I-T info for over Rs 50L income raises hackles

Consultants Grapple With Valuations Of Jewellery, Assets During Disclosures

A tax consultant with a leading firm is facing a unique problem. His father had bought a Swiss watch almost 60 years ago. When a local shopkeeper saw it, he offered to buy the watch for a pittance. The consultant then sent it to the company , which has estimated the cost of repair at $5,000 (over Rs 3 lakh).

With the income tax department seeking detailed disclosures of assets -property , bullion, jewellery , vehicles, yachts, aircraft, etc -from those with taxable income of over Rs 50 lakh during 2015-16, tax practitioners have been grappling with a series of queries and clarifications. While the consultant with the Swiss watch is finding it tough to ascertain the value, his counterpart at another firm believes that there is no need to provide any details, pointing to the rules released by the income tax department.

“Jewellery is not clearly defined. It can include diamond-studded or gold-plated watches,“ said Mayur Shah, a tax partner at Ernst & Young. Even garments, furniture or utensils with precious or semi-precious stones or a sari with gold or silver zari border can attract the tax department's attention.

There were instances where a taxpayer purchased jewellery several years ago, misplaced the bill and did not remember the cost. “He never filed the wealth tax return in the past as his taxable wealth was below the threshold. Then in such a situation, at what value does he need to make the disclosure? (Now, his income has increased to over Rs 50 lakh a year.) Instructions are silent on this and it needs to be clarified as generally the salaried class taxpayers do not keep old records,“ said Kuldip Kumar, partner at consulting firm PricewaterhouseCoopers.

There is a lot of confusion over what is to be disclosed, apart from the fear of the taxman hounding individuals based on the returns. This is the first year after the abolition of wealth tax that the government has sought asset disclosure for high net worth individuals in the tax returns and the fear is largely confined to people who did not file wealth tax returns earlier. The biggest problem is in the case of jewellery. A large part of the jewellery in most households is inherited from parents and grandparents and several people do not know the exact weight of a necklace, leave alone the value. The rules stipulate that value has to be at the cost price or the disclosure made in the last wealth tax returns. In case it is something that was inherited, it has to be acquisition cost by the previous owner or the value on the date of ac quisition (which could be the day you got married) or on March 31, 2016.

“We are asking our clients to disclose the market value at the end of March. It is easier to do that since most people do not remember when they received it as a gift from their parents or relati ves,“ said a consultant.

There is also a fear that the disclosures made this year can come back to haunt you in the future. But the issue is even more complicated.

For instance, if a husband purchased a jewellery and gifted it to his wife, it would get included in wife's tax return, if her income is over Rs 50 lakh. When the jewellery is sold by the wife in future, the gain would be subjected to tax in the hands of husband by virtue of clubbing provisions contained in the tax laws. “The husband should not end up with questioning from the authorities on the mismatch where he discloses such gains in his return but his past returns did not contain jewellery disclosure as he had gifted it to his wife,“ said PwC's Kumar.

Times Of India New Delhi,23th July 2016