Inadequate disclosures in income tax returns can have dire consequences

In the worst case, the taxpayer could end up paying a heavy penalty and even suffer a jail term

The deadline for filing income-tax return (ITR) for the financial year 2020-21 (assessment year 2021-22) is just two weeks away (December 31). According to income-tax rules, it is mandatory to make certain disclosures while filing the ITR. Failure to do so can have serious consequences.

Jayashree Parihar, senior associate, PSL Advocates & Solicitors says, "Non-disclosure can lead to heavy penalties that can go up to 200 per cent of the tax payable on the misreported income. Further, since the Income-Tax Act is penal in nature, it can lead to prosecution and even imprisonment in certain situations." Here are a few mandatory disclosures that one should be cautious about.

Many salaried taxpayers hold the misconception that they don’t need to disclose any other income since TDS (tax deducted at source) is deducted from their salary. Lapses in disclosure can also lead to problems in receiving tax refund.

Indian bank accounts

The taxpayer needs to report all the bank accounts he holds in India, including joint accounts. Utsav Trivedi, partner, TAS Law says, "Failure on the assessee's part to provide such details will lead to the income-tax return (ITR) filed being treated as defective. The I-T Department will serve a notice for want of complete information. A revised ITR will then have to be filed." Dormant accounts, which have not been operational for the past three years, need not be mentioned.

Unlisted equity shares

An assessee must provide information about all the unlisted equity shares she holds in the ITR filed along with details of the company, purchase or sale of shares, and balance holdings. Aditya Chopra, managing partner, Victoriam Legalis, Advocates & Solicitors says, "The company’s PAN (permanent account number) should also be mentioned." Again, failure to make full disclosure could lead to the concerned assessing officer sending a defective return notice. The assessee will then have to rectify the defect within a stipulated time period.

Details of unlisted shares held any time during the relevant financial year must be provided in ITR2, ITR3, ITR5, and ITR6.

Investments in shares of unlisted foreign companies also have to be reported in this schedule, even if they are reported separately under the foreign assets schedule. Trivedi says, "Non-reporting will amount to violation of The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015."

The I-T Department has recently widened the scope of Form 26AS to provide additional details, including on unlisted shares. Archit Gupta, chief executive officer (CEO), Clear says, "Taxpayers holding unlisted shares should verify the details of their holdings using AIS/Form 26AS."

Directorship in Indian or foreign company

Directors in foreign companies need to disclose details of such directorship(s) in their ITR filings. Chopra says, "Even if the PAN of that company is not available, the required disclosure can be made under the option of “foreign company” in the “type of company” tab."

If the assessee is a director in a company that is not a foreign company, then the PAN and the Director Identification Number (DIN) must also be mentioned. A person who is a director in a company can’t file a return in form ITR-1 or ITR-4. She must file it in form ITR-2 or ITR-3.

Schedule assets and liabilities

Individuals with total income above Rs 50 lakh per annum must provide specific details of all their assets along with the liabilities against those assets. These include land, building, movable assets, and financial assets (bank deposits, shares and securities, cash in hand, etc.). In case of valuables whose prices are difficult to determine, experts suggest that their face value be mentioned. Parihar says, "Disclosure under this head can be difficult. However, misreporting of income in the ITR can attract a penalty as high as 200 per cent of the tax payable on the misreported or assessed income." The assessee can, however, appeal against such penalties.

Cost of not disclosing foreign assets is very high

• Ordinarily Resident individuals – both owners and beneficiaries – must furnish details of assets outside India

• Details must be reported even if the asset was held for a single day during the relevant accounting period

• Undisclosed foreign income or assets are taxed at 30 per cent.

• In addition, a penalty equal to thrice the tax payable on the income or value of the undisclosed asset could be levied

• An additional penalty of Rs 10 lakh can be levied for failure to file ITR or to disclose such foreign assets/income in ITR

• Wilful failure to evade taxes by not furnishing a tax return or not disclosing foreign income and assets in ITR can also lead to prosecution