Three things to keep in mind while filing ITR

Mrin Agarwal Financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra.

The tax filing season is here. It is a taxing time for most people as they find the tax system complex and confusing. Deciding the regime, the ITR form and putting all data together for the filing are the common challenges. While individuals are focused on the housing sections and other tax deductions, there are 3 areas which need attention as well.

First, taxpayers need to check the Annual Information Statement (AIS) and reconcile it with their data. The AIS is a single, comprehensive document  which shows all financial transactions in a financial year. It carries information on income from salary, tax deducted at source, interest income, dividends, securities & immovable assets transactions, cash deposits, remittances and many more financial transactions.

It is essential to match the AIS with the taxpayer’s records to ensure accuracy in filing returns and avoiding notices and penalties. Many taxpayers are not aware of the need to do this. In case of a mismatch of data, the taxpayer has the ability to provide feedback and  the same is taken up with the reporting source. 

Second, add capital gains from stocks and mutual funds to the tax calculation. There is a lack of awareness on the need to pay capital gains taxes. Further, the capital gains are also not being reported correctly with the sale date being shown as the last date of the financial year and calculation errors. For mutual funds, taxpayers can access the capital gains statement for the financial year, from the mutual fund registrars CAMS and Karvy Fintech. The statement has all the information on the date of purchase, date of sale and amount of capital gains tax. The statement can be downloaded in the excel format for further use.

Third, do not forget to declare foreign stocks holding. Most individuals believe that they do not need to declare foreign stocks until they sell the same. This is not true. Foreign stocks acquired directly or through company restricted stock unit (RSU) need to be declared under the Schedule of foreign assets(FA) in ITR2/ITR3.It is relevant to note that any individual holding foreign assets irrespective of their income will need to file ITR2/ITR3. Schedule FA reporting is done on the accounting year of the foreign country, in Indian rupees. The assets need to be converted at the telegraphic transfer buying rate which is the exchange rate provided by State Bank of India.

Further, the capital gains on sale of foreign stocks is different from domestic stocks. The long-term capital gains on foreign stocks is applicable post holding the stock for 2 years and is taxed at 20% with indexations. Foreign stocks held for less than 2 years are taxable at slab. Dividend income from foreign stocks is to be shown in income from other sources and is taxed at slab. In case of withholding tax deduction by the foreign country, the taxpayer can claim tax credit under the Double Taxation Avoidance Agreement but would need to file Form 67 and then make the relevant declarations in Schedule TR and FSI. 

The ITR filing of foreign stocks and capital gains is complex and it is recommended to take the help of a chartered account to file returns.

All the above are very important to file the ITR correctly and taxpayers must start working on the same right away.