It’s that time of the year again. You knew all along that it would come, whether you ignored or waited for it. And you know you can’t run away from it any more. We are talking about 31 July, which happens to be the last day for filing income tax-returns for all salaried Indians, be they resident or non-resident.
Of course, you must have done everything legally possible to maximize your freedom from tax. But then, the law permits you only that much. You might also have wondered about the word return being used for an outgo. Maybe it’s because governments always want citizens to see things from their point of view, perhaps for the larger good.
Filing tax is compulsory for everyone whose gross total income—the income under the five heads (salary, business, capital gains, house property or other sources) before allowing for any deductions such as insurance premium—exceeds the basic exemption limit. For financial year 2007-08 (assessment year 2008-09), this limit was Rs1.45 lakh for women below 65 years, Rs1.95 lakh for senior citizens (above age 65) and Rs1.10 lakh for other individuals. It is compulsory for every person exceeding these limits to file the return before the prescribed date, even if their employer has taken care of their liabilities by cutting the tax from their salaries. This is known as tax deducted at source or TDS.
Filling up the form
There are two income-tax return forms, ITR-1 and ITR-2, for salaried individuals. Your sources of income (they will fall under one or more of the five sources mentioned earlier) will decide your form. You will have to submit the filled form to the tax authorities and get an acknowledgement from them. Use ITR-1 to file your tax return if your income is from salary, pension or interest. In the case of any capital gains, income or loss from house property and income from any other source, you will have to use ITR-2. You can go to www.incometaxindia.gov.in/download_all.asp to download these forms. You will find ITR-1 relatively simple to fill up. A prerequisite for the exercise is Form 16, the certificate that comes from the employer showing the TDS from the income chargeable under the head salary. ITR-1 is almost a replica of Form 16. All you have to do is pick the numbers from Form 16 and put them in the ITR form.
Apart from salary income, there is an important component of income that many taxpayers ignore while filing their returns. It is the interest income earned from funds lying in savings accounts in banks. Disclosing this, however small it may be, is mandatory. You just have to add the total interest credited to your bank account in the last financial year. Scrutinize your income-tax return to ensure that no taxable income is undisclosed. After you file your return, the tax authorities will hand you an acknowledgment. That’s it, you are through with the filing of returns.
You will need to fill up ITR-2 if you, as a salaried individual, have made any capital gains. This form is filled in the same way as ITR-1. In addition, you will have to fill in income, if any, from house property and other sources.
How to file
The actual filing of the return can be done either by using the traditional paper form or electronically, over the Internet. The second, known as e-filing, is fast catching up. The digital method is compulsory for companies, but still optional for salaried individuals. However, it may well become compulsory for individuals with a certain level of income in times to come. So, it may not be a bad idea to familiarize yourself with this process.
Before you start filing the return, check if you would be getting a refund from the I-T department or have to pay tax. In case of the latter, even before starting the filing process, you should first get hold of Form 280, fill it and deposit it in any bank along with the tax payable in cash or cheque. You can also pay tax through Internet banking. In both cases, you will get a receipt number which has to be quoted in the ITR form.
Doing it offline
There are two options—you may either submit the ITR form at the nearest income-tax office (ITO) after filling it up yourself, or you may get a chartered accountant (CA) or a tax return preparer to do it for you. Try to visit the ITO well before the last date for filing returns—the crowd increase as 31 July draws near. You may also take help from the public relations officer of the ITO to fill the form. No documents or investment proofs need to be attached with the form, but remember to bring photocopies or originals with you to the ITO. These will come in handy if you are asked to authenticate the math.
The fee of a CA would depend on your income slab and the number of income sources. Typically, it would range from Rs300 to Rs2,000, depending on the complexities involved. One good thing about filing through a CA is that it would bring down the margin of error to nil. Also, depending on the acumen of the CA, which often gets reflected in the quality of his practice, he would suggest some tax-saving ways to you.
Doing it online
E-filing is done through websites authorized by the I-T department to file taxes on your behalf. To e-file, you will have to input the details of Form 16 in the software of the website, which would automatically generate an electronic return in XML format. This format helps in sharing structured data across different information systems. A PDF file of the relevant ITR form is also created along with the XML format. You can download this ITR form, submit it at the ITO and get an acknowledgement.
Save the XML file to your desktop and then upload it on incometaxindiaefiling.gov.in, the I-T department website. Some websites also have provision for online payment of tax. Use of a digital signature (DS) will render the e-filing process complete without involving paperwork and visits to the ITO. In case a DS is used, the acknowledgement will be emailed to you. If you upload the file on the tax department’s website without the DS, the acknowledgement, called ITR-V, emailed to you will have to be submitted at an ITO within 15 days of downloading it. A DS can be acquired from any of the agencies authorized by the government for the job, including the private and government websites meant for filing tax returns.
E-filing is convenient—it saves time and can be done from anywhere. What is especially important is that the online method reduces or even eliminates the interface between the tax assessee and tax officials.
Among the major websites offering e-filing facilities are Taxspanner, Taxsmile and Taxshax. You can either take printouts of the relevant ITRs from these three websites and physically submit them or upload your XML file on the I-T department’s website. Taxspanner uploads the taxpayer’s file directly and emails ITR-V to him. With Taxsmile, you can submit the forms at any of its offices in the country. It will then forward it to the ITO.
All the three websites are secure and easy to navigate. The major difference among them is on two counts—the number of income sources covered and the process. Get clarity on the cost and features offered. The minimum cost package would normally be only for salary income. The advanced version might be required if you have income from other sources. The tax websites also differ in the way they ask for information and allow you to input figures. Taxshax gets most of the figures filled up in a single page. Taxspanner has a step-by-step guide and takes one piece of information on one page. Taxsmile offers both these options.
Use of DS raises the cost of e-filing. The amount of this increase varies across tax websites. A DS can be obtained from Taxsmile for Rs500. Apart from this, you will have to pay for the basic package. Your DS comes with a validity period, after which it has to be renewed. A DS from Taxspanner, for example, is valid for two years. This website offers a deal in which you can file returns for three years at a cost of Rs250 a year.
To get your DS from a tax website, download the relevant form from it, attach the required documents, such as your identity and address proofs, and courier them to the address concerned. The entire process of acquiring a DS may take around 15 days.
A tax return can also be filed from the government website, incometaxindiaefiling.gov.in/portal/index.jsp, meant for it. Your PAN (permanent account number) will work as the user name for registering at this website.
Should you go online?
Internet accessibility is growing, but it is still out of reach for many of the 40 million taxpayers. For those who have access to it and want to save time, the digital signature way looks ideal—you will be able to file the return in a few minutes from the comfort of your home or office. E-filing without the DS is almost the same as filing returns offline.
Tax laws can often seem like a cross between a Rubik’s cube and Muttiah Muralitharan’s spin bowling. The three private tax websites get around this by making themselves friendly to taxpayers and not making the filing of returns dependent on an intricate understanding of the workings of tax laws. They empower with information and knowledge while taking the taxpayer step-by step through the entire process of tax filing. The details of the return filed get saved in the database of these websites and can be accessed anytime in the future.
If you have any specific doubts concerning the filing process, email the tax website to clear them. Getting clarity is important as some websites do not include things such as income from business or profession, losses of earlier years brought forward or clubbed income. If tax is due, check if you can pay it through the website.
Stick to the deadline
Whether you are going offline or online, make sure your are on the right side of 31 July. If tax is due and the return is not filed till 31 March of the following year, a penalty of Rs5,000 is levied. Penalty may also have to be paid in the form of interest. Check out the answers to some frequently asked questions (FAQs) to get on top of tax returns. And then go ahead and file with a smile.
GET THE RETURNS RIGHT
What if I have not received my Form 16?
Employers are supposed to hand over Form 16 within 30 days of the end of a financial year, that is, by 30 April. Ask your employer to issue Form 16 immediately so that you don’t miss the 31 July deadline for filing return for salaried employees. If you think that your employer might not issue the form in time, you can write a registered letter to him on the issue and send a copy of this to your assessing officer. The employer can be penalized for not issuing the form in time. If no tax was deducted at source, you can ask your employer for a salary certificate on his letterhead stating your salary during the financial year. This certificate can be used to file a return.
I have earned under two heads—salary and capital gains. Which form should I use to file my return? How will my tax be assessed?
As an individual assessee, if you have earned income from capital gains in addition to your salary, you will have to file your return in form ITR-2. For taxation, you will have to first segregate capital gains into short-term (STCG) and long-term (LTCG).
Any gain from selling shares held for more than a year is termed long-term. Gain from sale of shares held for a year or less is called short-term. If you have paid the securities transaction tax on all share trading, LTCG will be exempt from tax and STCG will be taxed at 10% for fiscal 2007-08. Your gross tax outlay will depend on your salary income, income from capital gains, income from other sources such as interest on bank deposits, and the deductions you are entitled to.
I have misplaced my insurance receipt. Is it necessary to attach it and other relevant documents with the tax return?
No attachments are needed with the current ITR forms as the forms themselves capture most of the required information. You don’t even need to attach the computation sheet with the form. After you submit the form, the I-T department cross-references the TDS details using Oltas (the online tax accounting system). However, make sure to carry the photocopies of all the relevant documents to the income-tax office.
I bought shares worth Rs1.25 lakh last year. Do I have to disclose that and other transactions?
Certain disclosures are mandatory while filing an income-tax return. Among these are investments above a specified amount in bank deposits, mutual funds, shares and property in the financial year for which the return is being filed, 2007-08 in this case. The cut-off amount of investment from where disclosure should be made is: Rs1 lakh or more for shares, Rs2 lakh for credit card payments, up to Rs10 lakh for deposits in one bank during the year, Rs2 lakh for mutual funds, Rs5 lakh or more for bonds or debentures issued by a company, Rs5 lakh or more for RBI bonds and Rs30 lakh or more for the purchase, or from the sale, of immovable property.
I was in two jobs. How should I file the return?
The aggregated income from both your employers will be considered while calculating your tax. Ideally, both companies should give you Form 16 for salary earned during the relevant period. Try to get a salary certificate from your previous employer if you cannot get Form 16. Submit this estimate and a declaration in Form 12B to your current employer, who will then incorporate these details in the Form 16 that he issues.
Can I use my investment in ELSS (equity-linked savings scheme) this year to reduce last year’s tax liability?
No. But if you had not claimed any deductions in the previous year’s return, you may file a revised return to claim a refund. Fresh investments will not be eligible for deductions from last year’s income.
Taxes get deducted from my salary every month. Do I need to file an income-tax return?
Yes. Filing is compulsory for every person whose gross total income, that is, the income under the five heads before allowing for any deduction such as insurance premium, exceeds the basic exemption limit. For financial year 2007-08 (assessment year 2008-09), this exemption limit was Rs1.45 lakh for women below the age of 65, Rs1.95 lakh for persons above 65, and Rs1.10 lakh for any other individual. Everyone falling in the tax bracket should file a return, even if his tax liabilities have been taken care of by the employer through tax deducted at source (TDS). Persons whose salaries have been subjected to TDS are also required to file a return because they may have earned from sources other than salary.
I incurred losses last year while trading in shares. Can gains from other sources set these off?
Short-term capital losses can be set off against long-term (LTCG) or short-term capital gains (STCG), but long-term capital losses can only be set off against LTCG. Loss from trading in shares cannot, however, be set off against gains from “other incomes”. A loss that is not wholly set off in the financial year in which it is incurred can be carried forward to eight succeeding assessment years.
What if I miss the 31 July deadline?
If there are no balance taxes to be paid, no interest or penalty will be levied if you file your return before 31 March 2009. However, there is a penalty of Rs5,000 if you fail to file by that date. In case there are tax arrears, a penalty of 1% per month will be charged as interest on the taxes due.
Where do I file my return?
The filing process has been centralized, so you can file your return anywhere in the country, at I-T offices and even post offices. If a person has relocated, he just needs to intimate the change of address and file his return at the new location. Filing can also be done through the Internet. Help can be taken from authorized intermediaries, too.
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