New rules for filing ITR 1 and ITR 2

New rules for filing ITR 1 and ITR 2

Every year, the Income Tax Department notifies income tax return (ITR) forms to be used for the financial year for filing the income tax return. The Income Tax Department has notified ITR form 1 to ITR form 7 for the financial year 2019-20 (the assessment year 2020-21). Taxpayers are required to use the applicable ITR form depending on their category and source of income. ITR-1 or ITR-2 form can be used by individuals or Hindu Undivided Families (HUFs) who are not earning income from profits and gains of business or profession. 

Due to the exceptional circumstances that have arisen due to the pandemic, various changes have taken place. Let’s take a look at the new rules and guidelines applicable for filing the income tax returns through ITR-1 and ITR-2.

• ITR-1

Income Tax Return (ITR) -1 form is notified for taxpayers who are resident individuals having an only salaried income, income from one house property and income from other sources (interest), etc. It is a simpler form which is meant for resident individuals with income of up to INR 50 lakhs and agricultural income of up to INR 5,000. The Income Tax Department has made certain changes in the notified ITR-1 form for filing the income tax return in the assessment year 2020-21 (for the financial year 2019-20). Let’s take a look at the key changes in ITR-1 and new rules applicable for filing ITR-1.

As per the changes made in ITR-1, the following are the new rules applicable for filing ITR-1

• New ‘Schedule DI’ to furnish the details of investments made during the extended period of additional four months

The President of India has made an announcement on 31st March 2020 on the extension of time limit to make investments, payments and deposits, etc. till 31st July 2020 for claiming the tax deduction under chapter VI-A. The details of such investments and deposits need to be furnished in new schedule DI. The schedule DI also seeks details of eligible deductions available under section 10AA and the details of acquisition, purchase or payment made to claim deduction under section 54 to 54GB.

• Filing income tax return under the seventh proviso to section 139 (1)

The seventh proviso to section 139 (1) was inserted by the Finance (No.2) Act, 2019, to ensure individuals entering into high-value transactions (includes amount deposited in the bank account, the amount spent on foreign travel and the amount incurred towards payment of electricity bill) to furnish the relevant details in ITR-1.

• Alternatives to quote PAN/Aadhaar in various schedules

The sub-section (5E) to section 139A was inserted by the Finance (No.2) Act, 2019 to permit the interchangeability of aadhaar with PAN while filing ITR. In case an individual has not been allotted a PAN, he can provide an Aadhaar number instead of PAN.

• Expanded list of nature of employment

ITR forms require individuals to furnish their nature of employment. Apart from the nature of employment listed in the ITR-1 form in the previous year (government, PSU, pensioners and others), there is an expansion in the list. The new list of nature of employment in the form is –

• Central Government
• State Government
• Public Sector Undertaking (PSU)
• Pensioners
• Others
• Not Applicable

• The requirement of Unique Document Identification if the return is filed with a reply to the notice

The Central Board of Direct Taxes (CBDT) makes it mandatory to use the Document Identification Number (DIN) given to authorities to keep the proper audit trail of all the communications of the tax department with the assesses. Hence, taxpayers need to quote the Document Identification Number in ITR-1 in case the return is filed in response to the notice.

• Alterations in the Schedule of Deductions under Chapter VI-A

The Finance (No. 2) Act, 2019 has introduced Section 80EEA and 80EEB to provide deduction in respect of interest on housing loan and interest on electric vehicle loans respectively. There is a section provided in ITR-1 to claim these deductions.

• Multiple bank accounts to claim a refund

Taxpayers are required to furnish the details of all the bank accounts while filing an income tax return. At least one account needs to be mentioned to claim the refund. There is also an option in ITR- to provide multiple account details for the refund. The amount of refund will be credited to one of the accounts provided.

• ITR-2

ITR-2 form is notified for individuals (both resident and non-resident) and Hindu undivided family (HUFs) having all types of income except the income from profits and gains of business or profession. This form can be filed by individuals and HUFs to whom the ITR-1 is not applicable.

The Income Tax Department has made certain changes in the notified ITR-2 form for filing the income tax return in the assessment year 2020-21 (for the financial year 2019-20). Let’s take a look at the key changes in ITR-2 and new rules applicable for filing ITR-2.

As per the changes made in ITR-2, the following are the new rules applicable for filing ITR-2.

• New ‘Schedule DI’ to furnish the details of investments made during the extended period of additional four months

• Filing income tax return under the seventh proviso to section 139 (1)

• Alternatives to quote PAN/Aadhaar in various schedules

• Separate reporting of surcharge on income chargeable to tax under section 112A, section 111A and section 115AD

The Finance (No.2) Act, 2019 had enhanced the rate of the surcharge and also had introduced additional rates. However, the same was withdrawn later. Keeping in mind the non-applicability of enhanced surcharge rates, ITR-2 is also revised to show the correct computation of surcharge.

• Reporting of ‘type of company’ if the assessee is a director in a company

Along with the name of the company, PAN, shares are listed or unlisted and the DIN, ITR-2 notified for the FY 2019-20 requires the assessee to mention the ‘type of company’ also if he is a director in a company or holds unlisted equity shares.

• The requirement of Unique Document Identification if the return is filed with a reply to the notice

• Alterations in the Schedule of Deductions under Chapter VI-A

• Multiple bank accounts to claim a refund

It is important to follow the guidelines and file the income tax returns in a timely manner.