CA Abhinav Gulechha

NRI Tax Return Filing Mistakes & How to Avoid Them

Tax return filing is not a complex work. It requires you to have a “fair” (not expert) understanding of tax laws applicable to you, your residential status for the year, any new changes brought about by the Finance Act etc. Also, my view is that an NRI with no taxable income should also keep filing tax returns in India

Having said this, challenge and complexity arises when NRI returns back to India. There is a) a change of residential status from Non Resident to Resident and b) NRI continues to maintain foreign assets outside India like 401K, ESPP, RSU, foreign bank accounts, UK pensions etc.

In such situation, if such Returning NRI files his tax return without disclosing his worldwide incomes and assets, the implications are huge which can also includes jail penalty: and thus, because of ignorance of law, the person has to hire a CA and run around the income tax department proving his innocence.

Also read: What to do with my 401K on Return to India?

Trust me, dealing with the Income Tax Department in India is not easy, and Returning NRI could have nipped this painful experience in the bud had he spent some time and exercised proper due diligence at the time of filing the tax return itself.

In this post, I will be sharing my experiences of my work with filing tax returns for hundreds of Returning NRI clients and am listing down most common mistakes which hopefully can help you as a Returning NRI to avoid it and while filing your tax returns and be in full compliances with the law in India.

Returning NRI – Peculiar tax issues

Before moving forward, it is important to understand some of the peculiar tax issues that arise in case of Returning NRIs which need careful attention at the time of tax return filing:

Common mistakes made by Returning NRIs while filing tax returns

Below are the common mistakes:

# 1: Not grasping the tax return filing requirement applicable to Returning NRI:

If you are a NRI who has returned back to India, the requirement to file income tax return arises in two situations as follows:

  • Your gross total income in India (before any deductions) is above the qualifying exemption limit (irrespective of your residential status – NR/RNOR/ROR). For AY 2024-25, this limit is INR 2.5 lacs/3 lacs/5 lacs depending on the age – this limit can be revised by the Finance Act so need to watch out for the same.
  • Your residential status is ROR & you hold any assets/financial interest/beneficial ownership of asset outside India – this requirement holds good even if your income in India is below qualifying exemption limit.

Take a case of Lata. She returned along with her husband from USA this year. She does not have any income in India and qualifies as a ROR. She is a joint owner in a Citibank checking account with her husband in USA – she needs to file an income tax return in India.

I know some of the readers after reading this will be shocked. FYI: The amendment was originally brought about by Finance Act, 2012 and subsequently modified by Finance Act, 2016.

FYI: Penalty for failure to furnish income tax return under Income Tax Act is as follows:

  • Section 271F of ITA: Upto INR 5,000 (discretionary on the Assessing Officer)
  • Section 276CC of ITA: Upto 2 years imprisonment

In case you also have foreign income/assets and qualify as a ROR as per ITA, following additional penalties apply under Black Money Act (BMA):

  • Section 42: Flat penalty of INR 10 lacs
  • Section 49:  Upto 7 years imprisonment

As we can see above, the penal implications are especially harsh if you have any foreign income/assets outside India. And this is why getting a grip on the legal requirement of tax filing is so crucial especially if you have returned back to India recently.

Also read:

Black Money Act: An Analysis

401K non-disclosure in Indian tax return: Implications

# 2: Giving contact details of some other person in YOUR tax return:

Many a times, CA or Tax Return Preparer (TRP) who files the return mentions his own e-mail ID and cell number instead of the client. Sometimes the client is unaware of this & sometimes he is OK with it.

In my view, it is not a good idea.

As a taxpayer,– your CA’s job is to “advise” you on the applicability of legal provisions and ensuring that you file the right return but the primary responsibility of compliance with the law rests with YOU, not your CA.

Please understand that the Income Tax Department (ITD) is getting tech savvier day by day. Now-a-days, notices are increasingly being served through e-mail and NOT by snail mail. In such a situation, if there is a scrutiny notice sent to you, it will reach your CA – and if your CA misses that e-mail, the delay/non-response will be counted as YOUR mistake.

FYI, penalties for non-reply to information asked by ITD is as follows:

  • Section 272A: Flat INR 10,000 for each default
  • Section 276D: Upto 1 year imprisonment + fine

How to rectify this? Visit the Income Tax E-filing website www.incometaxindiaefiling.gov.in – go to Forgot password link – reset the password – login again – go to “My Profile” section and update your details as primary contact. You can put CA details in secondary contact.

You will also get an option as to whether send all communications to secondary contact only, in my view a better option is NO. – As a taxpayer, I should first receive the communication and then I can always get a second opinion from the CA – this is my opinion, there might be different opinions on this.

# 3: Confusion between “previous year” and “assessment year”:

This is the biggest confusion amongst tax payers. Please understand that there are two things – “previous year” (PY) and “assessment year”(AY)

For example, I am writing this post on Jan 14, 2017.

Now, for the income for the period April 1, 2016 to March 31, 2017, if I file tax return, then previous year will be 2016-17 and assessment year will be 2017-18.

Note that you can also call “previous year” as “financial year” (FY)

In income tax return, self assessment tax challan, TDS return, advance tax challan, etc. what need to be mentioned is Assessment Year and NOT previous year. So, if I am filing tax return for PY 2016-17, in the field for Assessment Year, I will mention AY as 2017-18 and NOT 2016-17.

Before filing the tax return, it is advisable to also check the past e-filed returns on the income tax website to see whether you’ve already filed a return for that assessment year. 

# 4: Selecting wrong residential status:

In the personal details section of the tax return, you need to mention your residential status. An NRI who returns to India in a particular case generally qualifies as a RNOR in the year of return. In exceptional cases, he CAN qualify as a NR or a ROR.

In one of my earlier posts, I have done a detailed analysis of residential status rules under Income Tax Act and have also given a DIY tax calculator please check it: How NRI/PIOs can decode the Indian tax residency rules & save tax

I’ve seen NRIs filling random status without doing the necessary calculations as prescribed under the Income Tax Act. Since taxability of income in tax return is directly linked with a person’s residential status for a particular year, this lack of clarity on residential status can prove to be a deadly mistake and can invite a tax notice in case an income that should have been offered for tax is not disclosed in the return.

# 5: Selecting wrong form for tax return filing:

By end of April every year, it is customary for the ITD to announce the tax return forms for the assessment year. So, as I write on 14/01/2017, if you visit the income tax filing website, on the home page right hand side, you have a listing of which form/utility to select. Refer screenshot below:

<image>

The numbering of return forms can vary every year and ITD declares new forms for every year by around April end. So, if I am filing my return for AY 2017-18, I will wait till May 2017 and select the right form depending on my type of income & then file the return.

In the ITR forms, some specific issues for Returning NRI are as follows (note: I have used AY 2016-17 as reference for this as AY 2017-18 forms will be out by May 2017- once they are out, watch out for a detailed post on those forms):

  • If you have foreign assets (even a foreign bank account where you have just kept USD 100 or so), you cannot select ITR 1 or ITR 2A – you will have to select ITR 2
  • If you do not hold any foreign assets, but have more than one bank account, you cannot select ITR 1 as it allows you to mention only one account – you will have to select ITR 2A

# 6: Not disclosing all incomes:

This is the most critical mistake. People generally accord a very low priority to proper computation and disclosure of ALL incomes in tax return.

Now a days you have these tax filing portals that promise online upload of your Form 16, auto data import of your Form 26AS and filing of tax return in a jiffy and all that.

I am not saying this is bad, but somehow the person who files the return gets a wrong perception that he does not have to do any manual effort in terms of “thinking” whether there is another income or not.

Usually,  we miss out on these small details hence I advise my clients to download their bank statement and check each and every credit entry – and this exercise itself reveals certain incomes that could have got missed due to oversight & proved costly later on!

Now, a question – what if assessee failed to disclose an income in tax return due to error by the online tax filing portal – in this regard, recently, the ITAT has given a favourable judgement in case of Mrs. Richa Dubey v. Income-tax Officer 26(2)(2), Mumbai [2016] 68 taxmann.com 268 (Mumbai – Trib.)

In this case, the ITAT has held that if assessee offered a bona fide explanation stating that her salary was understated in her return due to mistake of the online tax return filing portal and there was no deliberate attempt on part of assessee to conceal income, concealment penalty was not justified.

As far as my practice goes in filing tax returns for my Returning NRI clients, I ask a lot of probing questions to the client before filing the return. Some of the questions are as follows:

  • Did you receive a gift from someone during the financial year? Who was he – a relative? Was the gift documented?
  • Did you advance a loan to a friend? Is he paying you interest?
  • Did you make any gift to your wife/minor child? Did they earn income from those investments?
  • Did you “SELL” any shares/MF during the year? – can you provide me a statement for the same?
  • Did you hold any NRE FD during the year? Have you disclosed proportionate income from those FD from the date of your return to India?
  • Did you hold NSC during the financial year?
  • Did you sell any property in the financial year? If yes, was it below the prevailing stamp duty rate?
  • Can you check ALL CREDIT ENTRIES in your bank statements? Do all those entries represent income? If not, do you have explanation for all those entries?

Sometimes the client get confused as to why I am asking these questions – it is supposed to be a very simple and quick process – but it is when I tell the tax impact of all the answers they give me, they realise the value of my questioning. In many cases, we had to even revise returns filed through by NRI on his own/through a CA who, most respectfully, was not conversant with the NRI taxation and Black Money related provisions applicable to that NRI.  

I tell my clients this: I ask these questions to you today so that later on you’re not asked the same questions by the Income Tax Department because trust me, an interaction will ITD in a scrutiny assessment will, in all possibility, not be as pleasant as this interaction that we’re having right now!

The short point I’m trying to explain is: DO NOT equate tax return with instant noodles or instant coffee. Nip the problem in the bud by offering full and proper income in tax return. In case of confusion on taxability of an income, seek professional opinion rather than blindly not disclosing it.

# 7: Not disclosing details of exempt income:

Returning NRI filing a tax return should note that there is a separate section for exempt income disclosure. Examples of some incomes can form part of this disclosure:

  • PPF interest
  • Equity MF capital gain/dividend
  • FCNR/RFC interest if your residential status is RNOR
  • NRE FD if you are still NR
  • Foreign Incomes which you claim “ exempt” under DTAA (only applicable if you are an ROR)

The best thing about exempt income disclosures is that at an assessment stage later on, the Assessing Officer will have a very weak case before imposing a penalty for “concealment” of income in case his interpretation of taxability of income differs from your interpretation because you have atleast “disclosed” the income as exempt – had your intention been to evade tax, you would not have disclosed it in the first place – and that is a potent line of argument that your CA can take in such cases.

# 8: Not disclosing asset and liability details in case total income > INR 50 lacs:

Since Wealth Tax has now been abolished in India, from AY 2016-17, a new requirement has been introduced to disclose asset and liability details if total income > INR 50 lacs. The details are required in Schedule AL of the tax return.

The details required are w.r.t. land, building, cash in hand, jewellery/bullion & vehicles etc and the liabilities against those assets are required to be given.

In my practical experience, there are a lot many issues where no clear answers are there:

  • Does it include foreign assets also? – No – assets mentioned in Schedule FA need not be mentioned in Schedule AL
  • Rural agricultural land – required to be disclosed? – In my view, YES.
  • How to find cost price of inherited assets, especially ones that have been passed across from generations? – If there is no cost to you, disclose the asset along with location but mention cost as NIL.
  • Cash in hand as on March 31 at end of financial year – details not available – You will have to mention some rough amount in line with what you keep in hand on a regular basis
  • Gold jewellery – whether personal jewellery also required to be disclosed –YES.

Note that mere disclosure of assets need not mean that income from that asset will be taxable in the tax return – for example, if you’ve disclosed a flat which is vacant throughout the year, no income need to be offered in the tax return. Similarly, in case of gold coins, no capital gains will accrue till those gold coins are “sold”

# 9: Not disclosing ALL bank accounts in the tax return:

Income Tax Return form has a field for disclosure of bank accounts. In many cases, I’ve observed that person discloses only ONE account where he wants to receive a refund. This is incorrect. Disclosure of ALL bank accounts is required.

Some common questions:

  • You are a joint account holder in a bank account – YES
  • Dormant account – Not required.
  • Foreign bank accounts– Not required to be disclosed here. Disclose in Schedule FA

In the details that are asked, some people make the mistake of confusing IFSC with MICR code – so, sufficient care has to be ensured.

Another question I receive from some Returning NRI clients who still hold NRE/NRO accounts – should they disclose? – My answer is YES – that violation of retaining non-resident accounts in under FEMA – as per IT norms, disclosure in tax return should be made. At the same time, I also advise such clients to immediately re-designate these accounts.

Also read: NRO, NRE, FCNR, RFC: Tax and FEMA Implications for Returning NRI

# 10: Not disclosing details of foreign assets and income:

If you are a ROR, then this is a very important requirement which arises from Black Money Act. As I’ve discussed at the start, non-compliance of this requirement can land you in jail also.

There is a specific schedule FA and FSI in tax return for this – if you hold foreign assets and there is no such schedule in the return form chosen by you, know that you’ve chosen the wrong form.

If you’re filing return through a CA who does not ask you about these assets, it is your responsibility to tell him about this requirement and disclose it. Your 401K, bank accounts, pensions, any share in trust, any signing authority outside India – all will qualify for reporting.

As regards income that is already taxed outside India, there are two possible approaches:

  • Disclose entire income and claim credit for tax paid on that income
  • Check DTAA provisions if income can be exempt from disclosure in India.

Definitely, the second option is much preferable as it can really minimise Indian tax liability however note that selection of this approach requires a good knowledge of DTAA and its correct interpretation so professional opinion should be sought before choosing option 2.

Also read: Taxability of salary earned in USA under India-USA DTAA

# 11: Not filing tax return on time:

Timeline of filing a return u/s 139 (1) for a financial year is generally July 31 of the assessment year. For example, timeline for return filing for FY 2016-17 is July 31, 2017.

Many clients make a mistake of waiting till the last date – during those days, the IT department faces a huge traffic and crashes routinely and in case you are out of luck, the return can miss the timeline. Ill effect of this is that apart from being unable to carry forward any loss, you CANNOT revise a belated return.

Let me explain you with a real life example:

A client of mine, NRI returning from USA, filed belated returns for AY 2014-15 and AY 2015-16 through some other CA. When I checked those returns, I found that he has not disclosed his 401K and US bank accounts in tax return even though his residential status was ROR. In such case, since it was a belated return, the client did not have an opportunity to revise the return and has to live with the consequences of non-disclosure.

Note: The legal position on belated and revised return has changed w.e.f. AY 2017-18 as follows:

  • You can file belated return by end of assessment year
  • You can revise even a belated return

Also note that due to server load, IT website gets jammed in the last few days of July hence, it is always advisable to file your return by end of June – ideally, you should initiate your tax return filing as soon you receive your Form 16 from your employer.

# 12: Not checking Form 26AS for errors before claiming credit of TDS:

When someone (your bank, employer, tenant, mutual fund, buyer of property etc.) deduct TDS from you, it is your duty to match the amount in the certificate that he provides you (Form 16/16A/16B as applicable) with your Form 26AS which is available on Income Tax e-filing website.

Form 26AS is in a way government record for your TDS credit. If there is a mismatch, the ITD will go by this form and will raise an automatic demand on you. Instead of then filing reply to Assessing officer, it pays to check your Form 26AS before filing tax return – in case of any discrepancy, you need to tell deductor to revise the return asap.

# 13: Not maintaining back up documentation after filing the return:

Return filing is not the end of the job. You also need to maintain a back up hard copy file which contains a record of all documents supporting your numbers in tax return. Some examples are as follows:

  • Respective ITR form and ITR V
  • Bank statements for all banks (India as well as outside India)
  • Form 16, 16A, 16B
  • Sale agreement + Registration docs (if property transaction done during the year) + Calculation of capital gain
  • Gift deed – if gift received/given
  • Loan agreement – if loan received/given
  • Statement for foreign assets e.g. 401K for the year
  • Home Loan Interest Certificate
  • SBI TT Buying Rate sheet (to prove conversion of foreign income – you have to purchase it from foreign exchange branch of SBI)
  • Copy of passport and visa entries – to explain your residential status in case of any enquiry

Hope the post has been of service to you. For personalised tax advice, reach out to me at contact@abhinavgulechha.com

Tax Return Filing by Returning NRI: Mistakes to Avoid

Tax return filing is not a complex work. It requires you to have a “fair” (not expert) understanding of tax laws applicable to you, your residential status for the year, any new changes brought about by the Finance Act etc. Also, my view is that an NRI with no taxable income should also keep filing tax returns in India

Having said this, challenge and complexity arises when NRI returns back to India. There is a) a change of residential status from Non Resident to Resident and b) NRI continues to maintain foreign assets outside India like 401K, ESPP, RSU, foreign bank accounts, UK pensions etc.

In such situation, if such Returning NRI files his tax return without disclosing his worldwide incomes and assets, the implications are huge which can also includes jail penalty: and thus, because of ignorance of law, the person has to hire a CA and run around the income tax department proving his innocence.

Also read: What to do with my 401K on Return to India?

Trust me, dealing with the Income Tax Department in India is not easy, and Returning NRI could have nipped this painful experience in the bud had he spent some time and exercised proper due diligence at the time of filing the tax return itself.

In this post, I will be sharing my experiences of my work with filing tax returns for hundreds of Returning NRI clients and am listing down most common mistakes which hopefully can help you as a Returning NRI to avoid it and while filing your tax returns and be in full compliances with the law in India.

Returning NRI – Peculiar tax issues

Before moving forward, it is important to understand some of the peculiar tax issues that arise in case of Returning NRIs which need careful attention at the time of tax return filing:

Common mistakes made by Returning NRIs while filing tax returns

Below are the common mistakes:

# 1: Not grasping the tax return filing requirement applicable to Returning NRI:

If you are a NRI who has returned back to India, the requirement to file income tax return arises in two situations as follows:

  • Your gross total income in India (before any deductions) is above the qualifying exemption limit (irrespective of your residential status – NR/RNOR/ROR). For AY 2024-25, this limit is INR 2.5 lacs/3 lacs/5 lacs depending on the age – this limit can be revised by the Finance Act so need to watch out for the same.
  • Your residential status is ROR & you hold any assets/financial interest/beneficial ownership of asset outside India – this requirement holds good even if your income in India is below qualifying exemption limit.

Take a case of Lata. She returned along with her husband from USA this year. She does not have any income in India and qualifies as a ROR. She is a joint owner in a Citibank checking account with her husband in USA – she needs to file an income tax return in India.

I know some of the readers after reading this will be shocked. FYI: The amendment was originally brought about by Finance Act, 2012 and subsequently modified by Finance Act, 2016.

FYI: Penalty for failure to furnish income tax return under Income Tax Act is as follows:

  • Section 271F of ITA: Upto INR 5,000 (discretionary on the Assessing Officer)
  • Section 276CC of ITA: Upto 2 years imprisonment

In case you also have foreign income/assets and qualify as a ROR as per ITA, following additional penalties apply under Black Money Act (BMA):

  • Section 42: Flat penalty of INR 10 lacs
  • Section 49:  Upto 7 years imprisonment

As we can see above, the penal implications are especially harsh if you have any foreign income/assets outside India. And this is why getting a grip on the legal requirement of tax filing is so crucial especially if you have returned back to India recently.

Also read:

Black Money Act: An Analysis

401K non-disclosure in Indian tax return: Implications

# 2: Giving contact details of some other person in YOUR tax return:

Many a times, CA or Tax Return Preparer (TRP) who files the return mentions his own e-mail ID and cell number instead of the client. Sometimes the client is unaware of this & sometimes he is OK with it.

In my view, it is not a good idea.

As a taxpayer,– your CA’s job is to “advise” you on the applicability of legal provisions and ensuring that you file the right return but the primary responsibility of compliance with the law rests with YOU, not your CA.

Please understand that the Income Tax Department (ITD) is getting tech savvier day by day. Now-a-days, notices are increasingly being served through e-mail and NOT by snail mail. In such a situation, if there is a scrutiny notice sent to you, it will reach your CA – and if your CA misses that e-mail, the delay/non-response will be counted as YOUR mistake.

FYI, penalties for non-reply to information asked by ITD is as follows:

  • Section 272A: Flat INR 10,000 for each default
  • Section 276D: Upto 1 year imprisonment + fine

How to rectify this? Visit the Income Tax E-filing website www.incometaxindiaefiling.gov.in – go to Forgot password link – reset the password – login again – go to “My Profile” section and update your details as primary contact. You can put CA details in secondary contact.

You will also get an option as to whether send all communications to secondary contact only, in my view a better option is NO. – As a taxpayer, I should first receive the communication and then I can always get a second opinion from the CA – this is my opinion, there might be different opinions on this.

# 3: Confusion between “previous year” and “assessment year”:

This is the biggest confusion amongst tax payers. Please understand that there are two things – “previous year” (PY) and “assessment year”(AY)

For example, I am writing this post on Jan 14, 2017.

Now, for the income for the period April 1, 2016 to March 31, 2017, if I file tax return, then previous year will be 2016-17 and assessment year will be 2017-18.

Note that you can also call “previous year” as “financial year” (FY)

In income tax return, self assessment tax challan, TDS return, advance tax challan, etc. what need to be mentioned is Assessment Year and NOT previous year. So, if I am filing tax return for PY 2016-17, in the field for Assessment Year, I will mention AY as 2017-18 and NOT 2016-17.

Before filing the tax return, it is advisable to also check the past e-filed returns on the income tax website to see whether you’ve already filed a return for that assessment year. 

# 4: Selecting wrong residential status:

In the personal details section of the tax return, you need to mention your residential status. An NRI who returns to India in a particular case generally qualifies as a RNOR in the year of return. In exceptional cases, he CAN qualify as a NR or a ROR.

In one of my earlier posts, I have done a detailed analysis of residential status rules under Income Tax Act and have also given a DIY tax calculator please check it: How NRI/PIOs can decode the Indian tax residency rules & save tax

I’ve seen NRIs filling random status without doing the necessary calculations as prescribed under the Income Tax Act. Since taxability of income in tax return is directly linked with a person’s residential status for a particular year, this lack of clarity on residential status can prove to be a deadly mistake and can invite a tax notice in case an income that should have been offered for tax is not disclosed in the return.

# 5: Selecting wrong form for tax return filing:

By end of April every year, it is customary for the ITD to announce the tax return forms for the assessment year. So, as I write on 14/01/2017, if you visit the income tax filing website, on the home page right hand side, you have a listing of which form/utility to select. Refer screenshot below:

<image>

The numbering of return forms can vary every year and ITD declares new forms for every year by around April end. So, if I am filing my return for AY 2017-18, I will wait till May 2017 and select the right form depending on my type of income & then file the return.

In the ITR forms, some specific issues for Returning NRI are as follows (note: I have used AY 2016-17 as reference for this as AY 2017-18 forms will be out by May 2017- once they are out, watch out for a detailed post on those forms):

  • If you have foreign assets (even a foreign bank account where you have just kept USD 100 or so), you cannot select ITR 1 or ITR 2A – you will have to select ITR 2
  • If you do not hold any foreign assets, but have more than one bank account, you cannot select ITR 1 as it allows you to mention only one account – you will have to select ITR 2A

# 6: Not disclosing all incomes:

This is the most critical mistake. People generally accord a very low priority to proper computation and disclosure of ALL incomes in tax return.

Now a days you have these tax filing portals that promise online upload of your Form 16, auto data import of your Form 26AS and filing of tax return in a jiffy and all that.

I am not saying this is bad, but somehow the person who files the return gets a wrong perception that he does not have to do any manual effort in terms of “thinking” whether there is another income or not.

Usually,  we miss out on these small details hence I advise my clients to download their bank statement and check each and every credit entry – and this exercise itself reveals certain incomes that could have got missed due to oversight & proved costly later on!

Now, a question – what if assessee failed to disclose an income in tax return due to error by the online tax filing portal – in this regard, recently, the ITAT has given a favourable judgement in case of Mrs. Richa Dubey v. Income-tax Officer 26(2)(2), Mumbai [2016] 68 taxmann.com 268 (Mumbai – Trib.)

In this case, the ITAT has held that if assessee offered a bona fide explanation stating that her salary was understated in her return due to mistake of the online tax return filing portal and there was no deliberate attempt on part of assessee to conceal income, concealment penalty was not justified.

As far as my practice goes in filing tax returns for my Returning NRI clients, I ask a lot of probing questions to the client before filing the return. Some of the questions are as follows:

  • Did you receive a gift from someone during the financial year? Who was he – a relative? Was the gift documented?
  • Did you advance a loan to a friend? Is he paying you interest?
  • Did you make any gift to your wife/minor child? Did they earn income from those investments?
  • Did you “SELL” any shares/MF during the year? – can you provide me a statement for the same?
  • Did you hold any NRE FD during the year? Have you disclosed proportionate income from those FD from the date of your return to India?
  • Did you hold NSC during the financial year?
  • Did you sell any property in the financial year? If yes, was it below the prevailing stamp duty rate?
  • Can you check ALL CREDIT ENTRIES in your bank statements? Do all those entries represent income? If not, do you have explanation for all those entries?

Sometimes the client get confused as to why I am asking these questions – it is supposed to be a very simple and quick process – but it is when I tell the tax impact of all the answers they give me, they realise the value of my questioning. In many cases, we had to even revise returns filed through by NRI on his own/through a CA who, most respectfully, was not conversant with the NRI taxation and Black Money related provisions applicable to that NRI.  

I tell my clients this: I ask these questions to you today so that later on you’re not asked the same questions by the Income Tax Department because trust me, an interaction will ITD in a scrutiny assessment will, in all possibility, not be as pleasant as this interaction that we’re having right now!

The short point I’m trying to explain is: DO NOT equate tax return with instant noodles or instant coffee. Nip the problem in the bud by offering full and proper income in tax return. In case of confusion on taxability of an income, seek professional opinion rather than blindly not disclosing it.

# 7: Not disclosing details of exempt income:

Returning NRI filing a tax return should note that there is a separate section for exempt income disclosure. Examples of some incomes can form part of this disclosure:

  • PPF interest
  • Equity MF capital gain/dividend
  • FCNR/RFC interest if your residential status is RNOR
  • NRE FD if you are still NR
  • Foreign Incomes which you claim “ exempt” under DTAA (only applicable if you are an ROR)

The best thing about exempt income disclosures is that at an assessment stage later on, the Assessing Officer will have a very weak case before imposing a penalty for “concealment” of income in case his interpretation of taxability of income differs from your interpretation because you have atleast “disclosed” the income as exempt – had your intention been to evade tax, you would not have disclosed it in the first place – and that is a potent line of argument that your CA can take in such cases.

# 8: Not disclosing asset and liability details in case total income > INR 50 lacs:

Since Wealth Tax has now been abolished in India, from AY 2016-17, a new requirement has been introduced to disclose asset and liability details if total income > INR 50 lacs. The details are required in Schedule AL of the tax return.

The details required are w.r.t. land, building, cash in hand, jewellery/bullion & vehicles etc and the liabilities against those assets are required to be given.

In my practical experience, there are a lot many issues where no clear answers are there:

  • Does it include foreign assets also? – No – assets mentioned in Schedule FA need not be mentioned in Schedule AL
  • Rural agricultural land – required to be disclosed? – In my view, YES.
  • How to find cost price of inherited assets, especially ones that have been passed across from generations? – If there is no cost to you, disclose the asset along with location but mention cost as NIL.
  • Cash in hand as on March 31 at end of financial year – details not available – You will have to mention some rough amount in line with what you keep in hand on a regular basis
  • Gold jewellery – whether personal jewellery also required to be disclosed –YES.

Note that mere disclosure of assets need not mean that income from that asset will be taxable in the tax return – for example, if you’ve disclosed a flat which is vacant throughout the year, no income need to be offered in the tax return. Similarly, in case of gold coins, no capital gains will accrue till those gold coins are “sold”

# 9: Not disclosing ALL bank accounts in the tax return:

Income Tax Return form has a field for disclosure of bank accounts. In many cases, I’ve observed that person discloses only ONE account where he wants to receive a refund. This is incorrect. Disclosure of ALL bank accounts is required.

Some common questions:

  • You are a joint account holder in a bank account – YES
  • Dormant account – Not required.
  • Foreign bank accounts– Not required to be disclosed here. Disclose in Schedule FA

In the details that are asked, some people make the mistake of confusing IFSC with MICR code – so, sufficient care has to be ensured.

Another question I receive from some Returning NRI clients who still hold NRE/NRO accounts – should they disclose? – My answer is YES – that violation of retaining non-resident accounts in under FEMA – as per IT norms, disclosure in tax return should be made. At the same time, I also advise such clients to immediately re-designate these accounts.

Also read: NRO, NRE, FCNR, RFC: Tax and FEMA Implications for Returning NRI

# 10: Not disclosing details of foreign assets and income:

If you are a ROR, then this is a very important requirement which arises from Black Money Act. As I’ve discussed at the start, non-compliance of this requirement can land you in jail also.

There is a specific schedule FA and FSI in tax return for this – if you hold foreign assets and there is no such schedule in the return form chosen by you, know that you’ve chosen the wrong form.

If you’re filing return through a CA who does not ask you about these assets, it is your responsibility to tell him about this requirement and disclose it. Your 401K, bank accounts, pensions, any share in trust, any signing authority outside India – all will qualify for reporting.

As regards income that is already taxed outside India, there are two possible approaches:

  • Disclose entire income and claim credit for tax paid on that income
  • Check DTAA provisions if income can be exempt from disclosure in India.

Definitely, the second option is much preferable as it can really minimise Indian tax liability however note that selection of this approach requires a good knowledge of DTAA and its correct interpretation so professional opinion should be sought before choosing option 2.

Also read: Taxability of salary earned in USA under India-USA DTAA

# 11: Not filing tax return on time:

Timeline of filing a return u/s 139 (1) for a financial year is generally July 31 of the assessment year. For example, timeline for return filing for FY 2016-17 is July 31, 2017.

Many clients make a mistake of waiting till the last date – during those days, the IT department faces a huge traffic and crashes routinely and in case you are out of luck, the return can miss the timeline. Ill effect of this is that apart from being unable to carry forward any loss, you CANNOT revise a belated return.

Let me explain you with a real life example:

A client of mine, NRI returning from USA, filed belated returns for AY 2014-15 and AY 2015-16 through some other CA. When I checked those returns, I found that he has not disclosed his 401K and US bank accounts in tax return even though his residential status was ROR. In such case, since it was a belated return, the client did not have an opportunity to revise the return and has to live with the consequences of non-disclosure.

Note: The legal position on belated and revised return has changed w.e.f. AY 2017-18 as follows:

  • You can file belated return by end of assessment year
  • You can revise even a belated return

Also note that due to server load, IT website gets jammed in the last few days of July hence, it is always advisable to file your return by end of June – ideally, you should initiate your tax return filing as soon you receive your Form 16 from your employer.

# 12: Not checking Form 26AS for errors before claiming credit of TDS:

When someone (your bank, employer, tenant, mutual fund, buyer of property etc.) deduct TDS from you, it is your duty to match the amount in the certificate that he provides you (Form 16/16A/16B as applicable) with your Form 26AS which is available on Income Tax e-filing website.

Form 26AS is in a way government record for your TDS credit. If there is a mismatch, the ITD will go by this form and will raise an automatic demand on you. Instead of then filing reply to Assessing officer, it pays to check your Form 26AS before filing tax return – in case of any discrepancy, you need to tell deductor to revise the return asap.

# 13: Not maintaining back up documentation after filing the return:

Return filing is not the end of the job. You also need to maintain a back up hard copy file which contains a record of all documents supporting your numbers in tax return. Some examples are as follows:

  • Respective ITR form and ITR V
  • Bank statements for all banks (India as well as outside India)
  • Form 16, 16A, 16B
  • Sale agreement + Registration docs (if property transaction done during the year) + Calculation of capital gain
  • Gift deed – if gift received/given
  • Loan agreement – if loan received/given
  • Statement for foreign assets e.g. 401K for the year
  • Home Loan Interest Certificate
  • SBI TT Buying Rate sheet (to prove conversion of foreign income – you have to purchase it from foreign exchange branch of SBI)
  • Copy of passport and visa entries – to explain your residential status in case of any enquiry

Hope the post has been of service to you. For personalised tax advice, reach out to me at contact@abhinavgulechha.com

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