ITR Rectification or ITR U, Income Tax

[Nanu Arora]

Respected everyone,

Due to some neurological disorder I cannot work and I am solely relying on interest income only from the past few years. The interest income is less than the taxable income and hence NIL tax. I started investing in US stocks through aggregators/platforms available in the market in 2021. In the ITR-2 filed for FY 21-22 there was no taxable income, after taking into account all the deductions and the only source of income is interest income. For the US stocks, schedule FA were to be filed, which the accountant who filed our returns did not file citing for this small amount it is not required. The return was processed later on. The total initial value of the investment as per the data provided by the aggregator is 1.66 Lacs and the peak and closing values were around 4.72 lacs during FY 21-22, there were no capital gains.

For the ITR of FY 22-23 all the FA schedules etc. were filed. The processing is still pending. We will be filling the schedule FA for next years also but the purchase date for most stocks will remain as bought in 2021 which might (or might not cause) issues later on. Now in FY 21-22 there is only dividend income and interest income from US stocks which is less than Rs. 460, combined. This amount is after the 25% tax deducted in the US under the DTAA with India. Even after we show this, after rectifying the return or updating it, there will be no tax impact. Now rectifying or updating it is the right thing to do but some articles say that since amount is small we can leave it and if its done then it will be highlighted to the AO. Is this so? Say we want to correct the return and show schedule FA etc. then are the schedule FA etc. to be shown under ITR Rectification or ITR U? Again the articles on the internet and youtube video tutorial videos seem to be divided between these two alternatives. As we are from a small town so there is not much awareness as in how to file schedule FA among the accountants/ca's here so asking here.

Thanks to Sh. @KASTURI SETHI Ji for your guidance and blessings. Please tag relevant users who can help us here.

Regards

Posts / Replies

[Padmanathan Kollengode]

Sir,
As I had mentioned in another Post, the IT Department is very pro-active and is handy with all details regarding investments abroad (whether negligible amount or not) due to information sharing treaties with various countries.

Therefore, you may notice stating that details of investment abroad is not declared in your returns. The best course of action would be to file ITR-U declaring the investment abroad and paying the applicable late fee on ITR-U.

[Nanu Arora]

 Thank you for replying respected @Padmanathan Kollengode Ji. Few questions-

- What is the simple difference between ITR-Rectification and ITR-U? Why cannot rectification be done here?

About ITR-U

Please check FAQ number 2 No penalty is levied for filing ITR-U. However, an additional tax shall be levied u/s 140B. The additional tax is 25% or 50% of the tax and interest due, depending on whether the ITR-U is filed within 12 or 24 months from the end of the relevant assessment year. The original return had NIL tax as the income was below the taxable income so much tax/interest/penalty will they charge here? Please note that after showing the schedule FA and FSI, there will again be no tax liability.

This is the 3rd FAQ Can nil return be filed in ITR-U? No, you cannot file a Nil return in ITR-U. ITR-U cannot be filed when there is no additional outflow of tax. There will not be any tax outflow when we add the foreign asset schedules in the return, so are we eligible to file ITR-U?

FAQ number 6 says similar thing, Can I file ITR-U if I do not have any tax payable? No, if your total tax is adjusted with TDS credit and you do not have any additional tax liability, you cannot file an Updated ITR.

FAQ number 7 kind of says differently then the above FAQ's,Can I file ITR-U if my total income is below 5 lakhs and I have claimed rebate u/s 87A? Yes, you can file the updated return, but you will be liable for late filing fees. The same must be paid, and the payment details must be updated under the “Taxes Paid under 140B” tab

And lastly in all ITR-U videos on Youtube, no one has shown schedule Foreign Assets section. Is this section open/visible in ITR-U?

Thanks

[KASTURI SETHI]

Madam,

File ITR-U and be tension free. You have got correct and concrete advice by Sh.Padmanathan Kollengode, an expert. It is my sincere suggestion to you. Rest decision is yours.

[Padmanathan Kollengode]

Dear Kasturi Ji,

From the Nanu sir's last post, it seems there are some factual difference from our case (which we discussed in your query).

Unlike our case, there is no additional income to be offered due to foreign investments being missed out. Therefore, his doubt seems to be that whether ITR-U can be filed at all in his case. I am still working on Nanu sir's query and shall come back in some time with a practical solution.

Regards.

[KASTURI SETHI]

Sh.Padmanthan Kollengode Ji,

Thanks and regards for making all-out efforts for the purpose of fool-proof advice on the issue.

[Nanu Arora]

Respected @KASTURI SETHI Ji and @Padmanathan Kollengode Ji

Thanks for replying. Respected Sh. Kasturi Ji, we are ready to file ITR-U, but I have gone through the same and as per law ITR-U cannot be filed if there is zero tax implication after updating the return which will be the case even after schedule FA is shown as the income from FA is less than Rs. 500. Now one way, as mentioned on the internet is, to increase the income from say FD interest to an extent so that we are liable to pay Rs. 500-Rs. 1000 tax along with correcting and mentioning the schedule FA. But this seems to be artificially increasing the income to show the FA. This is why I asked Respected Sh. Padmanathan Kollengode Ji whether ITR-Rectification can be filed here instead of ITR-U? or is there any other way out.

Moreover ITR-U can only be corrected in the excel utility whereas ITR-Rectification can be corrected from the income tax website only. Please correct where I am wrong in understanding the same.

[Nanu Arora]

Respected @KASTURI SETHI Ji and Respected @Padmanathan Kollengode Ji

Thanks for replying. Respected Sh. Kasturi Ji, we are ready to file ITR-U, but I have gone through the same and as per law ITR-U cannot be filed if there is zero tax implication after updating the return which will be the case even after schedule FA is shown as the income from FA is less than Rs. 500. Now one way, as mentioned on the internet is, to increase the income from say FD interest to an extent so that we are liable to pay Rs. 500-Rs. 1000 tax along with correcting and mentioning the schedule FA. But this seems to be artificially increasing the income to show the FA. This is why I asked Respected Sh. Padmanathan Kollengode Ji whether ITR-Rectification can be filed here instead of ITR-U? or is there any other way out.

Moreover ITR-U can only be corrected in the excel utility whereas ITR-Rectification can be corrected from the income tax website only. Please correct where I am wrong in understanding the same.

[Padmanathan Kollengode]

Nanu Sir,

Your understanding is correct. If return has already been filed before and there is no additional income to be declared, then you may not be able to file ITR-U.

It is not advisable to show some bogus income for Rs.1000 or Rs.5000 just for declaring this missed out information.

Pls conisder intimating the relevant information to the Jurisdictional AO thru a letter so that in future, if at all any proceedings are initiated, your bona fides will be proved and no penalty can be imposed.

[Padmanathan Kollengode]

I have not personally tried rectification in such scenario. But kindly see whether it is feasible in the Income Tax portal. If rectification can be filed, well and good.

[Nanu Arora]

Thanks for taking time and replying respected @Padmanathan Kollengode Ji. What should we mention in the letter to the AO? Wouldn't he directly impose penalty or take action if we approach him directly?

About rectification, how to be sure that in rectification this missed out information can be shown? These are the three options under which rectification of return can be filed First one is not applicable for us. The last line of the second point says to not declare any new sources of income. In our case source of income is less than Rs. 500 from international stocks. If we did not show it but just show the holdings, then is this okay? The last point, can that be applicable in our case?

[Nanu Arora]

Respected @Padmanathan Kollengode Ji,

As per your last reply, we discussed at home and with many people. Your viewpoint of letting the AO know ourselves might lead to harassement and corruption practices, as some AO's and not all in our city have a bad reputation about this. Is it advisable to send a mail to Bangalore cpc about this? Will they guide us here?

This is what we have understood by going through the acts

ITR-R

Most of the sections/articles say that this is to be filed against intimation order of 143(1) or against an AO. Now as per the IT website, one cannot declare an additional source of income here, PFA this photo https://imgur.com/a/LpbKz1z. Also the common offline utility software is not available for FY 2022-203 on the income tax website for ITR-R.

ITR-U

Most of the sections/articles say that if by filing FA schedule won't have any impact on the tax implication so as per law ITR-U cannot be filed if there is zero tax liability. Now one way to counter this as suggested by you is to artificially increase income to pay around 500-1000 tax, but you are also correct that showing bogus income is not good.

Is there any way out of this? We are clueless about this since the past many months.

Tagging Sh. @KASTURI SETHI Ji also.

Thanks

 

[Anil G]

Hi sir,

I'm in a similar situation, did you get any resolution on this?