For those who have not yet filed their tax returns and are planning to file directly (without using a chartered accountant or intermediary) through the tax-filing utility (which nearly 46 percent of tax filers used in the last assessment year), it’s important to closely examine their Annual Information Statement (AIS). They might find some entries that should not have been included in the AIS.
For example, a Moneycontrol reader recently called in to complain that he noticed that cashback received for referring people for a credit card was mentioned in his AIS. While one can argue that cashbacks are money coming into your hands, it is arguable whether one needs to pay tax on it.
“Cashbacks are often offered as a discount linked to a spend that a person makes. It is a reduction from an expense and not an income. It is also impossible to quantify the value of the points due to redemption clauses and expiry, etc,” says Vaibhav Sankla, founder of Billion BaseCamp.
The question is why is cashback reflected in a statement of income taxes deducted?
Chartered accountants Moneycontrol spoke with say that quite a few such instances have been seen where figures reported in the AIS are inflated and also include income which may not be liable to taxes.
The errors in reporting could be linked to a lack of understanding of what exactly needs to be reported. Since the government has increased the number of entities which need to report transactions, in a bid to widen the tax net, many new types of income and expenses are being reported as Specified Financial Transactions (SFT).
Banks, stock brokers and registrars, mutual funds, credit card issuers, schools, hotels, travel agents, forex service providers, jewellers, schools, corporates issuing dividends, electricity utility providers and property sub-registrars need to report high-value transactions to the government along with the Permanent Account Number (PAN) to ensure someone who is indulging in high-value money transactions doesn’t escape paying taxes.
“The reporting entities – whether financial services or corporates – have used their own interpretation of the SFT regulations on the type of transactions to be reported. There needs to be appropriate awareness to ensure these errors aren’t reported,” says Mayank Mohanka, founder director of TaxAaram India.
Shares and IPOs
There have been errors in reporting share transactions too – which are mandated only if the value exceeds Rs 10 lakh. Firstly, the same transactions are reported by multiple agencies like companies as well as the stock exchanges, depositories and stockbrokers.
Additionally, the value to be mentioned in the SFT is wrong. Take, for instance, the case of Ramnik Lal (name changed on request), who applied for 1,000 shares for an initial public offer, but was allotted only 3 shares. Ideally, the reporting entity should have mentioned the value of 3 shares only, but Ramnik Lal’s AIS mentions the amount equivalent to 1,000 shares, which wasn’t allotted to him.
Under the buyback offered by Wipro Industries and Welspun held on May 29, 2023, a Moneycontrol reader wrote in pointing out that the total amount of the shares tendered under the buyback was mentioned in the AIS and not the value of shares accepted under the buyback. “Only if the transaction value is above Rs 10 lakh should these buyback transactions be reported. While a client of mine tendered shares worth Rs 10 lakh in the Wipro buyback, but if only shares worth Rs 25,000 were accepted in the buyback, then it is wrong to report Rs 10 lakh, even though the final transaction of only Rs 25,000 took place,” argues chartered accountant Mehul Sheth.
Joint transactions
Similarly for mutual funds too multiple reporting is being done. While a transaction of Rs 10 lakh or more is being reported by transfer agencies such as CAMS, KFinTech and the mutual fund house itself, there are cases where joint holders have invested, where the total amounts are inflated.
For instance, if a mother and son have redeemed Rs 30 lakh from a fund house, then in the case of joint holders, the amount should be Rs 30 lakh against the first holder’s PAN. Instead, a Moneycontrol reader complained that both he and his mother (joint holder) got Rs 30 lakh income reflected in both their AISs due to duplicity.
A source in the mutual fund industry has highlighted that the matter has been taken up with the regulators due to the severity and confusion caused by the reporting guidelines.
Also read | ITR filing deadline: 8 tips for filing error-free income tax returns at the last minute
House property transaction
The amount reported under house property transactions too are erroneously mentioned due to both the property value and the tax deduction at source. The math goes awry in case a property has more than one owner.
Chaitanya Pawar had booked an under-construction property worth Rs 5 crore, for which instalment of Rs 50 lakh was paid. After the registration deed was done, he saw his AIS mentioning an amount of Rs 5.505 crore as the transaction amount.
When he took a closer look, he realised that the transaction amount of Rs 5 crore, which hasn’t been paid yet was mentioned due to the registration deed value. Additionally, the instalment amount of Rs 50 lakh and the tax deducted at source (TDS) of 1 percent was added to it leading to erroneous figures.
Also read | Ten ITR filing mistakes that you must avoid
Rental income
Landlords are finding old tenants reporting rental income against their PAN, even though they no longer reside in their homes.
“My client hasn’t received any rent in financial year 2023-24. Even though the tenant has moved houses, they are using the old PAN (of the said client) as reported in earlier returns to deduct 1 percent TDS and report rental income,” says Sheth, who had to submit feedback stating “wrong information” in the client's AIS after this was discovered.
Also read | ITR filing 2023-24: Errors in your income tax return? Here’s what you can do
What should you do?
While the debate on whether the cashback qualifies as income is yet to be ascertained, chartered accountants suggest two steps to undertake if such an income is reflected in your AIS.
“If you have earned these cashbacks due to the nature of your business, then you can report income as business income or income from other sources, the latter being easy to claim,” says Karan Batra, founder of CharteredClub.com.
Apart from ascertaining whether the income belongs to you, also use the feedback mechanism under the AIS as a corrective measure.
“One need not incorporate the income if it is wrongly mentioned. You can file a response under the AIS feedback system by selecting the option ‘Income doesn’t belong to me,” says Mohanka.
In the case of high-value property transactions, if the value of Rs 1 crore is mentioned as Rs 3 crore due to multiple owners and duplicity of SFT reporting, then you can select the option of duplicate information.
But not taking any action or just ignoring will not help. This is because AIS is a dynamic form and keeps on updating. If the figures do not match with your returns filed then you will receive a notice and processing your returns would be difficult.
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