Filing ITR-1 or ITR-4 under Old Tax Regime? New Deduction Disclosure Rules Apply!
If you’re opting for the Old Tax Regime while filing ITR-1 or ITR-4, new disclosure rules kick in!
Claiming 80C, 80D, or HRA?
You must now report detailed breakup of these deductions.
Stay compliant. Avoid notices.
Filing ITR-1 or ITR-4 Under the Old Tax Regime? New Deduction Disclosure Rules Apply!
Taxpayers opting for the familiar comfort of the Old Tax Regime while filing their Income Tax Returns (ITR) for the Assessment Year 2025-26 are in for a significant change. The Income Tax Department has rolled out new, more stringent disclosure requirements for popular deductions under sections 80C, 80D, and House Rent Allowance (HRA) for those filing ITR-1 and ITR-4 forms. These changes mandate a detailed breakup of these claims, moving away from the earlier practice of providing consolidated figures.
The move is aimed at enhancing transparency, curbing the practice of claiming fraudulent deductions, and ensuring a more accurate and streamlined verification process. For taxpayers, this means being extra diligent in collating and reporting the specifics of their investments and expenses to stay compliant and avoid potential notices and penalties from the tax authorities.
What’s New in Your ITR Form?
If you are a salaried individual (filing ITR-1) or have income from business or profession under the presumptive taxation scheme (filing ITR-4) and choose the Old Tax Regime, you will now be required to provide a granular breakdown of your deduction claims. Here’s a look at the key changes:
For Section 80C Deductions: Gone are the days of simply mentioning the total amount claimed under this section, which has a limit of ₹1.5 lakh. Now, you will need to provide specific details for each investment or expenditure, such as:
- Life Insurance Premium: Policy number of the life insurance plan.
- Public Provident Fund (PPF): Your PPF account number.
- Equity Linked Savings Scheme (ELSS): Details of the mutual fund investment.
- Tuition Fees: Receipts and details of the educational institution.
- Home Loan Principal Repayment: Information from your home loan statement.
For Section 80D Deductions: Claiming a deduction for health insurance premiums paid for yourself, your family, or your parents now requires more than just the premium amount. You will have to furnish:
- The name of the insurance company.
- The policy number of your health insurance plan.
- A clear breakup of the premium paid for self and family, and for senior citizen parents, if applicable.
For House Rent Allowance (HRA): Claiming an exemption for HRA will no longer be a straightforward calculation. The new forms demand a detailed breakup, including:
- The total amount of HRA received from your employer.
- The total rent paid during the financial year.
- The name and PAN of the landlord if the annual rent exceeds ₹1 lakh.
- The address of the rented property.
Beyond these, similar detailed disclosure requirements have been introduced for other deductions such as those for education loan interest (Section 80E) and home loan interest for affordable housing (Section 80EE/80EEA).
Why the Change and What are the Consequences?
The primary driver behind these enhanced disclosure norms is the Income Tax Department’s intent to leverage technology to verify claims more effectively. By capturing specific details like policy and account numbers, the department can cross-verify the information with third-party data available from financial institutions and insurance companies.
Failure to comply with these new rules can have serious repercussions. Inaccurate or incomplete disclosure could lead to your return being marked as defective, inviting scrutiny from the tax department. More severe consequences could include:
- Receiving a tax notice seeking clarification and documentary evidence for the deductions claimed.
- Disallowance of the deduction, leading to a higher tax liability.
- Levy of a penalty for under-reporting of income, which can be as high as 200% of the tax sought to be evaded.
- In egregious cases of fraudulent claims, the department may even initiate prosecution proceedings.
How to Stay Compliant?
The key to navigating these new rules is meticulous record-keeping. Taxpayers should ensure they have all the necessary documents, such as policy statements, rent receipts, and loan certificates, readily available while filing their ITR. It is advisable to:
- Gather all your documents before you begin the filing process.
- Carefully enter the specific details as required in the ITR form.
- Double-check all the information for accuracy before submitting your return.
While the new tax regime is the default option, many taxpayers with significant investments and expenses find the Old Tax Regime more beneficial. However, to leverage its benefits, it is now more crucial than ever to be thorough and transparent in your tax filings. Staying compliant is not just about avoiding notices; it’s about ensuring a smooth and hassle-free tax filing experience.