The time to file tax returns for the financial year 2024-25 (assessment year 2025-26) has arrived, and the ITR-5 form has undergone significant changes.
These updates align with the Central Government’s Budget for 2024-25 and aim to enhance transparency in reporting while addressing new tax situations.
Chartered accountant Kinjal Bhuta, Secretary of the Bombay Chartered Accountants Society, emphasizes the importance of understanding and implementing these changes, especially for businesses involved in stock market activities, share buybacks, or international operations.
Here’s a summary of the key changes in the ITR-5 form and who needs to file it:
1. Updated Definition of Capital Gains
Previously, there were different timeframes (12, 24, and 36 months) for classifying capital assets as short-term or long-term. Now, the rules have been simplified:
Listed units (e.g., REITs, InvITs): These will be short-term if held for 12 months or less, down from 36 months.
Other Capital Assets: These are considered short-term if held for 24 months or less, instead of 36 months.
Additionally, taxpayers must report capital gains in two parts:
Deals before July 23, 2024.
Deals on or after July 23, 2024.
This distinction helps apply the correct holding period for each transaction.
2. Changes in Buyback Loss Reporting
Previously, if an investor incurred a loss during a company’s share buyback, it could be reported as a capital loss.
However, under the new rules, if the buyback amount is treated as a dividend under Section 2(22)(f) of the Income Tax Act, the transaction’s base price will be “NIL.”
This means a capital loss can only be reported if the buyback amount is declared as dividend income under ‘Income from Other Sources.’ This rule applies to cases from October 1, 2024.
3. New Tax Rules for Cruise Ship Businesses
A new presumptive taxation rule applies specifically to non-resident cruise operators. These operators can now consider only 20% of their total earnings as taxable profit.
A new option has been added in ITR-5 to declare that you are filing under Section 44BBC. This must also be reported in Schedule BP (Business and Profession), similar to existing sections 44B and 44BBA.
4. Revised TDS Reporting Requirements
Previously, taxpayers only had to report the total amount of TDS deducted.
Under the new ITR-5, it is now mandatory to mention the respective Section Code of the Income Tax Act alongside each TDS entry in the Tax Payment Schedule.
This change will help the tax department perform cross-verification and reduce the chances of tax evasion.
Who Should File ITR-5?
The ITR-5 form is applicable to the following entities:
Firms and LLPs
AOPs (Association of Persons) and BOIs (Body of Individuals)
Trusts, Co-operative Societies, and Investment Funds
Artificial Juridical Persons, such as religious institutions, companies, or corporations legally recognized as persons
Individuals inheriting property from a deceased or bankrupt person
These are the key updates in the ITR-5 form that businesses and organizations need to be aware of to ensure accurate tax reporting.
