Key Changes in New ITR Forms 1 & 4 for Assessment Year 2020-21

The Central Board of Direct Taxes (CBDT) has notified the Income-tax Return (ITR)
Forms 1 and 4 for the Assessment Year 2020-21. These ITR Forms will be applicable
for filing of Income-tax return in respect of income earned during the previous year
2019-20 (between 01-04-2019 to 31-03-2020).

The Punjab and Haryana High Court in the case of Vishal Garg v. Union of India [2015]
61 taxmann.com 418 had issued directions to Income-tax Dept. that forms for audit
report and for e-filing of returns should ordinarily be made available on the first day
of April of the assessment year. A couple of years ago the Court was issuing directions
to the Dept. to release the forms on time, but this year the Dept. has taken a proactive
approach to notify the new ITR form in advance. Possibly this is the first time that
Department has notified the ITR forms before the relevant assessment year begins. It
must be noted that only the ITR Forms have been notified without the corresponding
return filing utility. Though the structure of new ITR-1 & 4 remains same, yet the no.
of changes in these ITR forms are several.

We have scrutinized the new ITR Forms and have identified the key changes in new
ITR forms viz-a-viz last year’s ITR Forms. These changes have been explained below.

1. Which ITR Forms can be used for filing of return?

Individual and HUF

Nature of income ITR 1* ITR 2 ITR 3 ITR 4 *

Salary Income
Income from salary/pension (for ordinarily ✓ ✓ ✓ ✓
resident person)
Income from salary/pension (for not ✓ ✓
ordinarily resident and non-resident person)
Any individual who is a Director in any ✓ ✓
company
Income from House Property
Income or loss from one house property ✓ ✓ ✓ ✓
(excluding brought forward losses and losses
to be carried forward)
Individual has brought forward loss or losses ✓ ✓
to be carried forward under the head House
Property
Income or loss from more than one house ✓ ✓
property
Own a property in joint-ownership ✓ ✓
Income from Business or Profession
Income from business or profession ✓
Income from presumptive business or ✓
profession covered under section 44AD,
44ADA and 44AE (for person resident in India)
Income from presumptive business or ✓
profession covered under section 44AD,
44ADA and 44AE (for not ordinarily resident
and non-resident person)

Interest, salary, bonus, commission or share of ✓

profit received by a partner from a partnership
firm
Capital Gains
Taxpayer has held unlisted equity shares at ✓ ✓
any time during the previous year
Capital gains/loss on sale of ✓ ✓
investments/property
Income from Other Sources
Family Pension (for ordinarily resident person) ✓ ✓ ✓ ✓
Family Pension (for not ordinarily resident and ✓ ✓
non-resident person)
Income from other sources (other than income ✓ ✓ ✓ ✓
chargeable to tax at special rates including
winnings from lottery and race horses or losses
under this head)
Income from other sources (including income ✓ ✓
chargeable to tax at special rates including
winnings from lottery and race horses or losses
under this head)
Dividend income exceeding Rs. 10 lakhs ✓ ✓
taxable under Section 115BBDA
Unexplained income (i.e., cash credit, ✓ ✓
unexplained investment, etc.) taxable at 60%
under Section 115BBE
Person claiming deduction under Section 57 ✓ ✓
from income taxable under the head ‘Other
Sources’ (other than deduction allowed from
family pension)
Deductions
Person claiming deduction under Section ✓ ✓
80QQB or 80RRB in respect of royalty from
patent or books
Person claiming deduction under section ✓
10AA or Part-C of Chapter VI-A
Total Income
Agricultural income exceeding Rs. 5,000 ✓ ✓
Total income exceeding Rs. 50 lakhs ✓ ✓
Assessee has any brought forward losses or ✓ ✓
losses to be carried forward under any head of
income
Computation of Tax liability
If an individual is taxable in respect of an ✓ ✓
income but TDS in respect of such income has
been deducted in hands of any other person
(i.e., clubbing of income, Portuguese Civil
Code, etc.)
Claiming relief of tax under sections 90, 90A or ✓ ✓
91

Others
Assessee has: ✓ ✓
 Income from foreign sources
 Foreign Assets including financial interest
in any foreign entity
 Signing authority in any account outside
India
Income has to be apportioned in accordance ✓ ✓
with Section 5A
Assessee has: ✓ ✓ ✓
 Has deposited more than Rs. 1 crore in one
or more current account; or
 Has incurred more than Rs. 2 lakhs for
travel to foreign country for himself or any
other person; or
 Has incurred more than Rs. 1 lakh towards
electricity consumption.
* ITR-1 can be filed by an Individual only who is ordinarily resident in India. ITR-4 can be
filed only by an Individual or HUF who is ordinarily resident in India and by a firm (other
than LLP) resident in India.

Other Assessees

Status of Assessee ITR 4 ITR 5 ITR 6 ITR 7

Firm (excluding LLPs) opting for presumptive ✓
taxation scheme of section 44AD, 44ADA or
44AE
Firm (including LLPs) ✓
Association of Persons (AOP) ✓
Body of Individuals (BOI) ✓
Local Authority ✓
Artificial Juridical Person ✓
Companies other than companies claiming ✓
exemption under Section 11
Persons including companies required to ✓
furnish return under:
 Section 139(4A);
 Section 139(4B);
 Section 139(4C);
 Section 139(4D);
Business Trust ✓
 Investment Fund as referred to in Section ✓
115UB

2. Who has to file return electronically for the Assessment Year 2020-21?

For the Assessment Year 2020-21, every taxpayer shall file the income-tax return
electronically except a super senior citizen (whose age is 80 years or above during the
previous year 2019-20) who furnishes the return either in ITR-1 or ITR-4.

Till Assessment Year 2018-19, an option was available with every taxpayer, whose
income was below Rs. 5 lakhs, to file the return in physical form. This option had been
withdrawn from Assessment Year 2019-20. Thus, it is now mandatory for every
taxpayer (except super senior citizen) to file the return only electronically.

Return of income can be filed through electronic mode using any of the following three
options:

1. E-filing using a Digital Signature (DSC)

2. E-filing without a Digital Signature
3. E-filing under Electronic Verification Code (EVC)

The options mentioned above have been enumerated below.

Particulars E-Filing E-Filing E-Filing Paper Filing*

with DSC without DSC with EVC

Individual whose age is 80 years or ✓ ✓ ✓ ✓

above
Individual or HUF who is subject to ✓
tax audit under Section 44AB
Any other Individual or HUF ✓ ✓ ✓
Company ✓
Political Parties ✓
Any person filing return in ITR-7 ✓ ✓ ✓
(other than a political party)
Any person filing return in ITR-5 (if ✓
tax audit is mandatory)
Any person filing return in ITR-5 (if ✓ ✓ ✓
tax audit is not mandatory)
* Return can be filed in paper format by a super senior citizen only if he furnishes the return either
in ITR-1 or in ITR-4.

3. Scope of ITR-1 is further restricted

To ensure that individuals, entering into certain high value transactions, furnish the
Income- tax return, seventh proviso to section 139 was inserted by the Finance (No. 2)
Act, 2019 to provide that, any person, who is otherwise not required to file the return
due to the reason that his income does not exceed the maximum exemption limit, shall
file the return of income, if during the previous year:

1. He has deposited more than Rs. 1 crore in one or more current account maintained
with a bank or a co-operative bank;
2. He has incurred more than Rs. 2 lakh for himself or any other person for travel to
a foreign country;
3. He has incurred more than Rs. 1 lakh towards payment of electricity bill; or
4. He fulfils such other conditions as may be prescribed.

With effect from Assessment Year 2020-21, Rule 12 has been amended to provide that
a resident individual cannot furnish return of income in ITR-1 if he is required to
furnish ITR under seventh proviso to Section 139(1).

It must be noted that the ITR-1 has been withdrawn only in those cases which fall
specifically in seventh proviso to section 139(1). Thus, an assessee, who is not covered
in said proviso, can file return of income in ITR-1 even if he has entered into specified
financial transactions.

It would be difficult to assume that a person does not have income exceeding the
maximum exemption limit but he has entered into high value transaction. If this
situation does not arise at all, the amendment in the Rule 12 will not impact the
existing taxpayers and they can continue to file return in ITR-1. It does not seem to be
the intention of the Dept. So it is advisable that if an assessee, who is otherwise liable
and eligible to file return in ITR-1, has entered into high value transaction should
refrain from using ITR-1. His return may be deemed as defective return.

Example, Mr. A has total taxable income of Rs. 2 lakh. During the previous year 2019-
20, he has paid electricity bill of Rs. 1.5 lakhs. As he is falling specifically under the
seventh proviso to section 139(1), he cannot file return of income in ITR-1. Assuming
that his income is Rs. 5 lakh, which exceeds maximum amount not chargeable to tax,
he will not be covered by the seventh proviso to section 139. Thus, he may file his return
in ITR-1. This does not seem to be the intention of the dept. because of the reasons
given above.

4. Return in ITR-1 & ITR-4 cannot be filed by a person who owns a house property
in joint-ownership

For the Assessment Year 2020-21, an individual or HUF, who owns a house property
in joint-ownership, cannot file return of income in ITR -1 or ITR-4. Such person, if
eligible to file return in ITR-1 or ITR-4 till last assessment year, will now file return in
ITR-2 or ITR-3, as the case may be.
5. Return in ITR-1 cannot be filed by an individual who has received a notice
pursuant to search proceedings
Up to Assessment Year 2019-20, an individual taxpayer could even file his return of
income (ITR) in Form ITR-1 in response to a notice issued by the Income-tax Dept.
under section 153A or section 153C.

Section 153A contains provision for assessment in case of search or requisition,

whereas section 153C deals with assessment of income of a person other than person
referred to in section 153A.

The new provisions removes the option to file return in ITR-1 in response to notice
issued under section 153A or section 153C. Thus, if a notice under these sections is
issued to an individual taxpayer, he is required to file ITR-2 only.

It must be noted that ITR-1 is the simplest Form which asks for very limited number
of information from the individual taxpayer. Whereas ITR-2 is comparatively a bulkier
form which requires plentiful information from the taxpayer.
6. Employer details in ITR-1 & ITR-4

The new ITR Forms ITR-1 & ITR-4 seek details of employer, i.e., TAN of employer,
Nature of employer and Address of employer if taxpayer is feeding his salary income,
which was required only in ITR-2 and ITR-3 till last year.

Further, new forms provide option to add more than one employer to compute the
salary income. A taxpayer can add multiple rows to compute the salary income
received from more than one employer.

Existing forms ITR-1/4 (applicable up to Assessment Year 2019-20) did not have such
functionality which forced the individual to aggregate the salary income received
from multiple employers.
7. Detail of property and tenant in case of income from house property
New ITR-1 and ITR-4 forms seek address of house property and details of tenant in
case the taxpayer has income from house property. If Aadhaar of tenant is available
with the taxpayer, he can furnish the Aadhaar number in lieu of PAN.
8. Separate column to declare unrealised rent

New ITR-1 and ITR-4 now have separate column to show amount of rent which cannot
be realised during the previous year. Up to Assessment Year 2019-20, taxpayers filing
return in ITR-1/4 were required to reduce the amount of unrealised rent from rent
received/receivable and were required to mention the net amount only. It must be
noted that all other ITR forms already have separate column to show the amount of
unrealised rent.
9. Separate disclosure to be made for interest earned on compensation and
deduction claimed

Section 57(iv) of the Income-tax Act allows 50% flat deduction on interest received by
taxpayer on compensation or enhanced compensation. Until last year, the taxpayers
filing return in ITR-1 or ITR-4 were required to enter the net taxable interest amount
in the option of ‘Any Other Income’. The new ITR Forms now require a taxpayer to
declare seperately the amount of gross interest and deduction claimed from such
interest amount. It must be noted that such separate disclosure is previously asked
only in ITR-2 and ITR-3.
10. Furnishing of details of partnership firm and partners thereof

Any sum paid by the partnership firm to the working partners in form of salary,
bonus, commission or remuneration, by whatever name called, is allowed as
deduction to the firm subject to the provisions of section 40(b) of the Income-tax Act.
Further, section 28 of the Income-tax Act provides that remuneration or interest so
received by the partner shall be chargeable to tax in his hands as business income to
the extent deduction is allowed to the firm in respect thereof.

Where a firm opts for presumptive taxation scheme of section 44AD or 44ADA, the
deduction for remuneration or interest paid or payable to partners is deemed to be
already given effect to while computing presumptive income. Therefore, no additional
deduction is allowed to the firm in respect thereof. However, the amount of
remuneration or interest is chargeable to tax in the hands of the partner as business
income.

In order to cross check the information of remuneration or interest, the ITR-4 requires
the partner in a firm to report the name and PAN of the firm. On the other hands, the
firms, eligible to file return in ITR-4, have to provide the following details in respect
of the partners:

a) Name and Address of partners

b) Share of partners
c) PAN of partners
d) Aadhar Number or Enrolment ID of partners
e) Rate of interest on capital
f) Remuneration paid or payable to partners

11. Receipt of turnover or gross receipt through other electronic modes

Section 44AD allows resident individuals, HUFs and partnership firm (excluding
LLP) to compute income from business on presumptive basis. Under this scheme, 8%
of total turnover or gross receipts from such business is deemed as presumptive
income. However, in respect of turnover or receipts, which is received by an account
payee cheque or bank draft or use of electronic clearing system through a bank
account, the presumptive income on that portion shall be 6%.

Considering the digital India initiative and emerging new modes of payment other
than bank account (i.e. e-wallets, etc.), the Finance (No. 2) Act, 2019 has extended 6%
presumptive taxation scheme benefit to the amount received through other electronic
modes. Such other acceptable electronic modes shall be notified by the Income-tax
Department.

Consequential changes have been made in income-tax return form as well.

12. No requirement to furnish financial particular except cash and bank balances

Taxpayers opting for presumptive taxation scheme under section 44AD, 44ADA or
44AE are not required to maintain books of account. However, they were required to
report the financial particulars of the business under ITR-4, i.e., Capital, loans,
advances, creditors, fixed assets, debtors, cash-in-hand and bank balance.

Now, in new ITR-4, there is no requirement to furnish all such details except cash and
bank balance. A taxpayer is now required to furnish the opening balance as well as
closing balance of cash and bank. Further, receipts and payment/withdrawal made
during the year, in cash or through bank, shall be reported.
13. Furnishing of passport number in case of resident individuals

New ITR-1 & ITR-4 seek passport details from resident persons having Indian
passport. The following options have been inserted in the new forms:

a) Do you have a valid Indian passport?

b) If yes, provide the passport number

It is a possibility that passport details are asked to check if a taxpayer has travelled to
a foreign country in the financial year 2019-20 and his declared income does not match
with his ability to incur the expenses on such foreign travel.