Understanding Seventh Proviso to Section 139(1)

Finance Act, 2019 has inserted a new seventh proviso to section 139(1) to provide for mandatory filing of return of income for undertaking certain high-value transactions even though the person is otherwise not required to file a return of income due to the fact that total income is below the basic exemption limit.

The provision is called the seventh proviso because it is placed after the existing sixth proviso to section 139(1).
 

Currently, a person other than a company or a firm is required to furnish the return of income only if his total income exceeds the maximum amount not chargeable to tax, subject to certain exceptions. Therefore, a person entering into certain high-value transactions is not necessarily required to furnish his return of income. In order to ensure that persons who enter into certain high-value transactions do furnish their return of income, section 139 of the Income Tax Act, 1961 is amended so as to provide that a person shall be mandatorily required to file his return of income, if during the previous year, such a person undertakes certain high-value transactions.

Section 139(1) provides for filing of return of income and prescribes the due date of filing of return of income. Certain exceptions have been given in the above-mentioned rules by way of proviso.

The following seventh proviso to section 139(1) is enacted into law in the following manner-

Provided also that a person referred to in clause (b), who is not required to furnish a return under this sub-section, and who during the previous year -

 

• has deposited an amount or aggregate of the amounts exceeding one crore rupees in one or more current accounts maintained with a banking company or a co-operative bank; or
• has incurred expenditure of an amount or aggregate of the amounts exceeding two lakh rupees for himself or any other person for travel to a foreign country; or
• has incurred expenditure of an amount or aggregate of the amounts exceeding one lakh rupees towards consumption of electricity; or
• fulfils such other conditions as may be prescribed,

 

shall furnish a return of his income on or before the due date in such form and verified in such manner and setting forth such other particulars, as may be prescribed.

The seventh proviso to section 139(1) provides for furnishing of return by a person referred to in clause (b) of the said sub-section (1), who is not required to furnish a return under the said sub-section, if such person has undertaken the following high value transactions during the previous year —

1. Deposit of Rs. 1 crore or more in current accounts: All types of deposits whether in cash or by cheque or online fund transfer are covered. The deposit is not restricted to cash deposits only. Further, only the deposit in one or more current accounts is included. Savings Accounts and other accounts are outside the purview of this provision. The aggregate deposits in all the current accounts maintained in all of the banks including co-operative banks are required to be considered for determining the threshold of Rs. 1 crore. 

2. Expenditure on foreign travel for more than Rs. 2 Lakh: It covers all the expenditure incurred by a person for travel to a foreign country for himself or any other person. Hence, the person who incurs the expenditure may or may not travel to a foreign country. It is not clarified what will constitute ‘foreign travel expenditure’. However, it should be noted that the legislation has used the expression ‘for travel to a foreign country’ and not the expression expenditure ‘on foreign travel’. It is not necessary that the expenses should be incurred in foreign currency. Further, it is immaterial whether the travel to a foreign country is a business trip or a personal leisure trip.

3. Expenditure on the consumption of electricity for more than Rs. 1 Lakh: The expenditure on the consumption of electricity is only covered under this provision. Expenses incurred for getting the electricity connection or deposits made with electricity authority are not covered. Further, it is immaterial whether the consumption of electricity is due to commercial usage or personal usage, expenses on both are covered. It is also not necessary that the expenses are incurred on the electricity connection which is in the name of the person himself. The provision covers where the expenses incurred for the consumption of electricity even if the connection is in the same of someone else but the electricity must be consumed by the person concerned. Further, if the person has more than one electric connection, all the expenses will be aggregated to determine the threshold limit of Rs. 1 Lakh.

4. Other prescribed conditions: CBDT is empowered to prescribe other conditions or high-value transactions under this seventh proviso. Till date, no such conditions have been prescribed. 

Note: It is not necessary that all the conditions have to be fulfilled. Fulfilling any one of the above-mentioned condition is sufficient to file a return of income. 

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent years.

Further, a person referred to in clause (b) refers to a person other than a company or a firm. The seventh proviso to section 139(1) is not applicable to a company and a firm. It applies only to a person covered in section 139(1)(b) which includes an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificial juridical person.

ITR Forms for AY 2020-21: The notified ITR forms ITR-1 to ITR-5 for the assessment year 2020-21 contains information on seventh proviso to section 139(1). These changes have been incorporated in the ITR forms for AY 2020-21. If a person is not required to file a return of income since his income is below the basic exemption limit but has undertaken the above-mentioned high value transactions, then such a person should file the appropriate ITR form.

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