Can't use ITR-1 if TDS paid on high cash withdrawal, say experts

Taxpayers now need to provide quarterly break-up of dividend income earned

The income tax (I-T) department has made the new Income Tax Return (ITR) forms — ITR 1 to ITR 7 — available for assessment year (AY) 2021-22, and taxpayers need to understand the changes incorporated in the new forms before filing returns. 

According to Vivek Jalan of Tax Connect Advisory Services LLP, a multidisciplinary consulting firm, “Most of the changes in the new ITR forms are consequential to the amendments made in the Finance Act, 2020, to the Income Tax Act.” 

Choose a tax regime: From AY 2021-22, the taxpayer has to choose between the new and the old tax regimes. Kapil Rana, founder and chairman, HostBooks, says, “An option has been provided in the new ITR forms to choose the alternative new tax regime under section 115BAC.” 

TDS under section 194N: Section 194N requires banks, including co-operative banks and post offices, which pay cash from one or more accounts, to deduct tax if the amount withdrawn during the year exceeds Rs 20 lakh in case of certain non-filers of return and Rs 1 crore in the case of others. Naveen Wadhwa, de­p­uty general manager, Tax­mann, says, “Rule 12 of the I-T rules has been amended to restrict an assessee in whose case tax has been deducted under this provision from furnishing return of income in ITR–1.” 

Archit Gupta, founder and chief executive officer of ClearTax, adds, “Taxpayers with tax deducted at source (TDS) under Section 194N will have to file in ITR-2 or 3.” Credit for TDS is given in the AY in which such income is assessable. When the income is assessable over a number of years, the credit is allowed proportionately across those years. 

Changes due to new dividend taxation norms: The Finance Act, 2020, reverted to taxation of dividend in the hands of shareholders, instead of payment of dividend distribution tax by the company. 

The ITRs have been amended to incorporate this change. Information on dividend earned will now be disclosed in Schedule OS of the ITR forms. Up to AY 2020-21, Schedule OS required disclosure of only the dividend income that was not exempt from taxation in the taxpayer’s hands. Jalan says, “In the new ITR forms, Schedule OS has been amended to include disclosure of all dividend income earned.” Jalan further adds, “Now, in ITR-1 also provision has been made to seek a quarter-wise breakup of dividend inc­ome earned during the previous year.”

Auditing of books: Accor­ding to Section 44AB, every person carrying on business shall get his books of accounts audited if total sale, gross turnover, or gross receipt, exceeds Rs 1 crore but does not exceed Rs 10 crore (Rs 5 crore earlier). 

Cash donations: ITRs 2, 5 and 6 contain Schedule 80GGA, which requires separate reporting of donations made in cash and via other modes. Wadhwa says, “The new ITR forms also require additional disclosure of the dates on which cash donations were made.”