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Who Needs to File ITR Under Seventh Proviso to Section 139(1)

Seventh Proviso to Section 139(1): Who Needs to File ITR and Why?

Are you wondering if you need to file an Income Tax Return (ITR) this year? The Seventh Proviso to Section 139(1) might have you covered, even if your income is below the taxable limit. Confused? Don't worry, we've got you! In this guide, we'll break down: • Who needs to file ITR under this provision • What high-value transactions trigger this requirement • Key deadlines you can't afford to miss • Penalties for non-compliance Whether you're a seasoned taxpayer or new to the game, understanding this provision is crucial. Let's demystify the Seventh Proviso and ensure you're on the right side of tax compliance. Ready to dive in?

Key Takeaways:

  • - High-value transactions triggering ITR filing include:
  • - This provision applies to individuals, HUFs, firms, and other entities, with some exceptions.
  • - Selecting the correct ITR form and meeting filing deadlines is crucial to avoid penalties.
  • - Recent amendments have modified ITR forms and expanded the scope of mandatory filing.
  • - Timely ITR filing is essential for various financial and legal purposes, even if you're not liable to pay taxes.

Understanding the Seventh Proviso to Section 139

The Seventh Proviso to Section 139(1) of the Income Tax Act is a crucial amendment that affects many taxpayers. Let's break it down in simple terms.

What is the Seventh Proviso?

The Seventh Proviso is an addition to Section 139(1) of the Income Tax Act, introduced in 2019. It's designed to bring certain high-value transactions under the tax radar, even if your total income is below the basic exemption limit.

When Does It Apply?

This provision kicks in when you engage in specific high-value transactions, regardless of your income level. It's like a safety net to ensure that significant financial activities don't slip through the cracks.

Who's Affected?

The Seventh Proviso applies to:

- Individuals

- Hindu Undivided Families (HUFs)

- Association of Persons (AOPs)

- Body of Individuals (BOIs)

- Artificial Juridical Persons

Notably, companies and firms are exempt from this provision.

Why Was It Introduced?

The main goal is to enhance transparency in the tax system. By requiring ITR filing for high-value transactions, the government aims to:

1. Track significant financial activities

2. Reduce tax evasion

3. Broaden the tax base

How Does It Work?

If you fall under this provision, you'll need to file your Income Tax Return (ITR) even if your income is below the taxable limit. This means you might be filing a 'nil' return, but it's still mandatory.

Key Takeaway: The Seventh Proviso to Section 139(1) mandates ITR filing for specific high-value transactions, regardless of income level, to enhance tax transparency.

Purpose and Applicability

The Seventh Proviso to Section 139(1) of the Income Tax Act serves a crucial purpose in the Indian tax system. It aims to bring high-value transactions under the tax net, even if a person's income falls below the basic exemption limit.

Expanding the Tax Net

This provision applies to individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), and artificial juridical persons. It mandates these entities to file Income Tax Returns (ITR) if they engage in specific high-value transactions, regardless of their total income.

Threshold for Applicability

The Seventh Proviso comes into play when:

- The person's total income exceeds the basic exemption limit

- The person engages in high-value transactions specified by the Income Tax Department

This ensures that individuals with significant financial activities are brought under the tax radar, promoting transparency and compliance in the tax system.

Key Takeaway: The Seventh Proviso to Section 139(1) mandates ITR filing for specific high-value transactions, regardless of total income, to expand the tax net and promote financial transparency.

Key High-Value Transactions Covered

The Seventh Proviso to Section 139(1) of the Income Tax Act focuses on specific high-value transactions that trigger mandatory ITR filing. These transactions are designed to capture significant financial activities, even if your total income falls below the basic exemption limit.

Deposits in Current Accounts

If you've made deposits totaling over Rs 1 crore in one or more current accounts during a financial year, you're required to file an ITR. This applies to the aggregate amount across all your current accounts, not just a single account.

Foreign Travel Expenditure

Have you spent more than Rs 2 lakh on foreign travel in a year? If so, you'll need to file an ITR. This includes all expenses related to your trip, such as airfare, accommodation, and daily expenses.

Electricity Consumption

If your electricity bills for the year exceed Rs 1 lakh, you're obligated to file an ITR. This applies to the aggregate of all electricity bills for your house property, regardless of whether it's a single residence or multiple properties.

It's important to note that these transactions are considered independently. Even if you meet just one of these criteria, you'll need to file an ITR, regardless of your income level.

Key Takeaway: The Seventh Proviso mandates ITR filing for high-value transactions in current accounts, foreign travel, and electricity consumption, irrespective of income levels.

Deposits in Current Accounts

The Seventh Proviso to Section 139(1) specifically targets high-value transactions in current accounts. If you've made deposits exceeding Rs 1 crore in one or more current accounts during a financial year, you're required to file an Income Tax Return (ITR), even if your total income falls below the basic exemption limit.

What Counts as a Deposit?

- Cash deposits

- Cheque deposits

- Electronic fund transfers

- Any other form of deposit

Important Points to Note:

1. The Rs 1 crore threshold applies to the aggregate of deposits across all your current accounts.

2. Savings accounts are not included in this provision.

3. The rule applies to both personal and business current accounts.

Why Current Accounts?

Current accounts are typically used for business transactions and high-value transfers. By focusing on these accounts, the Income Tax Department aims to track significant financial movements that might indicate undisclosed income.

Key Takeaway: If your current account deposits exceed Rs 1 crore in a financial year, you must file an ITR regardless of your income level.

Foreign Travel Expenditure

Foreign travel expenditure is one of the key high-value transactions covered under the Seventh Proviso to Section 139(1). This provision requires individuals to file an Income Tax Return (ITR) if their aggregate expenditure on foreign travel exceeds Rs. 2 lakh in a financial year, even if their total income is below the basic exemption limit.

What Constitutes Foreign Travel Expenditure?

Foreign travel expenditure includes all costs associated with traveling to a foreign country, such as:

- Airfare or other transportation costs

- Accommodation expenses

- Food and beverage costs

- Sightseeing and entertainment expenses

- Shopping expenditures

- Visa and travel insurance fees

Calculation of Aggregate Expenditure

The Rs. 2 lakh threshold applies to the aggregate of all foreign travel expenditures incurred during the financial year. This means:

- Multiple trips are considered together

- Expenses for all family members traveling together are combined

- Both personal and business-related travel expenses are included

Importance of Maintaining Records

To comply with this provision, it's crucial to:

- Keep detailed records of all foreign travel expenses

- Retain receipts and invoices for major expenditures

- Maintain a travel log with dates and purposes of trips

Key Takeaway: If your foreign travel expenditure exceeds Rs. 2 lakh in a financial year, you must file an ITR, regardless of your income level.

Electricity Consumption

Electricity consumption is another high-value transaction that falls under the Seventh Proviso to Section 139(1). This provision requires individuals to file an Income Tax Return (ITR) if their electricity bills exceed a certain threshold, even if their total income is below the basic exemption limit.

Threshold for Electricity Consumption

The threshold for electricity consumption is set at Rs 1 lakh per year. If your aggregate electricity bills for all properties owned by you exceed this amount, you are required to file an ITR, regardless of your income level.

Applicability to Multiple Properties

It's important to note that this provision applies to the total electricity consumption across all properties owned by an individual. This means that if you own multiple properties, you need to sum up the electricity bills for all of them to determine if you cross the Rs 1 lakh threshold.

Exclusions and Exceptions

While this provision covers most residential and commercial properties, there are some exclusions:

- Electricity consumption for agricultural purposes is not included in this calculation

- Tenants are not required to report the electricity consumption of rented properties

Purpose of This Provision

The inclusion of electricity consumption as a high-value transaction serves two main purposes:

1. It helps the Income Tax Department identify individuals with high living standards who might be underreporting their income

2. It encourages transparency in reporting of income and assets

Key Takeaway: If your annual electricity bills across all owned properties exceed Rs 1 lakh, you must file an ITR, even if your income is below the taxable limit.

Who Needs to File ITR Under the Seventh Proviso?

The Seventh Proviso to Section 139(1) of the Income Tax Act casts a wider net for mandatory income tax return filing. It applies to specific categories of individuals, even if their total income falls below the basic exemption limit.

Individuals and HUFs

Individuals and Hindu Undivided Families (HUFs) who engage in high-value transactions must file ITR under this proviso. This includes:

- Those who deposit more than ₹1 crore in one or more current accounts

- Individuals spending over ₹2 lakh on foreign travel

- People with electricity consumption exceeding ₹1 lakh

Other Entities

The proviso also extends to:

- Association of Persons (AOPs)

- Body of Individuals (BOIs)

- Artificial Juridical Persons

These entities must file ITR if they meet the specified high-value transaction criteria, regardless of their income level.

Important Considerations

It's crucial to note that:

- The provision applies even if the total income is below the taxable limit

- Multiple transactions can add up to meet the threshold

- The rule aims to bring high-value transactions under the tax radar

Remember, this provision doesn't apply to companies or firms, as they have separate filing requirements under other sections of the Income Tax Act.

Key Takeaway: The Seventh Proviso mandates ITR filing for individuals, HUFs, AOPs, BOIs, and artificial juridical persons engaging in specific high-value transactions, even if their income is below the taxable limit.

Exceptions to Mandatory Filing

While the Seventh Proviso to Section 139(1) casts a wide net, there are some exceptions to the mandatory filing requirement. It's crucial to understand these exceptions to avoid unnecessary compliance burdens.

Companies and Firms

Companies and firms are exempt from this provision. The Seventh Proviso specifically applies to individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), and artificial juridical persons.

Savings Account Transactions

The high-value transaction rule for deposits over Rs 1 crore applies only to current accounts. Transactions in savings accounts are outside the purview of this provision, regardless of the amount.

Income Below Basic Exemption Limit

If your total income falls below the basic exemption limit and you haven't engaged in any of the specified high-value transactions, you're not required to file an ITR under this proviso.

Senior Citizens

Senior citizens (aged 60 years and above) with income solely from pension and interest from the same bank are exempt from mandatory filing under certain conditions.

Key Takeaway: While the Seventh Proviso mandates ITR filing for high-value transactions, certain entities and scenarios are exempt from this requirement.

ITR Filing Process Under the Seventh Proviso

The ITR filing process under the Seventh Proviso is straightforward but requires attention to detail. Here's a step-by-step guide to help you navigate through the process:

Choose the Right ITR Form

Selecting the correct ITR form is crucial. For most individuals filing under the Seventh Proviso, ITR-1 (Sahaj) or ITR-2 will be appropriate. However, if you have business income, you may need to use ITR-3 or ITR-4.

Gather Necessary Documents

Before starting the filing process, collect all relevant documents:

- PAN card

- Aadhaar card

- Bank statements

- Proof of high-value transactions (e.g., foreign travel tickets, electricity bills)

- Form 26AS (Tax Credit Statement)

Access the Income Tax e-Filing Portal

Visit the official Income Tax e-Filing portal (www.incometaxindiaefiling.gov.in) and log in using your PAN and password.

Fill in the Details

Navigate to the 'e-File' menu and select 'Income Tax Return'. Choose the appropriate assessment year and ITR form. Fill in all required fields accurately, including details of high-value transactions that fall under the Seventh Proviso.

Verify and Submit

Double-check all entered information for accuracy. Once satisfied, submit your ITR. You'll receive an acknowledgment number for future reference.

Complete the Verification Process

After submission, verify your return within 120 days. You can do this through:

- Aadhaar OTP

- Net banking

- Bank account-based verification

- Demat account-based verification

- Physical submission of ITR-V

Remember, timely filing and verification are crucial to avoid penalties and ensure compliance with the Income Tax Act.

Key Takeaway: Filing ITR under the Seventh Proviso involves selecting the right form, gathering documents, accurately filling details, and timely verification.

Selecting the Correct ITR Form

Choosing the right ITR form is crucial for accurate tax filing under the Seventh Proviso to Section 139(1). The Income Tax Department offers various forms tailored to different types of income and taxpayers.

ITR-1 (Sahaj)

This form is for individuals with income from salary, one house property, and other sources (interest). However, it's not applicable if you're filing under the Seventh Proviso.

ITR-2

Use this form if you have income from salary, more than one house property, or capital gains. It's suitable for those filing under the Seventh Proviso.

ITR-3

For individuals and HUFs with income from business or profession, this form is appropriate. It also covers those filing under the Seventh Proviso.

ITR-4 (Sugam)

This form is for presumptive income from business or profession. Like ITR-1, it's not applicable for filing under the Seventh Proviso.

Remember, selecting the wrong form can lead to your return being treated as defective. Always double-check your eligibility before filing.

Key Takeaway: Selecting the correct ITR form is vital for accurate tax filing under the Seventh Proviso, with ITR-2 and ITR-3 being the most suitable options.

Important Deadlines

Filing your Income Tax Return (ITR) on time is crucial to avoid penalties and legal complications. Here are the key deadlines you need to keep in mind:

Regular Filing Deadline

The last date for filing ITR for most individuals is July 31 of the assessment year. For instance, for the financial year 2023-24 (assessment year 2024-25), the due date is July 31, 2024.

Extended Deadline for Audited Cases

If you're required to get your accounts audited, you have an extended deadline. Typically, this falls on October 31 of the assessment year.

Belated Returns

If you miss the regular deadline, you can still file a belated return. The last date for this is December 31 of the assessment year. However, you may face penalties for late filing.

Remember, these dates can change if the Income Tax Department issues any notifications. Always check the official website for the most up-to-date information.

Key Takeaway: Mark July 31 as your primary ITR filing deadline, with extensions available for specific cases.

Consequences of Non-Compliance

Failing to comply with the Seventh Proviso to Section 139(1) can lead to serious repercussions. The Income Tax Department takes a strict stance on non-compliance, and taxpayers should be aware of the potential consequences.

Penalties for Late Filing

If you miss the due date for filing your income tax return, you may face penalties. The amount of penalty depends on your income and the duration of the delay:

- For income up to ₹5 lakh: ₹1,000

- For income above ₹5 lakh: ₹5,000

Loss of Carry Forward Benefits

Non-compliance can result in the loss of certain tax benefits. If you fail to file your return by the due date, you may lose the ability to carry forward and set off losses against future income. This can significantly impact your tax planning strategies.

Increased Scrutiny

Late filing or non-filing of returns can trigger increased scrutiny from the Income Tax Department. This may lead to:

- More frequent notices

- Detailed audits of your financial records

- Potential legal proceedings

Interest on Unpaid Taxes

If you owe taxes and fail to file your return on time, you'll be liable to pay interest on the unpaid amount. This interest is calculated at 1% per month or part of a month until the tax is paid.

Key Takeaway: Non-compliance with the Seventh Proviso can result in penalties, loss of tax benefits, increased scrutiny, and additional interest charges.

Recent Amendments and Changes

The Seventh Proviso to Section 139(1) has undergone several updates since its introduction. These changes aim to streamline the tax filing process and ensure better compliance.

Key Modifications

ITR Form Updates

The Income Tax Department has made significant changes to ITR forms to accommodate the Seventh Proviso requirements. New fields have been added to ITR-1 to ITR-5 forms, allowing taxpayers to indicate if they're filing under this provision.

Rule 12 Amendment

The Central Board of Direct Taxes (CBDT) amended Rule 12 through Notification No. 31/2020. This change impacts who can use ITR-1 (Sahaj) and ITR-4 (Sugam) forms, expanding their applicability to certain categories of taxpayers.

Expanded Scope

The latest amendments have broadened the scope of mandatory ITR filing. Now, even if your income is below the taxable limit, you may need to file returns if you meet specific high-value transaction criteria.

ITR-V Modifications

The acknowledgment form (ITR-V) for Assessment Year 2020-21 onwards has been updated to reflect the new provisions. This ensures that taxpayers filing under the Seventh Proviso can accurately report their compliance.

These recent changes underscore the government's commitment to bringing more transactions under the tax net and improving overall tax compliance.

Key Takeaway: Recent amendments to the Seventh Proviso have expanded its scope and updated ITR forms to ensure better compliance and reporting of high-value transactions.

Modifications in ITR Forms

The Income Tax Department has introduced several changes to ITR forms to accommodate the Seventh Proviso to Section 139(1). These modifications aim to streamline the filing process and ensure compliance with the new regulations.

New Fields in ITR Forms

ITR forms now include specific fields for taxpayers to indicate if they're filing under the Seventh Proviso. This addition helps the tax department identify and process these returns more efficiently.

Expanded Scope of ITR-1 and ITR-4

Previously, ITR-1 (Sahaj) and ITR-4 (Sugam) were restricted for certain taxpayers. However, recent amendments have expanded their scope. Now, joint owners of house property can file these forms under specific conditions, simplifying the process for many filers.

Changes in ITR-V

The acknowledgment form (ITR-V) has also been updated to reflect the new provisions. These changes ensure that the verification process aligns with the requirements of the Seventh Proviso.

Key Takeaway: Recent modifications in ITR forms include new fields, expanded scope of ITR-1 and ITR-4, and changes in ITR-V to accommodate the Seventh Proviso to Section 139(1).

Impact on Different Categories of Taxpayers

The Seventh Proviso to Section 139(1) has varying impacts on different categories of taxpayers. Let's explore how this provision affects various groups:

Individual Taxpayers

For individual taxpayers, the impact is significant. Even if your total income falls below the basic exemption limit, you may still need to file an ITR if you've engaged in high-value transactions. This includes:

- Depositing over Rs 1 crore in current accounts

- Spending more than Rs 2 lakh on foreign travel

- Paying electricity bills exceeding Rs 1 lakh

These transactions trigger the mandatory filing requirement, regardless of your income level.

Hindu Undivided Families (HUFs)

HUFs are also subject to this provision. If any member of the HUF engages in the specified high-value transactions, the HUF must file an ITR, even if its income is below the taxable threshold.

Association of Persons (AOPs) and Body of Individuals (BOIs)

AOPs and BOIs fall under the purview of this provision as well. If any member or the entity itself undertakes the specified transactions, they must file an ITR, irrespective of their income.

Artificial Juridical Persons

This category, which includes entities like clubs or trusts, must also comply with the Seventh Proviso. They need to file an ITR if they engage in any of the specified high-value transactions.

Exempted Categories

It's important to note that companies and firms are exempt from this provision. They continue to follow their existing ITR filing requirements based on their income and other applicable provisions.

Key Takeaway: The Seventh Proviso impacts various taxpayer categories differently, with individuals, HUFs, AOPs, BOIs, and artificial juridical persons being subject to mandatory ITR filing for specified high-value transactions, while companies and firms are exempt.

Individuals and HUFs

The Seventh Proviso to Section 139(1) significantly impacts individuals and Hindu Undivided Families (HUFs). Here's what you need to know:

Impact on Individuals

- Even if your income is below the basic exemption limit, you must file ITR if you meet the high-value transaction criteria

- This applies to all individuals, regardless of age or residential status

- Salaried employees, freelancers, and retirees are all subject to this provision

Impact on HUFs

- HUFs are treated similarly to individuals under this proviso

- If any member of the HUF engages in specified high-value transactions, the HUF must file ITR

- This applies even if the HUF's income is below the taxable threshold

Considerations for Both

- Capital gains from house property or other assets may trigger mandatory filing

- Foreign income or assets must be reported, regardless of amount

- Multiple high-value transactions across categories are cumulative

Tips for Compliance

- Maintain detailed records of all high-value transactions

- Consult a tax professional if unsure about your filing obligations

- File ITR even if no tax is due to avoid penalties and legal issues

Key Takeaway: Individuals and HUFs must file ITR under the Seventh Proviso if they engage in specified high-value transactions, regardless of their taxable income.

Businesses and Professionals

The Seventh Proviso to Section 139(1) has significant implications for businesses and professionals. While companies and firms are exempt from this provision, individual business owners and professionals must be aware of its requirements.

Impact on Sole Proprietors

Sole proprietors, who operate their businesses as individuals, fall under the purview of this provision. If they engage in any of the specified high-value transactions, they must file an ITR even if their income is below the taxable limit.

Professionals and the Seventh Proviso

Professionals such as doctors, lawyers, and consultants need to be particularly vigilant. Their foreign travel expenses for conferences or client meetings could trigger the ITR filing requirement under this provision.

Maintaining Books of Account

For businesses and professionals, maintaining proper books of account is crucial. This helps in accurately tracking transactions that may fall under the Seventh Proviso's purview.

Audit Requirements

While the Seventh Proviso doesn't directly mandate an audit, businesses and professionals should note that certain high-value transactions might necessitate an audit of their books of account under other tax provisions.

Key Takeaway: Businesses and professionals, especially sole proprietors, must be aware of the Seventh Proviso's requirements and maintain accurate financial records to ensure compliance.

Importance of Timely ITR Filing

Filing your income tax return on time is crucial for several reasons. Let's explore why it's essential to meet the deadline:

Avoid Penalties and Legal Consequences

Failing to file your ITR by the due date can result in hefty penalties. The Income Tax Department imposes fines ranging from ₹5,000 to ₹10,000, depending on the delay. Moreover, you may face legal action for non-compliance with tax laws.

Faster Processing of Refunds

When you file your ITR on time, the Income Tax Department processes your refund faster. This means you'll receive any excess tax paid back more quickly, improving your cash flow.

Easier Loan Approvals

Banks and financial institutions often require your ITR as proof of income when you apply for loans. Timely filing ensures you have the necessary documentation readily available, making loan approvals smoother.

Carry Forward Losses

If you've incurred losses in a particular financial year, you can only carry them forward to offset future gains if you file your ITR on time. This can significantly reduce your tax liability in subsequent years.

Peace of Mind

Filing your ITR on time gives you peace of mind, knowing you've fulfilled your civic duty and are compliant with tax laws. It eliminates the stress of last-minute rushes and potential penalties.

Key Takeaway: Timely ITR filing helps avoid penalties, speeds up refunds, facilitates loan approvals, allows carrying forward losses, and provides peace of mind.

Conclusion

As we've explored, the Seventh Proviso to Section 139(1) casts a wider net for ITR filing, encompassing those with high-value transactions even if their income falls below the taxable threshold. Understanding your obligations under this provision is crucial for maintaining tax compliance and avoiding penalties. Remember, timely filing not only keeps you on the right side of the law but also streamlines future financial processes. Don't let the complexities of tax laws intimidate you. If you're unsure about your filing status or need assistance with your ITR, consider seeking professional help. Stay informed about the latest amendments and deadlines to ensure you're always prepared. By taking proactive steps towards tax compliance, you're contributing to a more transparent and efficient financial system. Your diligence in this matter is not just a legal requirement, but a mark of responsible citizenship.

FAQs

What happens if I exceed the high-value transaction limits but my income is below the basic exemption limit?

Answer: Even if your income is below the basic exemption limit, you're still required to file an ITR if you exceed the specified high-value transaction limits. The Seventh Proviso focuses on transactions, not just income, to ensure tax compliance.

Can I claim a refund if I file ITR under the Seventh Proviso but have no tax liability?

Answer: Yes, you can claim a refund if you've paid excess tax or TDS has been deducted, even if you're filing under the Seventh Proviso. File your ITR accurately to claim any refunds you're entitled to.

Are there any exemptions for senior citizens under the Seventh Proviso?

Answer: The Seventh Proviso applies uniformly to all individuals, including senior citizens. However, senior citizens enjoy higher basic exemption limits for income tax. Always check the latest guidelines for any age-specific relaxations.

How does foreign income affect ITR filing under the Seventh Proviso?

Answer: Foreign income must be reported in your ITR, regardless of the Seventh Proviso. If you have foreign income or assets, you may need to file additional forms like ITR-2 or ITR-3, even if you fall under the Seventh Proviso criteria.

What if I unknowingly exceed the high-value transaction limits?

Answer: If you unknowingly exceed the limits, you're still required to file an ITR. It's advisable to regularly monitor your high-value transactions and consult a tax professional if you're unsure about your filing obligations.

author

The Tax Heaven

Mr.Vishwas Agarwal✍📊, a seasoned Chartered Accountant 📈💼 and the co-founder & CEO of THE TAX HEAVEN, brings 10 years of expertise in financial management and taxation. Specializing in ITR filing 📑🗃, GST returns 📈💼, and income tax advisory. He offers astute financial guidance and compliance solutions to individuals and businesses alike. Their passion for simplifying complex financial concepts into actionable insights empowers readers with valuable knowledge for informed decision-making. Through insightful blog content, he aims to demystify financial complexities, offering practical advice and tips to navigate the intricate world of finance and taxation.

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