Tax Season Alert: Schedule AL And What Those Earning More Than Rs 50 Lakh Need To Know About It

As the tax filing season commences, individuals and Hindu Undivided Families (HUF) with incomes exceeding Rs 50 lakh face an additional requirement: the declaration of both movable and immovable assets.

This mandate, detailed in Schedule AL (asset and liability) of ITR forms 2 or 3, encompasses immovable properties, financial assets, vehicles, art, sculptures, and related liabilities.

Introduction to Schedule AL

Implemented in 2016 following the abolition of the wealth tax, Schedule AL serves as a mechanism for the government to track whether the asset values of taxpayers align with their reported incomes.

Assets Requiring Declaration

Taxpayers must list both financial and non-financial assets. These include cash, jewelry, vehicles, archaeological collections, artwork, and real estate. Each asset category is assigned a specific column in Schedule AL.

Specific Asset Categories

• Financial Instruments: Provident Funds (PF), National Pension Scheme (NPS), cryptocurrencies, and Real Estate Investment Trusts (REITs) should be reported under the shares and securities column. This broad categorisation is due to the lack of a precise definition of securities in tax laws.

  Consolidate your investments in stocks, mutual funds, NPS, EPF, government securities, and derivatives under this section. Declare the derivatives bought on 31 March, not for the entire year.

• Valuation: Assets should be reported at their purchase cost rather than their current market value. For example, insurance policies should be declared based on the premium paid, while vehicles should be reported at their original purchase price, regardless of their age.

• Investment Reporting

  Investments in mutual funds, stocks, fixed deposits, and similar assets should be declared at the total amount invested during the financial year, not their value at year-end.

  If an investment is sold within the same financial year it was bought, its acquisition cost should not be reported. Bank savings account balances and cash amounts must be declared as of 31 March.

Liabilities

Liabilities should be declared based on the outstanding loan amount as of 31 March, reflecting a decreasing loan value each year.

Only loans taken for asset acquisition should be included; personal loans and credit card debts not used for purchasing should not be disclosed.

Inherited Properties

Properties received through inheritance or as gifts should be declared at the original purchase cost by the previous owner. If this value is unavailable, the circle rate at the acquisition date, or the date the circle rate was introduced, should be used.

Foreign Assets

Foreign assets must be reported in both Schedule FA and AL. In Schedule FA, assets are declared based on the calendar year, whereas in AL, they are declared according to the financial year.

If a stock is held even for a day, it should be declared in schedule FA, whereas such a stock is not to be declared in Schedule AL. 

Schedule FA requires reporting the current market value along with the acquisition cost, whereas AL only requires the latter.

Spousal Investments

Investments made in a spouse’s name should be declared by the taxpayer who funded them in their ITR, due to the clubbing provision for income tax.

When one spouse has paid for a property but both are joint owners, the full cost must be declared by the paying spouse.

If the paying spouse is not a joint owner, such as in the case of fixed deposits or mutual funds, the asset is considered a gift and does not need to be reported in their AL.

Business Declarations

Assets listed in a business balance sheet are exempt from being declared in Schedule AL.

For example, a car included in a business's balance sheet does not need to be declared, but personal assets, like a house, must be reported.

Penalties

While there is no specific penalty for failing to declare assets in Schedule AL, unlike Schedule FA, which can incur penalties under the Black Money Act, taxpayers are advised to accurately declare all assets and liabilities.

Proper documentation and declaration creates a verifiable trail, providing protection if questioned by tax authorities in the future.

The IT department may impose penalties for inaccuracies or omissions, ranging from Rs 25,000 to Rs 50,000, depending on whether the non-declaration led to tax evasion.

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