Changes in ITR and Tax Audit Report Forms (Form 3CD) for AY 2018-19

Changes in ITR and Tax Audit Report Forms (Form 3CD) for AY 2018-19: It is the tax season of the year!! The tax filings for the year ended 31st March 2018 are due and hence, the taxpayers and the tax professionals must be aware of the compliance and disclosure requirements in the tax audit report and the return of income. This article highlights the changes brought out in the ITR forms and the tax audit report forms this year. Read on…

Form 3CD

Form 3CD contains particulars which are needed to be set forth pursuant to Section 44AB read with Rule 6G. The chartered accountant has to certify in Form 3CA/Form 3CB that the particulars given in Form 3CD are true and correct, subject to certain observations/qualifications, if any, made by him.

Clause 4 of the Form 3CD enlists the indirect tax registration details obtained by the assessee in relation to its business. Since, Goods and Services Tax (GST) was introduced w.e.f 1st July 2017, all the assessees carrying on business/profession (meeting the threshold) would have obtained GST registration by now. The same should also be mentioned along with the existing registration details. It has been noticed that certain assessees were already mentioning their GST registration number in the previous year report under ‘Other Indirect Tax/Duty’ beside the confusion whether the registration details correspond to existing as on reporting date or the report date.

A new clause is inserted at the end to report the break-up of total expenditure in respect of entities based on its registration type. This is also required to be disclosed by companies not subject to tax audit in its return of income. This requirement will pose additional efforts and concerns while reconciling with the expenses in the statement of profit and loss. An example could be the presence of an element of staff welfare expenses in Employee benefit expenses, which contains both third party payments and employee reimbursements.

Secondary adjustment regime was introduced vide the Finance Act, 2017 whereby books profits are aligned with TP adjustment (suo moto or otherwise) and to ensure repatriation of profits to India within a time limit. The tax auditor has to report whether the same has been adhered to and if not, the imputed interest income as per Rule 10CB.

Thin capitalisation rules were also introduced vide the Finance Act, 2017 to restrict the interest payments on debt on highly leveraged company pursuant to Action Point 4 of BEPS initiative. The tax auditor has to report whether any restriction in allowance of interest is required pursuant to the provisions of Section 94B and if so, the amount of excess interest for the year, excess interest brought forward and to be carried forward should be reported.

Thin capitalisation rules were also introduced vide the Finance Act, 2017 to restrict the interest payments on debt on highly leveraged company pursuant to Action Point 4 of BEPS initiative. The tax auditor has to report whether any restriction in allowance of interest is required pursuant to the provisions of Section 94B and if so, the amount of excess interest for the year, excess interest brought forward and to be carried forward should be reported

Country-by-Country Reporting (CbCR) was introduced vide the Finance Act, 2016 and the rules and forms for F.Y. 2016-17 were introduced only in October, 2017 and hence, due date was extended up to March 2018. With the due date for entities covered by Sub-section (4) of Section 286 still in the pipeline, reporting is restricted to entities covered by Sub-section (2). Also, the clause is not clear about the period pertaining to which the report should be furnished. The clause may see further amendments in this light.

Loans / Advances

Section 269ST was introduced vide the Finance Act, 2017 to prohibit any transaction above Rs 2 lakhs other than by way of an account payee cheque or draft or ECS. Four sub-clauses have been introduced in Clause 31 to report payments and receipts, above the threshold, which are made by way of a cheque or draft, not being an account payee cheque or draft and those which are made otherwise than by way of a cheque or draft or ECS.

Clauses (c) to (e) of clause 31 have been amended to clarify that these clauses require reporting of repayments, rather than advances, as per Section 269T.

Clause 36A has been introduced to disclose advances in the nature of deemed dividend under Section 2(22)(e). With the amendment vide the Finance Act, 2018 to exempt the same in the hands of shareholder and subject the same to DDT in the hands of the company, this clause may not be of importance from F.Y. 2018-19. It is noteworthy that the ITR also requires the listing of all persons who are beneficial owners holding 10% or more in the voting power from this year.

Others

Clauses 29A and 29B have been introduced to require disclosure of incomes in the nature of forfeited advances referred to in Section 56(2) (ix) and receipt of money or property without adequate consideration referred to in Section 56(2) (x), respectively.

Clauses 29A and 29B have been introduced to require disclosure of incomes in the nature of forfeited advances referred to in Section 56(2)(ix) and receipt of money or property without adequate consideration referred to in Section 56(2)(x), respectively.

General Anti Avoidance Rules (GAAR) was made applicable from F.Y. 2017-18 to disregard any arrangement which was entered with the only motive to avail tax benefit, without any commercial substance in it. A new clause is now inserted to require reporting of any impermissible avoidance arrangement as per Section 96 entered into by the assessee and the cumulative tax benefits accruing to all parties to the transaction. Though the provision is not applicable in certain cases as mentioned in Rule 10U, the reporting is required without considering any such exemption.

Clause 34(b) which requires whether TDS returns contain all the reportable transactions also requires the list of transactions not included in the return.

New drop down to report tax deduction under Section 194-IB and filing of Form 26QC have been introduced in Clauses 34(a) and 34(b), respectively.

Clause 42 has been inserted to require reporting on whether the assessee has furnished the statement of financial transactions under Section 285BA.

Interest income on NPA is taxable in the hands of the banks only on receipt basis. Accordingly, Section 43B has been allowing interest payable to banks as deduction, only if the same is paid on or before the due date of filing the return of income. The provision has been extended to interest payable to co-operative banks (other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank) from F.Y. 2017-18. Accordingly, Clause 26 which requires reporting of allowances and disallowance under Section 43B is amended to include a reference thereto.

Deduction under Section 32AD is available to assessees setting up undertakings in the backward areas of Bihar, AP, Telangana and West Bengal from F.Y. 2015-16. However, reporting of the same was not required in the tax audit report till last year. Now, the same is required to be reported from F.Y. 2017-18.

Business and Profession codes have been increased to more specific list. 4-digit codes have been increased and renumbered in 5-digits. The list has also been updated in ITR forms and Form 29B/29C.

ITR Forms

The non-residents and foreign companies can now get their refunds due in their bank account maintained outside India. While the requirement to mention at least one Indian bank account was removed last year, the refund credit is enabled from current year. Still, a mechanism is required to obtain the pending refunds till last year for those who were not willing to open a bank account for this purpose only.

Non-residents and foreign companies can now get their refunds due in their bank account maintained outside India. While the requirement to mention at least one Indian bank account was removed last year, the refund credit is enabled from current year. Still, a mechanism is required to obtain the pending refunds till last year for those who were not willing to open a bank account for this purpose only.

ICDS adjustments are getting captured directly in the memo of income. The adjustments were made under other addition/deletion in the memo for last year, besides giving the disclosure of ICDS adjustments.

Separate form of balance sheet and profit and loss account has been provided for Ind AS compliant companies. Items of OCI can now be listed separately. Also, MAT adjustments on account of Ind AS accounts can be separately disclosed.

Conclusion

With the shift from post facto assessment to timely systematic compliance, these amendments are no surprise. These also increase the stake and responsibility of the tax auditors. Hence, it is necessary for chartered accountants to plan for the season and ensure timely compliance