Mukesh Patel.in
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international tax expert / columnist / author / speaker

HNI PROPERTIES UNDER I.T. SCAN

  • Income earners beyond Rs.25 lakhs required to declare their assets & liabilities in income-tax returns from 2013

    The Income-tax Department seems to have set its eyes on the properties of high net worth individuals (HNIs). And the start has been made by seeking information in regard to their assets and liabilities, which will be required to be declared in their Income-tax returns (ITRs) due to be filed by end July or September, 2013. 

This move comes in close sequel of the requirement to declare all foreign assets, which was made mandatory in the ITRs since last year 2012. This obligation has been cast on all individual and HUF taxpayers, either proprietors or partners, earning income from business and profession and declaring total income exceeding Rs.25 lakhs.

SALARIED & INVESTORS SPARED

Salaried and investment income earners (not earning any income from business or profession) are the lucky taxpayers, who have been spared from this exercise for now. However, it can be reasonably expected that they too may be covered in a year or two and the current Rs.25 lakhs income-limit for this mandatory declaration may also be brought down so as to rope in more number of taxpayers under the I.T. scanner.

A separate disclosure format has accordingly been inserted in the new ITR 3 and 4 notified to declare incomes for FY 2012-13. Schedule AL of these ITRs seeks details of immovable assets like land and building and movable assets which include financial assets such as bank deposits, shares and securities, insurance policies, loans and advances given and cash in hand. Taxpayers will also be required to report other movables like jewellery and bullion, works of art, sculptures and paintings, vehicles, yachts and aircrafts, held as on 31st March.  Any liabilities in relation to the above assets will also need to be reported under this schedule.   

PRACTICAL PROBLEMS GALORE

     While the objective of the newly introduced provision is to facilitate inquiry into the source of acquisition of the asset or track wealth tax liability in the case of a taxpayer, the provision seeking declaration of mere cost of asset is neither sufficient, nor always practicable.

To illustrate, the cost of acquisition of an ancestral land or building or jewellery acquired by way of gift, inheritance or succession would be nil. Similarly the cost of assets acquired a few decades ago may be very negligible. Absence of any reference to its current market value would not serve any meaningful purpose for wealth tax tracking in such cases.

Similarly, reporting cost of assets such as insurance policies, where generally no formal cost is recorded, would also create practical problems in reporting. A taxpayer, who has not maintained books of accounts, may also find it very difficult to substantiate the cost of assets acquired by him several years ago, as no documentary record in this connection may be available now. All such issues can lead to unnecessary litigation and let us hope that this provision does not open any Pandora’s Box for taxpayers.

CII FOR 2013-14 NOTIFIED AT 939

Readers are aware that for purposes of computation of long term capital gains, a taxpayer is entitled to compute Indexed Cost of Acquisition, which is determined with reference to the Cost Inflation Index (CII) notified by the Government for the relevant financial year.

Vide its Notification No.40 of 2013 dated 6th June, 2013, the Central Government has notified the Cost Inflation Index (CII) for FY 2013-14 at ‘939.’ The CII for FY 2012-13 was ‘852.’ The increase of 87 points during the past one year reflects a rise of 10.2% in the Cost Inflation Index, also confirming the fact that the common man has continued to suffer under the double digit inflation impact!

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