Taxmann's Analysis | New ITR-7 Form – AY 2024-25

NEW ITR-7 FORM AY 2024-25

Detailed Analysis of Amendments

Compliance Requirements

The CBDT has notified1 the Income-tax Return Form 7 (ITR-7) for the Assessment Year 2024-25. The applicability of the ITR-7 form remains unchanged in the new form. The new ITR-7 requires additional details from taxpayers, and some changes in the ITR form are consequential to the amendments made by the Finance Act 2023.

The changes in form ITR-7 are explained below:

1. Details of Legal Entity Identifier

[Part A-GEN]

The Legal Entity Identifier (LEI) is a 20-character alpha-numeric code that uniquely identifies parties in financial transactions worldwide. It has been implemented to improve the quality and accuracy of financial data reporting systems for better risk management.

As per the RBI Regulations, all single payment transactions of Rs. 50 crores and above undertaken by entities (non-individuals) should include remitter and beneficiary LEI information. This applies to transactions conducted through the NEFT and RTGS payment systems.

In accordance with RBI regulations, a column has been incorporated in Part A-GEN for furnishing details of the LEI number. A taxpayer is required to furnish the LEI details if he is seeking a refund of Rs. 50 crores or more.

The following details are to be furnished for LEI:

(a) LEI Number

(b) Valid up to date

2. Computation of income on the applicability of Twenty-Second Proviso to Section 10(23C) or Section 13(10)

[Part A-GEN]

The ITR-7 form requires details regarding the applicability of the twenty-second proviso to Section 10(23C) or Section 13(10). Previously, the assessee was only required to indicate whether these provisions were applicable with a simple Yes/No response. However, the new ITR-7, in PART A-GEN, requires reasoning for the applicability of these special computation provisions. In last year’s ITR form, this information was asked in Part B3 during income computation, but now it has been removed from there and relocated to PART A-GEN.

Now, in PART A-GEN, the assessee must select from the following options regarding the applicability of special provisions for income computation:

(a) Provisions of proviso to clause (15) of Section 2 are applicable

(b) Conditions specified in clause (a) of tenth proviso to 10 (23C) / sub-clause (i) of clause (b) of sub-Section (1) of Section 12A have been violated

(c) Conditions specified in clause (b) of tenth proviso to 10 (23C)/ sub-clause (ii) of clause (b) of sub-Section (1) of Section 12A have been violated

(d) Conditions specified in twentieth proviso to 10(23C)/ clause (ba) of sub-Section (1) of Section 12A have been violated

In such cases, the income chargeable to tax due to withdrawal of exemption shall be computed after allowing a deduction for expenditure (other than capital expenditure) incurred in India for the objects of the institution. The deduction is allowable subject to the satisfaction of the following conditions:

(a) The expenditure is not from the amount of corpus donations credited in the books of account up to the end of the financial year immediately preceding the relevant previous year;

(b) The expenditure is not from any loan or borrowing;

(c) Depreciation shall not be allowed in respect of an asset whose full cost has been claimed as an application of income;

(d) The expenditure is not in the form of a contribution or donation to any person. The income shall be computed without deduction of the following expenditures:

(a) No deduction shall be allowed for the capital expenditure;

(b) Disallowance shall be made under Section 40(a)(ia) for the default made in deduction of tax;

(c) Disallowance shall be made Section 40A(3)/40A(3A) for the payment made in cash;

(d) No deduction shall be allowed for the expenditure not incurred in India.

It should be noted that the disallowance made of the above expenditure or allowance shall not be allowed as a deduction to the assessee under any other provision. Further, if any loss arises due to such expenditure, no set-off shall be allowed for such losses.

3. Furnishing of acknowledgement number of the Audit Report and UDIN

[Part A-GEN]

In Part A-GEN, the new ITR form mandates that the assessee furnish both the acknowledgement number of the audit report and the Unique Document Identification Number (UDIN). Consequently, now the assessee has to mention the acknowledgement number of the audit report filed in Form 10B/10BB, as applicable. This requirement stems from the fact that the audit report must be submitted in either Form 10B or Form 10BB at least one month before the deadline for the submission of the income tax return.

However, the new ITR form also solicits details regarding the UDIN. According to the ICAI Guidelines, UDIN generation should occur within 60 days from the date of certifying/signing the certificates, reports, or documents. Furthermore, auditors are obligated to update UDINs with the forms uploaded on the e-filing portal.

Presently, the gap between filing the ITR and submitting Form 10B/10BB is 30 days. Consequently, the UDIN information required in form ITR-7 may not be readily available, given that the ICAI guidelines allow for UDIN generation within 60 days of report signing, whereas ITR is to be filed within 30 days of the audit report due date, so UDIN may not have been generated by the auditor yet. It is unclear whether this field shall be mandatory in the ITR Utility. If it is a mandatory field, the auditor must generate the UDIN before the due date for filing the ITR 7.

4. Reporting of the amount invested or deposited back to Corpus and repayment of loans

[Schedule J]

Schedule J requires the details concerning the corpus and loan & borrowings. It mandates the disclosure of the amount invested or deposited back into the corpus and the amount of repayment of loans or borrowings during the year, which was earlier applied and not claimed as application.

The Finance Act, 2021 imposed a restriction on applications made out of corpus and loans & borrowings. If an application made before 01-04-2021 is claimed as an application, then the same amount is applied again as an investment or reposted back into the corpus or repaid as loans & borrowings, it would result in a double deduction. To address this issue, the Finance Act 2023 made an amendment, which states that if the application from the corpus or loans is made on or before 31-032021, then the same shall not be considered as an application in the current year at the time of restoration of the corpus or repayment of loans.

Due to this amendment, ‘Schedule J’ of Form ITR-7 now explicitly requires reporting if an application from the corpus is made on or after 01-04-2021, or if an application from any loan or borrowing is made on or after 01-04-2021, provided such amount was earlier applied but not claimed as an application.

5. Reporting of the exempted portion of Anonymous Donations

[Schedule VC]

A new column has been inserted in Schedule VC for reporting anonymous donations that are not taxable under Section 115BBC. It is crucial to understand that these donations become taxable under Section 115BBC only when the amount of anonymous donation exceeds the higher of the following limits:

(a) Rs. 1 lakh; or

(b) 5% of total donation received.

In last year’s ITR form, there was no provision to report anonymous donations that are not subject to taxation under Section 115BBC. However, in the new ITR-7, a new line item has been incorporated in Schedule-VC specifically for reporting this amount.

6. Reporting of Inter-Charity Donations

[Schedule A]

Schedule A requires reporting the funds applied to the stated objectives of the trust/institution during the previous year from all sources. The reported amount is to be bifurcated into Revenue and Capital. This schedule now requires disclosing donations to other registered/approved trusts or institutions. In this context, the following details must be provided:

(a) Donation(s) made to trust or institution(s) registered under Section 12AB or approved under Section 10(23C)(iv)/(v)/(vi)/(via)– Other than Corpus (100% of donations made need to be entered here)

(b) 85% of the donation(s) made to trust or institution(s) registered under Section 12AB or approved under Section 10(23C)(iv)/(v)/(vi)/(via)– Other

than

Corpus

The Finance Act 2023 has provided that with effect from the assessment year 2024-25, the inter-charity donations shall be considered as the application only to the extent of 85% of the donation. If a charitable trust donates some money to another trust, the donor trust can be said to have applied its income for religious and charitable purposes. Only 85% of the eligible donations made by a trust or institution registered under Section 12AB to another trust or institution registered under Section 12AB or approved under Section 10(23C) shall be treated as the application of income.

The CBDT vide Circular No. 3/2024, dated 06-03-2024, has clarified that eligible donations made by a trust/institution to another trust/institution shall be treated as application for charitable or religious purposes only to the extent of 85% of such donations. When a trust/institution donates Rs. 100 to another trust/institution, it will be considered to have applied 85% (Rs. 85) for the purpose of charitable or religious activity. It is further clarified that 15% (Rs. 15) of such donations by the donor trust/ institution shall not be required to be invested in specified modes under Section 11(5) of the Act, as the entire amount of Rs. 100 has been donated to the other trust/ institution and is accordingly eligible for exemption.

For example, Trust 1 makes eligible donations to Trust 2, and Trust 2 donates to Trust 3. The income shall be computed as follows.

7. Schedule IE-1 extended to Section 10(46A) and 10(46B)

[Schedule IE-1]

Schedule IE-1 is for reporting the Income & Expenditure statement of entities that are exempt from computational or heads of income conditions. This schedule now applies to entities whose income qualifies for exemptions under Sections 10(46A) and 10(46B), both of which were introduced by the Finance Act 2023.

Section 10(46A) exempts income arising to a body or authority or Trust or Commission, not being a company that the Central Government notifies in the official gazette for this purpose and when it is established or constituted by or under a Central Act or State Act with specified purposes.

Section 10(46B) exemption is available to National Credit Guarantee Trustee Company Limited (NCGTC), Credit guarantee funds established and wholly financed by the Central Government and managed by NCGTC and Credit Guarantee Fund Trust for MSMEs (CGTMSE) created by CG and SIDBI.

It is noteworthy that despite the introduction of clause (46A) and clause (46B), the Finance Act 2023 did not make any consequential amendments to Section 139(4C). Consequently, as per the current legislation, entities notified under Section 10(46A)/10(46B) are not required to file an income tax return. However, with the inclusion of references to these clauses in Schedule IE-1 of the ITR-7, the obligation to file has been extended to entities that were otherwise exempt from submitting an ITR.

8. Omission of Reference to Section 10(22B) in Schedule IE-1

[Schedule IE-1]

Until last year, Schedule IE-1 included a reference to Section 10(22B) for reporting the Income & Expenditure statement. However, the reference to Section 10(22B) has now been omitted from Schedule IE-1.

Section 10(22B) provides an exemption to any income of news agencies set up in India solely for the collection and distribution of news. However, the Finance Act 2023, with effect from the assessment year 2024-25, has omitted the exemption under this Section. Consequently, a consequential change has been made in ITR-7.

9. Details of filing Form 10 for accumulation of income

[Part B-TI]

As per Section 11(2), if a trust is not able to apply 85% of its income in a particular year, it can accumulate the shortfall to be used for religious or charitable purposes within the next 5 years. This accumulation is allowed if the assessing officer is informed about the purpose of the accumulation and the period for which the income is being accumulated. The information is to be furnished in Form 10 at least two months prior to the due date specified under Section 139(1) for furnishing the return of income for the previous year. The Finance Act 2023 has reduced the due dates by two months, effective from the assessment year 2023-24.

The CBDT issued Circular No. 6/2023, dated 24-5-2023 clarifying that the benefit of accumulation will not be denied to a trust, even if Form 10 is not filed at least two months before the due date for filing the income tax return under Section 139(1). However, Form 10 must be submitted on or before the due date for filing the return under Section 139(1) to avail of this benefit.

In the ITR form, Part B-TI requires reporting of the amount accumulated or set aside for specified purposes if all conditions in Sections 11(2) and 11(5) or the third proviso to Section 10(23C) are fulfilled. If any amount is accumulated, the assessee is now also required to report the following information

(a) whether the option in Form No. 10 has been furnished to the Assessing Officer

(b) If yes, the date of furnishing Form No. 10

Previously, these details were only required for Form No. 9A if any amount was considered as a deemed application. However, now such information is also required for amounts accumulated by filing Form 10.

10. Residuary clause for reporting of Additions

[Part B-TI]

In Part B-TI, when compiling an income statement, specific additions such as taxable specified incomes or disallowable amounts under Section 11(1)/10(23C) are reported. Earlier, there existed a specified list where the assessee was obligated to report taxable income under a particular Section or specific disallowances. However, a new column has now been inserted as a residuary clause to report any other income on which exemption is not allowable under the Income-tax Act.

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