If you have foreign travel expenses beyond Rs 2 lakh, or electricity bills exceeding Rs 1 lakh, these details will now have to be furnished in ITR-4.

Income Tax filing Major changes to ITR-1 and ITR-4 you need to know about
Money Income Tax Tuesday, January 07, 2020 - 11:26

The government has made significant changes to income tax return (ITR) filing forms for the assessment year 2020-21. If you have paid Rs 1 lakh in electricity bills in one year, or spent Rs 2 lakh on a foreign travel, or even own a house property in joint ownership, you cannot file your annual income using the ITR-1 form.

What this means is, you may not be able to use the same ITR form you used last year to file your returns this time. What ITR you will now use to file your returns will depend on your expenditures between April 1, 2019 to March 31, 2020.

These changes came to light as the government notified forms for filing income tax returns on January 3. Assessment year 2021 means filing for returns for income earned between April 1, 2019 to March 31, 2020.

As per the new changes, ITR-1 form is not valid for those individuals who have deposited more than Rs 1 crore in bank account. An individual taxpayer now cannot file return either in ITR-1 or ITR4 if he is a joint-owner in house property.

Such taxpayers will have to use different forms, which will be notified in due course.

The ITR-1 and 4 form now also requires the taxpayer to furnish passport number if they have one.

While those with foreign travel expenses beyond Rs 2 lakh, and electricity bills exceeding Rs 1 lakh are not eligible for ITR-1, these details will now have to be furnished in ITR-4.

If you have incurred expenditure of an amount or aggregate of amount exceeding Rs 2 lakh for travel to a foreign country for yourself or for any other person or have incurred expenditure of amount or aggregate of amount exceeding Rs 1 lakh on consumption of electricity during the previous year, you will have to disclose the amount.

The ITR-4 now also asks you if you have deposited an amount or aggregate of amounts exceeding Rs 1 crore in one or more current account during the previous year.

Understanding ITR-1 and ITR-4

Returns in ITR-1 can be filed by a resident of the country whose total income does not exceed Rs 50 lakh.

ITR-4 is meant for those who earn income from a business or a profession where you’re a consultant, freelancer, etc and your income doesn’t exceed Rs 50 lakh. ITR-4 follows a simpler process where it assumes 50% of your income is the cost incurred by you for running your business or profession and doesn't require bills.

Understanding the changes:

ITR-1, there is barely any scrutiny and most often are accepted as in. Hence, with the new changes, the government has restricted the scope of individuals who can file through ITR-1.

According to taxation expert Balwant Jain, these new changes are to curb practices of individuals having undisclosed income and tax evasion.

“ITR-4 is for people who offer income on presumptive basis. These are usually businessmen, advocates, doctors, consultants, etc. And in many cases, they don’t show their entire income. They spend ‘official’ money outside India. These new changes will ensure that an individual’s foreign travel expense is proportionate to their income,” he says.

However, disclosing this expenditure will not mean that one has to pay extra tax. “As long as your income justifies your spend on foreign travel, you need not worry,” Jain adds.

Other changes to ITR-1 and 4

It is also now mandatory to provide your complete house address, even if you don’t live there. These details were earlier required only in ITR-2 and ITR-3.

Other changes include: Those filing ITR-1 will now have to provide the Tax deduction Account number (TAN) of their employer.

If you have rented out a property, then you will have to furnish the name, Aadhaar or PAN details of your tenant.

There is also a change in disclosure related to cash in case of presumptive tax assesses.

In case of 44AD or 44ADA or 44AE, now the assessee will be required to give some specific details.

These include:

- Opening balance of cash in hand and opening balance of bank accounts

- Total amount received in cash during the year

- Total amount deposited in bank during the year

- Total amount of cash outflow out of cash balance during the year

- Total amount of withdrawal from the bank during the year

- Closing balance of cash in hand and closing balance in banks.

However, now there will be no need to provide figures of unsecured loans, sundry debtors, sundry creditors, amount of closing stock, etc. as was required in earlier years.

Usually, the Income Tax Department notifies the ITR forms in the first week of April of the relevant assessment year. However, in contrast to the old practice, it has notified two ITR forms ITR-1 and ITR-4 for the assessment year 2020-21 in the first week of January. 

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