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Filing income tax return using ITR-3

May 23, 2024
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What is ITR-3 Form?

Think of ITR-3 as your go-to form if you’re an individual or part of a Hindu Undivided Family (HUF) earning profits from business or profession. It’s like a master form because it’s where you can report all your different streams of income. Whether it’s from your business ventures, freelance gigs, or any other professional endeavors, ITR-3 is the one-stop destination for capturing all your financial activities and ensuring compliance with tax regulations.

The Eligibility Criteria for file ITR 3 for AY 2024-25:

  • Conducting a company or profession (including tax audits and non-audit instances).
  • The return may include income from house property, salary/pension, capital gains, and other sources.
  • Compensation from a partnership firm.

Who is not Eligible for filing ITR-3?

Only individuals and Hindu Undivided Families (HUFs) can file the ITR-3 form. It’s exclusively designed for them. If you’re not running a business, practicing a profession, or part of a partnership firm, then ITR-3 isn’t the form for you. It’s tailored for those actively involved in business activities, ensuring they accurately report their earnings and comply with tax regulations.

The ITR-3 modifications for AY 2024–2025 filing are listed below.

The new tax regime is the default, and taxpayers must opt out to use the old regime.

The Finance Act of 2023 brought changes to Section 115BAC, making it the default tax regime for individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and Artificial Juridical Persons (AJPs). Under this new regime, if you’re in one of these categories, you’ll automatically be taxed according to the provisions of Section 115BAC. However, if you prefer to stick with the old tax regime, you’ll need to actively opt out of the new one and choose to be taxed accordingly.

To make this choice, if you’re an individual with income (excluding income from business or profession), you need to specify your preferred tax regime in the income tax return you file for the relevant assessment year under Section 139(1). This means actively indicating whether you opt for the new tax regime or prefer to stick with the old one.

If you’re an assessee with income from a business or profession and wish to revert to the old tax regime for a specific year, you can do so by filling out Form No. 10-IEA. This form allows you to exercise your option to switch to the old tax regime. Make sure to submit this form on or before the due date for filing your income tax return under Section 139(1). This ensures that your choice is duly registered and implemented for the relevant assessment year.

Simply put, an assessee submitting ITR 2 is just required to specify his tax regime preference in the income return. An assessee filing ITR 3 must complete Form 10-IEA to opt out of the new tax regime.

The new ITR Forms have been modified to include this modification.

√”Receipts in Cash” section added to claim enhanced turnover limit.

The Finance Act of 2023 raised the turnover threshold for availing the presumptive taxation scheme under Section 44AD from INR 2 crores to INR 3 crores. This scheme applies if cash receipts don’t exceed 5% of the total turnover or gross receipts of the previous year. Additionally, the definition of “cash” now includes cheques or bank drafts that aren’t marked as “account payee”.

In line with the amendments in the Finance Act of 2023, Section 44ADA saw an enhancement in the threshold limit of gross receipts from INR 50 lakhs to INR 75 lakhs. This provision applies when cash receipts don’t surpass 5% of the total gross receipts of the previous year.

To implement these changes, the Central Board of Direct Taxes (CBDT) updated the Income Tax Return (ITR) forms to include a new column labeled “receipts in cash” in the Schedule BP. This addition allows taxpayers to disclose their cash turnover or cash gross receipts, aligning with the revised thresholds introduced by the amendments.

√Disclosure of the amounts payable to MSME beyond the prescribed time limit.

Section 43B addresses specific deductions that are to be granted on a payment basis. Thus, even if an assessee uses the mercantile way of accounting, deductions for the specified expenses will be allowed only after payment has been received.

Part A-OI (Other Information) requires the assessee to provide details of any payments rejected under Section 43B in past years but acceptable in the current year.

The Finance Act of 2023 introduced a new clause (h) in Section 43B to address payments due to micro or small enterprises. According to this amendment, any payment to such enterprises made beyond the time limit specified in Section 15 of the Micro, Small, and Medium Enterprises Development Act 2006 (MSME Act) will not be eligible for deduction.

In line with this amendment, a new column has been added under Part A-OI (Other Information) of the Income Tax Return forms. This column is specifically designated for disclosing any outstanding payments to Micro or small enterprises that exceed the time limit prescribed by the Micro, Small, and Medium Enterprises Development (MSMED) Act.

√Disclosure of information on the Capital Gains Accounts Scheme

In the Schedule-CG of the Income Tax Return (ITR) forms, taxpayers are asked to provide details about any capital gains they’ve earned. This includes information about the capital asset that was sold, details about the buyer, and specifics regarding any expenses incurred for claiming exemptions related to capital gains.

In the recently updated ITR-2 form, there have been modifications to Schedule-CG to gather more comprehensive information related to the Capital Gains Accounts scheme (CGAS). The revised schedule now includes additional details such as the:

  • date of deposit
  • account number
  • IFS code associated with sums deposited in the CGAS.
  • Until the preceding Assessment Year, taxpayers were simply needed to furnish information about the amount placed in CGAS.

√Reporting on all banks owned at any time

In the latest ITR forms, taxpayers are required to provide details about their bank accounts, including selecting a specific account for receiving income tax refunds. Notably, it’s mandatory for taxpayers to disclose all bank accounts they’ve ever held, except for dormant accounts. This ensures transparency and accuracy in reporting financial information to tax authorities.

√Schedule-OS includes an additional field for the declaration of bonus payments received from life insurance plans.

The Finance Act of 2023 introduced several changes regarding the taxation of life insurance policies. One notable amendment is the insertion of a new clause (xiii) in Section 56(2). This clause states that the amount received from life insurance policies with excess or high premiums is taxable under the head ‘other sources’. This means that such sums received will be subject to taxation as income from other sources.

The ITR forms have been amended to include reporting of such income in Schedule OS.

√Description of Legal Entity Identifier (LEI)

The Legal Entity Identifier (LEI) is a 20-character alpha-numeric identifier that is used to uniquely identify parties in financial transactions around the world. It was adopted to increase the quality and accuracy of financial data reporting systems, resulting in better risk management.

According to RBI regulations, all single payment transactions of INR 50 crores or more done by entities (non-individuals) must contain remitter and beneficiary LEI information. This applies to transactions completed using the NEFT and RTGS payment systems.

To comply with RBI regulations, the latest ITR forms now include a column for taxpayers to provide their Legal Entity Identifier (LEI) number. This requirement applies to taxpayers seeking a refund of INR 50 crores or more. This ensures alignment with banking regulations and enhances transparency in financial transactions.

√Provision of the reason for a tax audit under Section 44AB.

In the updated ITR-3 form, taxpayers subject to audit under Section 44AB are now required to provide additional details regarding the circumstances necessitating the audit. This includes scenarios such as sales, turnover, or gross receipts surpassing the thresholds specified under Section 44AB, the assessee falling under provisions like Section 44AD/44ADA/44AE/44BB but not opting for presumptive income, and any other relevant circumstances triggering the audit requirement. This ensures clarity and transparency in the audit process.

√Furnishing the acknowledgement number for the Audit Report and UDIN.

Companies must include the acknowledgment number of the audit report as well as the UDIN when submitting information about audits conducted under Section 44AB, including those undertaken under Section 92E.

√New Schedule 80GGC seeks information on contributions made to political parties.

The updated ITR forms now feature a new Schedule 80GGC, designed to streamline the reporting process for deductions related to contributions to political parties or electoral trusts. This schedule requests specific details, including the date of contribution, contribution amount (with a breakdown of cash and other modes), eligible contribution amount, transaction reference number for UPI transfer or cheque number/IMPS/NEFT/RTGS, and the IFS code of the bank. This ensures accurate and comprehensive reporting of political contributions, facilitating compliance with tax regulations.

Unlike prior ITRs, the new ITR forms demand more information than only the amount eligible for deduction under Section 80GGC.

√The ‘Schedule – Tax Deferred on ESOP’ form requires the PAN and DPIIT Registration Number of a qualifying startup

When an employer grants securities to an employee through an Employee Stock Ownership Plan (ESOP) scheme, either free of cost or at a reduced rate, it constitutes a taxable perquisite for the employee in the year when the securities are allotted. However, there’s a unique provision for employees of eligible startups: the responsibility for paying or deducting tax on this perquisite is deferred. This means that the tax liability associated with the allotment of securities is postponed for employees of eligible startups.

In the Income Tax Return forms, there’s a dedicated section called ‘Schedule – Tax Deferred on ESOP’ where employees of eligible startups can furnish details regarding the tax-deferral arrangement mentioned in Section 17(2)(vi). This schedule requires information such as the assessment year, the amount of deferred tax brought forward from previous years, the amount of tax payable in the current assessment year, and the remaining balance of tax deferred to be carried forward to the next assessment year. This helps ensure accurate reporting and management of tax obligations related to ESOPs for employees of eligible startups.

To promote transparency, the updated ITR forms have revised the ‘Schedule – Tax Deferred on ESOP’ to include additional information. Now, along with existing details, such as assessment year and tax amounts, taxpayers are required to provide the PAN of the employer (an eligible startup) and its DPIIT Registration number. This enhancement ensures clearer documentation and verification of tax-deferral arrangements related to ESOPs for employees of eligible startups.

√A new column was added to claim deductions under Section 80CCH

In line with the Finance Act of 2023, a fresh provision, Section 80CCH, has been introduced. This section stipulates that individuals who enroll in the Agnipath Scheme and subscribe to the Agniveer Corpus Fund on or after November 1, 2022, are entitled to claim a deduction for the amount they deposit into the Agniveer Corpus Fund. This initiative aims to encourage participation in the Agnipath Scheme and promote contributions to the Agniveer Corpus Fund, ultimately fostering individual savings and investment habits.

The latest updates to the ITR forms now feature a new column specifically designed for taxpayers to disclose the amount eligible for deduction under Section 80CCH. This addition streamlines the process of reporting deductions related to contributions made to the Agniveer Corpus Fund under the Agnipath Scheme, ensuring that taxpayers can accurately claim the benefits they’re entitled to.

√Schedule 80U allows assessees with disabilities to claim deductions.

Under Section 80U, resident individuals grappling with a disability or severe disability are eligible for deductions. If an individual is coping with a disability, they can claim an absolute deduction of INR 75,000, while those facing severe disability can avail a higher deduction of INR 1,25,000. This provision aims to alleviate the financial burden for individuals contending with disabilities, recognizing the additional expenses they may incur due to their condition.

In earlier versions of the ITR forms, taxpayers had to report the deduction claimed under Section 80U in Schedule VI-A. However, the latest iteration of ITR-3 introduces a dedicated ‘Schedule 80U’. This new schedule specifically requests details of deductions applicable to individuals with disabilities. This change simplifies the reporting process, allowing for more accurate and comprehensive documentation of deductions related to disability for taxpayers filing ITR-3.

The ‘Schedule 80U’ seeks the following details:

  • Nature of disability
  • Date of filing Form 10-IA
  • Acknowledgment number of the Form 10-IA
  • UDID number (If available)

√The new Schedule 80DD requests information on the maintenance and medical care of individuals with disabilities

Under Section 80DD, resident individuals or Hindu Undivided Families (HUFs) supporting family members with disabilities can claim deductions. If the family member has a disability, a deduction of INR 75,000 is permitted, while for severe disabilities, the deduction increases to INR 1,25,000. This provision aims to ease the financial burden on taxpayers caring for disabled family members, recognizing the additional expenses they may incur for medical treatment or insurance premiums.

Previously, taxpayers listed their deductions under Section 80DD in Schedule VI-A of the ITR forms. This section covered deductions for expenses related to the maintenance and medical treatment of dependents with disabilities. The new ITR forms have now introduced a dedicated ‘Schedule 80DD’, which specifically asks for detailed information about these deductions, making it clearer and more focused on the support provided for dependents with disabilities.

These details comprise:

  • Nature of the disability
  • Type of dependent (spouse, son, daughter, father, mother, brother, sister or member of the HUF)
  • PAN of the dependent
  • Aadhaar of the dependent
  • Date of filing and acknowledgement number of Form 10-IA
  • UDID Number

√Section 115BBJ requires disclosure of winnings from online games.

The Finance Act 2023 has introduced a new Section 115BBJ, which taxes winnings from online games starting from the assessment year 2024-25. Alongside this, Section 194BA has been added, effective April 1, 2023, to ensure tax is deducted at source (TDS) from net winnings. This means that all winnings from online games from April 1, 2023, onwards will be taxable under Section 115BBJ and subject to TDS under Section 194BA.

 To report such income in ITR form, Schedule OS has been amended to disclose income by way of winning from online games chargeable under Section 115BBJ.

√Reporting dividend income from IFSC units.

The Finance Act, 2023 has made a beneficial change to Section 115A. Now, dividend income received from a unit in an International Financial Services Centre (IFSC), as mentioned in Section 80LA(1A), will be taxed at a reduced rate of 10% instead of the previous 20%. To reflect this change, the new ITR forms have updated ‘Schedule OS’ to include this provision.

√Reporting payments received by unitholders from the business trust.

To avoid the dual non-taxation of certain payments distributed by business trusts to their unitholders, the Finance Act of 2023 added clause (xii) to Section 56(2).

Section 56 of the Income Tax Act deals with income that falls under “Income from Other Sources.” According to Section 56(2)(xii), any sum received by a unitholder is taxable as such. Additionally, when redeeming units, the proviso to this clause allows the unitholder to deduct the cost of acquiring the units from the total amount received upon redemption. This ensures that only the profit is taxed, not the entire sum received.

To disclose income obtained by the unitholder under Section 56(2)(xii), ITR forms have been updated with a new column under Schedule-OS.

√Adjustment of unabsorbed depreciation (for increased depreciation) from WDV of the block of assets as of 01-04-2023.

The Finance Act 2020 introduced Section 115BAC, starting from the assessment year 2021-22, offering individuals and HUFs an alternative tax regime with lower rates. The Finance Act 2023 expands this option to include Associations of Persons (AOP), Bodies of Individuals (BOI), and Artificial Juridical Persons (AJP), making it the default tax regime. However, to benefit from the lower rates, taxpayers must give up various exemptions and deductions.

If an assessee chooses Section 115BAC, he or she cannot deduct the unabsorbed depreciation due to increased depreciation. Such unabsorbed depreciation due to additional depreciation that has not been fully applied shall be adjusted to the block of assets’ write down value (WDV) as of 01-04-2023 in the stipulated manner. The third caveat to Rule 5(1) states that the WDV of the block of assets as of January 4, 2023 will be enhanced by any depreciation that cannot be written off.

The new ITR forms have updated Schedule DPM, which covers depreciation on Plant and Machinery. Now, the Written Down Value (WDV) of the block as of April 1, 2023, will be increased by any unabsorbed depreciation from additional depreciation. This adjustment is necessary for those who chose the tax regime under Section 115BAC and couldn’t adjust this depreciation earlier.

√Newly adopted Schedule VDAs (voluntary disclosure agreements) explain revenue from cryptocurrency and other VDAs.

The latest update to the ITR forms introduces a new Schedule VDA. It’s designed for reporting income specifically from crypto and other Virtual Digital Assets (VDAs). If you categorize this income as capital gains, you’ll need to provide quarterly details under the Capital Gains Schedule. In the revamped ITR-3 form, every VDA transaction must be disclosed, including the dates of purchase and sale.

 The new ITR 3 form includes questions to establish if you opted out of the New Tax Regime in past years.

 Foreign institutional investors (FII/FPI) must supply their SEBI registration number for further disclosure purposes.

In the updated ITR-3 form, there’s a slight adjustment in balance sheet reporting. Advances received from individuals specified in Sec 40A(2)(b) of the Income Tax Act, along with others, are now to be listed under the ‘Advances’ section within the Source of Funds category. This ensures clarity and compliance with tax regulations.

 A new section called ‘Trading Account’ has been introduced in the latest ITR forms. Now, turnover and income generated from intraday trading activities should be reported within this section. This change aims to streamline the reporting process and ensure accurate disclosure of trading-related earnings.

These are the Key changes to Income tax Return form which is applicable to mostly for Person Filing ITR-2.

What is the due date for filing the ITR FORM 3?

The due date for filing ITR-3 for individuals and HUFs not subject to audit is usually July 31 of the assessment year. However, it’s advisable to check for any extensions or changes announced by the Income Tax Department.

FAQs (Frequently Asked Questions).

1.    What documents are needed to file ITR-3?

Answer: Documents such as PAN card, Aadhaar card, bank statements, TDS certificates, details of income from business or profession, balance sheet, profit and loss account, and other relevant financial documents are required.

2.   What is the penalty for late filing of ITR-3?

Answer: penalty under Section 234F is applicable for late filing of ITR. The penalty amount varies depending on the delay and the taxpayer’s total income.

3.    What if there are mistakes in the filed ITR-3?

Answer: Mistakes can be rectified by filing a revised return using the online portal within the stipulated time frame.

  4.    Where can I get help in filing ITR-3?

·         Consult a tax professional or chartered accountant.

·         Use online e-filing platforms that offer guided assistance.

·         Refer to the Income Tax Department’s website for guides and tutorials.

5.    What is Schedule VDA in the new ITR-3?

Answer: Schedule VDA is a new section introduced to report income from Virtual Digital Assets (VDAs) such as cryptocurrencies. Each VDA transaction, including dates of purchase and sale, must be reported.

6.    What changes have been made to balance sheet reporting in ITR-3?

Answer: The new ITR-3 form requires advances received from individuals specified in Sec 40A(2)(b) of the Income Tax Act and others to be reported under the ‘Advances’ heading in Source of Funds.

7.    How should turnover and income from intraday trading be reported in ITR-3?

Answer: Turnover and income from intraday trading must be reported under the newly introduced section ‘Trading Account’ in the ITR-3 form. 

DISCLAIMER: The information provided in this ITR-3 form is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in. the appropriate government authority to verify the accuracy of the information and to obtain advice on their specific tax situations.

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