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Let me get straight to the most important thing in the month of July – income tax return filings. Every one of us must be running around getting documents in place, figuring out how to file income tax returns. Hope this podcast helps you in doing return filings right.
I will start with the basics and the first one is the deadline of 31 July, which is very important to keep in mind. There is a penalty of Rs 5,000 now for late filing [upto Dec 31; Rs. 10,000 post Dec 31], if your income > 5 lakhs. Even for income levels < 5Lakhs, there is a penalty, however, it is restricted to Rs. 1,000. And we all want to avoid that. So, filing returns on time is supercritical. Income Tax Return filing is still mandatory if your income exceeds the basic exemption limit of Rs. 2.5 Lakh (if age is below 60).
Income Tax Return is the form in which assessee files information about his Income and tax thereon to the Income Tax Department. Various forms are ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7. Depending on the type of income earned during the year, the relevant form needs to be used. For example, income from 1 house property or ‘income from other sources’ such as interest on deposits [other than lottery, racehorse betting, and other legal gambling], individuals with salary income up to Rs. 50 Lakhs need to use ITR 1. However, if you have capital gains during the year, you will need to use ITR 2. Similarly, if you are a consultant and are claiming the presumptive income tax route, you will need to file ITR 4. So, the first step is to identify the correct form.
ITRs can be submitted online or in physical form at any Income tax returns office. However, as per the recent amendment, All the taxpayers are mandatorily required to file their tax returns electronically except individuals over the age of 80 years who have the option of filing the tax return in paper format as well. An Acknowledgment Receipt can be obtained upon submission. In case of Electronic Filing of the form, there are two alternatives. Firstly, if a Digital Signature is obtained, the Form is uploaded online. Secondly, the Form is downloaded, printed, signed, and a copy of the acknowledgment is sent by post to the Income Tax Department’s office in Bengaluru.
ITV, the acknowledge form, can now be verified online using Aadhaar Card or Electronic Verification Code (EVC). The EVC can be generated either via One Time Password sent to email and registered mobile number (if income is less than INR 500,000) or via Net Banking. After online verification Income Tax Assesses is not required to send ITRV to Bangalore CPC.
Essentially documents wise, most salaried people typically get a form 16 from their employer. Form 16 is basically a declaration by your employer around all the salary that you earned, and also includes Tax Deducted at Source that the employer deducted on your behalf from your salary and deposited it to the government. This may include your declaration which is in the form of sec 80c, 80d, 80e, etc, so all the tax savings you declared to your employer will show up in form 16. One thing to keep in mind is when you change jobs in the course of a financial year, you may have multiple form 16 depending on the number of employers you had.
In case you were working as a salaried individual for a part of the year and became a consultant/freelancer for the remaining part of the year, you will then have Form 16 for the period you were employed and Form 16A for the period you freelanced. These are some things to keep in mind in terms of the employment landscape you went through, through the financial year. Another important thing to keep in mind is that fixed deposits or recurring deposits interests are taxed as per your tax slab, but for savings bank interest –up till Rs 10,000, a deduction can be claimed under section 80TTA. So, this deduction saves you money, only thing is you need to declare this interest income correctly to the tax authority and then take the deduction.
Now let’s talk about form 26 AS – it is a form issued by the tax department on the TRACES platform. You can go to Income Tax department website and download the form 26 AS. While Form 16/Form 16A is a document provided to you by each of your employer /other income payers, Form 26AS is a summary of all tax deductions made by persons on behalf of you. For example, it will specify the name of the deductor [your employer for tax on salary, bank for tax on interest, etc.], their TAN, the amount paid by them to you and the tax deducted on this payment. Together, the sum total of all tax deducted as per Form 26AS can be set off from the overall tax liability. Here, it is essential to note the rate of tax deducted at source [TDS].
For example, If you are in the highest tax slab let’s say 30%, banks will generally only deduct 10% on the interest income by law. This difference of 20% will be tax due and you have to pay that tax before the financial year-end to avoid interest on late payment. The section on interest etc will be covered later in the podcast.
Deductions under section 80C like NSC, Equity Linked Savings Schemes, school tuition fees for kids, the principal amount on home loans, tax savings FD’s, insurance premiums, etc., if declared correctly to the employer it will reflect in form 16. But few of us forget to make a declaration on time to the employer, then more TDS will be deducted and section 80C, 80D, NPS and other deductions will not reflect. But the department still allows you to claim the exact deductions and you can get a refund. So, in short, if you have done the investments – you are eligible to claim deductions even if you forgot to declare to the employer.
If you have investments in MFs or in equity/debt markets – and you have capital gains or losses from that –– typically broker will provide a statement showing all the transaction details along with gains/losses. The important point to note here is losses are allowed to be carried forward only when you file returns on time – so very important to file on time. So next year if you have some gains that can be set off against carried forward losses.
Delayed filing or payment of income tax attracts interest, as follows:
- Delay in filing the return of income would result in a late payment interest of 1% per month (simple interest) and this 1% would be applied on the tax amount outstanding
- All assesses are required to pay Advance Tax (at least 90 %) where the tax payable is Rs 10,000 or more. Late Payment Interest is applicable if tax liability is more than Rs 10,000 and the taxpayer has not paid any advance tax or if the taxpayer has paid advance tax, but advance tax paid is less than 90% of ‘assessed tax’. Interest would be applied at 1% per month on the tax amount outstanding.
- You are also required to pay specified percentages of advance tax by due dates [such as 15% by June 15, 45% by Sep 15, 75% by Dec 15 and 100% by Mar 15]. If there is a shortfall in payment in any of these quarters, interest at 1% will be levied on the shortfall amount.
Recently, the Indian government has notified new tax return forms for FY2018-19 (the assessment year 2019-20) applicable for individuals, corporates and other categories of taxpayers. The new forms contain several additional disclosure requirements vis-a-vis the previous year’s forms.
Some of the key changes include specifying whether the property is self-occupied or let out, disclosure of exempt income, agricultural income below ₹5,000; amount received under a life insurance policy or from a recognized provident fund. ITR 2 requires Resident status along with manner of determining the same, NRIs are required to mention country of residence, TIN and period of stay in India for 5 years totally, Additional disclosure requirements to specify long-term capital gains from sale of equity shares or units of equity-oriented fund, For sale of immovable property, additional details regarding the buyer and the property are required.
The additional information being sought in the revised tax return forms will not only facilitate automatic cross-validation of data by the tax department but is also expected to quicken the process of tax refund and assessments.
To sum up, it Is important to file your income tax returns and pay your advance tax on time, to avoid interest and penalties and to ensure appropriate carry forward of losses if any. Further, if you are eligible for a refund, file it on time to ensure receipt of funds at the earliest. If you have already filed your ITR this year, you will be able to make changes to the return until March 2021 to make a correction.
Income slabs for FY 18-19:
The Income-tax slabs for individuals and HUF (less than 60 years old) for FY 2018-19
Income Tax Slab (Rs.)
Health & Education Cess
|Income up to 2.5 lakh||Nil||Nil|
|2.5 lakh < Income < 3.5 lakh||5% of income exceeding Rs. 2.5 lakh||4%|
|5 lakh < Income < 10 lakh||Rs. 12,500 + 20% of income exceeding Rs. 5 lakh||4%|
|Income > 10 lakh||Rs.1,12,500 + 30% of income exceeding Rs. 10 lakh||4%|
- If the net income exceeds Rs. 50 lakhs but less than Rs. 1 crore a surcharge of 10% is levied on the net payable tax.
- If the net income exceeds Rs. 1 crore, a surcharge on income tax at 15% is applicable on the income tax payable.