ITR filing 2024: Key aspects for tax return filing for affluent taxpayers

It appears to be the season of tax notices. Recently, Indian tax authorities have been actively collaborating with various government agencies to obtain financial information about individuals, and are closely monitoring high-value transactions.

Income Tax Notice Spree

Predictably, this has led to a surge in tax notices being sent out, demanding substantial tax payments or detailed explanations regarding the sources of funds and income.

Although these notices often lack specific reasons, there is an evident trend that shows recipients have frequently misreported information, particularly concerning foreign assets and income, underreported income, or have had discrepancies with the data available on the authorities' web portal (Form 26AS/AIS/SFT). 

Tax Return Filing 
As the imminent deadline of July 31, 2024, draws near, taxpayers, especially affluent individuals, should prudently approach the preparation of their India tax returns, considering their significant incomes, vast assets, and diverse investments.

Affluent taxpayers in India come under intense scrutiny from the tax authorities not only for the income reported and taxes paid but also for other disclosures mandated in the tax return form.

Tax Residential Status
Filing tax returns warrants a deep dive into tax provisions, meticulous planning, and strict adherence to regulations. It is crucial for individuals to accurately determine and report their tax residential status in India, as this forms the foundation for their taxable income and disclosure obligations. Any lapses could potentially result in the exclusion of taxable income and other significant details, leading to underpayment of Indian taxes.

Asset and Information Reporting

Additionally, global tax residents in India should correctly report schedules in the tax return form (Schedule FA and AL) regarding their worldwide assets, including trusts, other bodies, and immovable properties. Beyond asset reporting, they should also disclose details of directorships, partnerships, and holdings in unlisted shares. Those with investments in private companies or startups should diligently track relevant information such as acquisition costs, valuation, and stake. There have been several cases where taxpayers have sold unlisted shares but have failed to report the same in the schedule of unlisted holdings, triggering queries from the authorities

Foreign Incomes and Transactions

Furthermore, global incomes, gifts received, and payments received through private trusts are all under scrutiny. Therefore, it is essential to maintain thorough documentation to substantiate any benefits under Indian laws and tax treaties, such as deductions, exemptions, and tax credits. Several affluent individuals have been receiving queries regarding the source of funds, taxes paid, and whether these were subject to tax in India.

With foreign remittances coming under the tax authorities’ microscope through tracking of certifications and taxes collected at source, overseas transactions must be thoroughly screened for consideration under Indian tax laws, Indian regulatory laws, and provisions of the Black Money Act 2015. 

Immovable Properties

Separately, taxpayers also need to ensure that they disclose notional rent for vacant properties that would be treated as deemed to be let out. Given that the wealthy own several properties locally and internationally, they tend to miss this aspect in their tax returns in India.

Capital Gains

Capital gains transactions are another focal point for Indian tax authorities. Stamp duty values, valuation reports for base year cost, indexed acquisition costs, and benefits availed typically are the points of contention. Moreover, when dealing with foreign property, valuation and indexation require even more meticulous examination. Instances arise where the sales considerations have not aligned with the stamp duty valuation, raising inquiries.
Implications of Furnishing Inaccurate Particulars
Any previous tax audits initiated by the authorities or prior notices received should also be kept in mind while filing the return of subsequent years so that accurate and timely compliance is adhered to. Missing out key data in the return form, even if done inadvertently, may lead to unnecessary additional interest and penal implications. 

Seeking Expert Advice

With the diversity of information available and the Indian government cracking down heavily, apt and timely filing is imperative. Given their global footprint and these intricate considerations, it is always feasible for affluent taxpayers to seek professional guidance while filing their India tax returns. While the tax return forms seem straightforward, nuances related to reporting and disclosure need a fine-tooth-comb analysis. With the fast-approaching tax filing deadline, affluent taxpayers must commence tax return preparation with their consultants promptly to review crucial aspects and ensure smooth compliance.

The author is a Partner at MSKA & Associates, which is a member firm of BDO International

Disclaimer: The views, thoughts and opinions expressed in the article are solely the author’s and are not representative of the author's employer or organisation.