘My Profile’ section on the income tax portal before filing the ITR. Update the profile correctly before starting the new filing. In case of issues while validating the bank account, use the offline utility to file ITR. A pre-validated bank account is required for issuing refunds.

Q.4: If the taxpayer has earned special income like winning from a lottery or horse races, can they file ITR 1 and ITR 4?

Ans: If TDS has been deducted on special income like winning from a lottery or horse races, filing ITR-1 and 4 is not allowed. It is recommended to check Form 26AS and AIS before filing the ITR.

Q.5: If Form 10IEA is filed for AY 2024-25, is it compulsory for the taxpayer to opt for the old tax regime?

Ans: Yes, once Form 10IEA is filed for AY 2024-25, it cannot be reverted in the same AY, and the taxpayer must opt for the old tax regime for AY 2024-25. The taxpayer can change the option in the next assessment year based on the income details and ITR applicability.

Q.6: In which case is filing Form 10IEA for AY 2024-25 compulsory to opt for the old tax regime?

Ans: Filing Form 10IEA is mandatory for taxpayers who want to file ITR under the old tax regime for AY 2024-25 with Business and profession income, i.e., either in ITR-3 or ITR-4.

Q.7: The taxpayer is unable to claim Interest on borrowed capital of a self-occupied property as it is greyed off. Why?

Ans: From AY 2024-25, the ‘New Tax Regime’ has become the default tax regime, and claiming “Interest on borrowed capital for self-occupied property” is not allowed as per Section 115BAC of the Act, 1961. To claim this, the taxpayer must choose the ‘Old Tax Regime’ by selecting “Yes” in ITR 1 / ITR 2 or “Yes, within due date” in ITR 3 / ITR 4 / ITR 5 in the field provided for the “opting out option” in the ITR Form.

Q.8: While filing ITR for AY 2024-25, the taxpayer is unable to claim all other deductions other than 80CCD (2). Why?

Ans: From AY 2024-25, the new tax regime has become the default tax regime where claiming Chapter VIA deductions are not allowed except Section 80CCD (2) as per Section 115BAC of the Income Tax Act. To claim other VIA deductions, the taxpayer must choose the ‘Old Tax Regime’ by selecting “Yes” in ITR 1 / ITR 2 or “Yes, within due date” in ITR 3 / ITR 4 in the field provided for the “opting out option” in the ITR Form.

Q.9: The taxpayer is getting an error as “Name of taxpayer in ITR does not match with the Name as per the PAN database”. How to resolve this?

Ans: The First Name, Middle Name, and Last Name in ITR should match the name registered under the My Profile section after logging in on the portal. Update the profile and then download the latest prefilled JSON for filing the return offline or start a new filing online.

Q.10: For AY 24-25, the taxpayer filed Form 10IEA by mistake and now wishes to revoke/withdraw the same. Can this be done?

Ans: Once Form 10IEA is filed for AY 2024-25, it cannot be revoked/withdrawn in the same AY. The taxpayer must mandatorily opt for the old tax regime for AY 2024-25. The option to ‘Withdraw’ will be available in the subsequent year and can be changed only once in a lifetime for Business and profession cases (ITR-3 or ITR-4).

Q.11: The taxpayer is unable to claim 10(13A) house rent allowance while filing the return for AY 2024-25. Why?

Ans: From AY 2024-25, the new tax regime has become the default tax regime where claiming HRA u/s 10(13A) is not allowed as per Section 115BAC of the Income Tax Act. To claim HRA, the taxpayer must choose the ‘Old Tax Regime’ by selecting “Yes” in ITR 1 / ITR 2 or “Yes, within due date” in ITR 3 / ITR 4 in the field provided for the “opting out option” in the ITR Form.

Q.12. Is any form required to file for claiming the deduction u/s 80DD and 80U?

Ans: When claiming deductions u/s 80DD and 80U, it is recommended for the taxpayer to obtain a certificate from the relevant medical authority for such disabilities. File Form 10IA as per Rule 11A and provide the form details (acknowledgement no. and date) in Sch 80DD/80U of the return.

Q.13. Is it mandatory to verify the return?

Ans: Yes, verification of ITR after submission is mandatory. The return should be verified within 30 days post-submission either through EVC mode or DSC. Alternatively, download the ITR-V receipt copy under View Filed Return and send it to CPC via speed post within 30 days. It is recommended to complete verification online to avoid postal issues.

Q.14: The taxpayer is unable to choose “Yes/No” for “Whether you were director in a company at any time during the previous year” while filing return in ITR 2 / ITR 3. Why?

Ans: This question is applicable only for “Individual”. Check the Status of the Assessee. If the Status is ‘Individual’, the option “Whether you are a ‘Director’ of a company at any time during the previous year” will be enabled. Enter the details and proceed to file the return.

Q.15: The taxpayer is getting an error as “Gross receipts/ Turnover is provided in schedule BP but financial particulars such as sundry creditors/Inventories, sundry debtors, cash in hand is not filled” in ITR 4. How to resolve this?

Ans: It is mandatory to fill fields such as ‘Sundry Creditors, Inventories, Sundry Debtors, Cash in Hand’ under “Financial particulars” in schedule BP in ITR 4. If not filled, it will throw an error.

Q.16: The taxpayer filed Form 10-IEA and is submitting ITR with correct Form 10-IEA details, but an error still appears. What to do?

Ans: Check and validate Form 10IEA details under “view filed Forms” after submission. Retry filing ITR after entering the correct form details. Ensure not to submit Form 10-IEA multiple times on the portal.

Q.17: The taxpayer corrected validation errors during ITR submission, but errors still show. What to do?

Ans: Try resubmitting ITR in a fresh session to avoid issues after correcting errors.

Q.18: The taxpayer entered the deduction amount u/s 80CCD (2) under Schedule VIA in the return, but the eligible amount is computing as 0. Why?

Ans: Check if Salary income is provided after selecting the ‘Basic Salary’ dropdown under Schedule Salary for computing the eligible deduction u/s 80CCD (2).

Q.19: Is it mandatory to verify the return through DSC option only for 44AB audit return cases?

Ans: An amendment in Rule 12 of Income Tax Rules, 1962, effective from 1st April 2024, allows verification of the return in 44AB audit cases through the EVC option. It is no longer mandatory to verify through DSC only.

Q.20: The taxpayer is receiving an error for tax computation even after paying advance tax. What could be the issue?

Ans: The taxpayer should ensure that the details of the advance tax paid are correctly filled in the Schedule IT section of the ITR form. If the details are incorrect or missing, it will result in an error. Cross-check with Form 26AS to confirm the advance tax payments are recorded correctly.

Q.21: The taxpayer is unable to e-verify the return using Aadhaar OTP. How to resolve this?

Ans: Ensure that the mobile number linked to Aadhaar is active and has the ability to receive OTPs. Check if the Aadhaar number is correctly linked and verified in the income tax portal profile section. If issues persist, use other e-verification methods like net banking or bank account pre-validation.

Q.22: The taxpayer has multiple bank accounts, but not all are visible for refund purposes. What should be done?

Ans: The taxpayer should ensure that all bank accounts are pre-validated and EVC-enabled in the ‘My Bank Account’ section of the income tax portal profile. Only pre-validated and EVC-enabled bank accounts will be available for selection for refund purposes.

Understanding Schedule FA for Foreign Assets and Income

Within Income Tax Return (ITR) Forms 2 and 3, Schedule FA stands out as a critical yet complex section designed for reporting foreign assets, income, and beneficial ownership. Introduced to combat tax evasion and money laundering, Schedule FA has been a mandatory inclusion since the fiscal year 2011-12 (assessment year 2012-13). It necessitates that ordinarily resident individuals in India disclose their foreign assets and income, irrespective of whether this income is taxable in India. Non-Resident individuals (NRIs) and Not-Ordinarily Resident individuals (NOR) are exempt from these disclosures.

Mandatory Disclosures in Schedule FA

When filing ITR forms, individuals with foreign assets and income must use either ITR 2 or ITR 3, which include Schedule FA. Key disclosures in Schedule FA encompass:

Income from any foreign source, including dividends, interest, or capital gains.
Foreign-held assets such as shares, debentures, life insurance policies, annuity contracts, and immovable properties.
Financial or beneficial interests in overseas entities, such as partnerships or trusts.
Signing authority over any foreign bank or trading accounts.
These disclosures are mandatory regardless of the nature of ownership—legal or beneficial.

Disclosure Period and Reporting Obligations

For the FY 2023-24 (AY 2024-25), the relevant disclosure period in Schedule FA spans the calendar year 2023. Although the schedule follows the calendar year for reporting purposes, taxable income is calculated based on the financial year. This distinction ensures accurate tax computations and compliance.

Penalties for Non-Disclosure

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, mandates strict penalties for failing to disclose foreign assets and income. Non-compliance can result in a Rs 10 lakh penalty and potential imprisonment ranging from six months to seven years, along with fines. A pertinent example is the Mumbai Tribunal’s decision in Shobha Harish Thawani v. Joint CIT, which upheld a Rs 10 lakh penalty per assessment year for non-disclosure in Schedule FA for AYs 2016-17 to 2018-19.

Step-by-Step Reporting of Foreign Income

Mr. A, a resident of India, opened a trading account with an Indian broker in March 2023 to invest in shares listed on NASDAQ. This involved setting up a USA trading account through a USA broker and a savings account with Federal Bank for deposits. By the end of 2023, he had made significant deposits and investments in shares of Google, Meta, Amazon, and Nvidia, earning dividends from these investments.

To report these transactions in Schedule FA, Mr. A must use Table A2 for foreign custodial accounts and Table A3 for foreign equity and debt interests. Here’s how these details are captured:

Table A2: Foreign Custodial Accounts

Particulars	Details
Description of Table	Foreign Custodial Account
Country Name	United States of America
Country Code	2
Name of Financial Institution	Alpaca Securities LLC
Address of Financial Institution	USA
Zip Code	Code
Account Number	*
Status	Beneficial Owner
Account opening date	01-Mar-2023
Peak balance during the period	Rs. 49.30 Lakh
Closing balance	Rs. 49.30 Lakh
Gross amount paid/credited to the account during the period	Rs. 24.30 Lakh

Table A3: Foreign Equity and Debt Interests

Particulars	Google	Meta	Amazon	Nvidia
Description of Table	Foreign Equity and Debt Instrument
Country Name	United States of America
Country Code	2
Name of Entity	Google	Meta	Amazon	Nvidia
Address of Entity	USA	USA	USA	–
Zip Code	Code	Code	Code	–
Nature of Entity	Listed Company	Listed Company	Listed Company	–
Date of acquiring of interest	10-03-2023	15-06-2023	15-09-2023	–
Initial value of investment	Rs. 5 lakhs	Rs. 10 lakhs	Rs. 20 lakhs	–
Peak balance of investment during the period	Note 2	Note 2	Note 2	–
Closing value	Rs. 5 lakhs	Rs. 10 lakhs	–	–
Total gross amount paid/credited with respect to the holding during the period	Rs. 10,000	20,000	–	–
Total gross proceeds from sale or redemption of investment during the period	–	–	24,00,000	–

Taxation and Currency Conversion

Schedule FA requires disclosure but does not alter the tax treatment of foreign income. For example, dividends earned in the last quarter of FY 2023-24 are taxable in AY 2024-25, even if not immediately disclosed in Schedule FA. Currency conversion for reporting purposes must follow the State Bank of India’s Telegraphic Transfer Buying Rate (TTBR) as of specific dates relevant to each transaction.

By adhering to these guidelines, taxpayers ensure full compliance and avoid severe penalties, maintaining transparency in their financial affairs involving foreign assets and income.