With almost 50 days to go to file income-tax (I-T) returns for the year 2006-07, chances are, no one is really thinking about the mandatory chore yet. There will be the early birds who have probably got everything organized, maybe even filed their taxes, but most people will probably start fretting about their tax returns by the end of June.
The good news is that however complex the forms, taxpayers know that they can avail the services of a chartered accountant (CA) to do all the dirty work. Several people have CAs who have served the family for some time. Others can just pick a new one—for as little as a few hundred rupees, CAs will fill up the tax forms, even submit it at the local office of the tax department.
The tax department has issued new forms this year that don’t require documents such as Form 16 (a statement of tax deducted at source by the employer) to be attached. However, each form (there are several varieties depending on what category the taxpayer falls under) runs into several pages and they are best filled by a CA. The forms also require details on investments and the like, and CAs will likely ask their taxpayers to come armed with documents that provide all the information.
Some CAs have already started sending out reminders to their clients on the documents required. Samir Mogul, a Mumbai-based CA says: “There is a class of people who think it is easy to opt for home loans whenever they wish. But, without providing your tax returns, it is not possible to do so. Also, though it is not compulsory yet, embassies are getting stricter about providing you visas for travelling abroad without your having submitted your I-T return details. Likewise, to claim I-T refund you need to file a return in advance.”
Tax returns have to be filed by all salaried people whose income is above the taxable limit of Rs1.1 lakh for men, Rs1.45 lakh for women and Rs1.95 lakh for senior citizens. For professionals and businessmen with an annual income of less than Rs10 lakh and Rs40 lakh, respectively, the deadline remains 31 July. For others, it is extended up to 31 October.
Taxpayers get to choose from eight types of tax forms, depending on their income profile. If salary, pension or interest is the only source of income, then the tax form that needs to be filled is ITR 1 (short for income-tax return form 1).
Most salaried people will have to fill ITR 2 because they are likely to have additional sources of income from their investments. But remember, it is not a do-it-yourself task.
This, despite the fact that the new forms the I-T department has introduced are meant to simplify the process for taxpayers. “There are many inconsistencies in the new forms. For example, in the schedule for capital gain of ITR 2, many unnecessary sections, such as 54, 54EC and 54F under (2e) are given to confuse the taxpayers,” says Kuldip Kumar, principal consultant at PricewaterhouseCoopers, an audit firm.
Other form types deal with other categories of taxpayer such as individuals who run their own firms (proprietors). Since most people will fill ITR 2, Mint has picked this to explain what the form says, and what information it requires.
How to file ITR 2
The six-page form is divided into two parts. In Part A, you need to fill general information such as personal details, address, personal account number (PAN), etc. Part B is further divided into two parts. In Part B-TI, you have to provide details of total income earned from various sources—salary, capital gains, property or agriculture.
And you need to mention the loss which you want to set off or carry forward from the previous years (individuals who invest heavily in equities, for instance, can show losses from these).
Part B-TTI computes your tax liability, by taking into account advance tax payments, surcharge and education cess. This section also asks for details of your bank account; I-T refund is directly credited to the bank account.
The I-T department has also introduced the facility of filing tax returns through an tax return preparer (TRP). The TRP will assist in preparing of your I-T return at a cost of Rs250. Apart from providing employment opportunities to the unemployed, the idea behind this is to encourage more people to file their tax returns. The website www.trpscheme.com gives details about TRPs. The ITR 2 form has a column wherein you can mention if you have taken the services of TRP.
You will need to quote the identification number (provided by the tax department) of the TRP.
Part A and Part B ask for the summary details of total income earned and the tax to be paid. The 15 schedules forming part of the ITR 2 constitute the most complex part of the whole exercise. In this section, you need to give details of the income earned from each source.
Mint presents a snapshot of the relevant schedules and the documents taxpayers will require to help their accountants or TRPs fill the forms.
Schedule S: income from salary
This is the first schedule of ITR 2. Salary means remuneration drawn by taxpayers from their employers (and former employer). For an income to be characterized as salary income, the relationship of payer and payee must be of an employer and employee.
In this schedule, you need to mention the annual salary, the amount of allowances (both exempt and non-exempt), the value of perquisites given by the employers and any profits earned in lieu of salary (bonus, incentives or profit sharing).
• Form 16: This is a salary certificate issued by an employer to the employee before 30 April of every financial year. Form 16 is the summary of the salary, allowances and perquisites paid by the employer during the previous financial year for which the assessment is being done. It also gives an account of the I-T deducted by the employer during the year.
• If you haven’t received Form 16, it’s time to chase the office accountant. And if you have changed jobs during the financial year (1 April 2006 to 31 March 2007) you will need a Form 16 from the previous employer too. “Also, you can give all the details of your income at the previous job and the taxes withheld to the new employer in Form 12B which, in turn, would consider the previous employer’s salary and tax details while deducting taxes on your new income from salary. Towards the end of the year, your new employer will issue a consolidated Form 16. A penalty of Rs100 every day may be imposed on the employer if it doesn’t provide you with Form 16 till 30 April of the relevant assessment year”, says Kumar.
• Form 16A: In case you have earned interest income from a bank and tax has been deducted at source, you have to to get Form 16A from your bank.
Schedule HP: income from house property
In this section, you need to give complete details of the rental income earned from all housing properties owned by you. The information needed here is: amount of rent received or receivable and amount of rent which could not be realized.
Any taxes actually paid to the local authorities during the financial year will be deducted to arrive at the net annual value of income.
If you have taken a loan to buy this property, you are eligible for an annual deduction of Rs1.5 lakh on the interest component of the loan. The same has to be mentioned in this schedule.
• Lease agreement:If you have rented out your house, you need to keep a copy of the lease deed in support of the rental income earned.
• Municipal tax receipt: Municipal tax receipt is important as it provides the proof for tax deduction of the same on the income from house property.
• Loan repayment/interest certificate: This is the principal/interest-paid receipt from your bank/borrower.
• Form 16A: In cases where any taxes have been deducted by the tenant, you will receive Form 16A from the tenant and details need to be filled in Form ITR 2.
Schedule CG: income from capital gains
In this schedule, you have to give details of any investments sold during the year. The period of holding of the asset determines whether the gain is short-term or long-term. Short-term capital gain arises on transfer of assets such as shares, mutual funds or other listed securities, which are held by the assessee for a period not exceeding 12 months (it is 36 months in the case other assets). Long-term capital gain would arise if assets such as shares, mutual funds or other listed securities are held by the assessee for a period exceeding 12 months (36 months in the case of other assets).
Long-term capital gain arising on transfer of shares, securities and mutual fund is exempt from tax, provided securities transaction tax has been paid on such transfers. But where the gain is short-term, it would attract tax of 10% plus surcharge and education cess as applicable. In the case of other assets, long-term capital gain is taxed at 20% plus surcharge and education cess as applicable, while short-term capital gain attracts the normal tax rates.
• Account statement of mutual funds: If you have sold units of mutual funds, then hunt for the account statement which will show the amount realized by selling the units of the mutual fund. For shares sold, you need the contract (broker) note from your share broker which contains details of purchase/sale of shares done by you.
• Sale deed: For capital gains from the sale of property, you need to have the sale deed and other relevant documents pertaining to the sale and purchase of the property.
Things you should know
The cost of improvement, expenditure on transfer of assets is deductible from the capital gains you make.
For instance, any major repairs to the house are considered cost of improvement, and payment of any commission or brokerage, stamp duty and registration fees are examples of expenditure on transfer.
Schedule OS:income from other sourcesAny income, which is not chargeable under income from salary, house property, business or profession and capital gains, falls under this category. It includes interest on bank deposits, family pension, income from subletting of house property by a tenant, agricultural income from agricultural land situated outside India and interest on delayed refunds by I-T department. Any expense which is not a capital expenditure but is incurred wholly and exclusively to earn income is deductible from such income taxable under the head ‘Income from other sources’. This head could also include income from winning crossword puzzles, lotteries, horse races and so on.
• Supporting certificates: You will need Form 16A issued by your bank (wherever applicable), savings bank interest certificates and other documents showing the income earned from other sources.
Schedule CYLA, BFLA, and CFL: details of income after set-off of current year losses
This schedule is applicable to more taxpayers than the name would suggest. This provides for setting off losses incurred from income from property or income from other sources. For instance, you buy a property against a home loan of Rs1 crore and pay Rs10 lakh as interest on this; you rent it out for Rs20,000 a month; the annual rental works out to only Rs2.4 lakh against your purchase consideration of Rs1 crore. To set off the remaining loss, the I-T law has a provision to carry it forward for the next eight years.
In Schedules BFLA and CFL, you need to give details of your income after setting off losses of previous years.
• For this, you need to have all documents related to property or other assets that have already been discussed.
• You also need to mention the dates of filing of past years’ returns in Form ITR 2.
Schedule VIA: deductions
This schedule is a critical part of the ITR form as it will eventually identify your tax liability. In this schedule, you need to list out all deductions you seek to get as per the I-T rules. These deductions fall under 11 sections.
Section 80C covers deductions related to tax-saving instruments such as the Public Provident Fund (PPF), national saving certificates (NSCs), equity-linked mutual funds, tax-saving bonds or unit-linked insurance plans (Ulips) or repayment of principal amount of the housing loan. So, one can just invest the maximum permissible limit of Rs1 lakh across these instruments so that the gross total income gets reduced by a similar amount. The total amount invested for availing benefits under Section 80C has to be mentioned in Part A of ITR 2.
Though the new form only asks for the total amount invested in these instruments to avail tax deduction, it’s advisable to keep all requisite documents as I-T authorities can ask you to provide these at any time.
• Section 80CCC relates to contribution made towards pension funds.
• Section 80CCD relates to contribution made towards the pension scheme of the Union government. But all deductions under Section 80C, 80CCC and 80CCD together are capped at Rs 1.1 lakh.
Likewise, where any deductions are claimed from income towards charity (Section 80G), medical premium paid for insurance of self and family (Section 80D), keep the documents ready though it’s only the amount of such deduction claimed that is required to be furnished in the schedule.
• Receipts from parties concerned to show investment or donation.
Schedule SPI and schedule SI: income of spouse or minor child
This schedule needs to be filled if the income of a spouse or minor child has to be clubbed with the income of the person filing the tax return. For this, you will need to give the PAN and income details of such specified person. Your accountant will take care of Schedule SI that asks for details of income chargeable to I-T at the special rates.
Schedule of Exempt income: income not included in total income
Do list down the income which is exempt from tax, as the amount needs to be disclosed in Schedule EI. Examples of such income are dividend from companies or interest on your PPF account. If you want to know details about exempted income, Section 10 of Chapter III in the Income-Tax Act can provide an entire list at http://incometaxindia.gov.in/.
Schedule of annual information return
From this year onward, you have to provide details of high-value transactions in the annual information return (AIR), although you could choose, according to tax laws, to treat this information as privileged.
However, banks and other institutions regularly provide the tax department with details of high-value transactions and if the information provided in this schedule does not reconcile with their information already with the tax authorities, you could invite scrutiny. Several CAs are disappointed with the introduction of this schedule, as it is simply a duplication of efforts since financial institutions are already supposed to send the high-value transaction details to the I-T department.
The following eight transactions qualify for an AIR: cash deposits in savings accounts in excess of Rs10 lakh in a year; credit card payments aggregating Rs2 lakh or more; purchase of mutual funds units for Rs2 lakh and more; investment in bonds or debentures for Rs5 lakh and more; purchase of shares exceeding Rs1 lakh or more; purchase or sale of immoveable property for Rs30 lakh and more; investment in Reserve Bank of India bonds for Rs5 lakh or more.
Schedule I-T: details of advance tax and self-assessment tax payments of income tax
If your net tax due for the entire financial year is more than Rs50,000 (after considering the tax deducted at source), you need to pay the tax through the advance tax mechanism. Up to 30% of net tax due is payable by 5 September, up to 60% till 15 December and up to 100% till 15 March. If there are no such taxes paid or short paid, the amount can be paid before filing the tax returns as self-assessment tax. But you need to pay the tax before filing the return. Challans given by banks on submission of cheques for evidencing payment of taxes need to be kept ready, as the details are filled in the schedule.
Schedule of tax deducted at source from salary
It contains details about tax deducted at source from salary. As in the new ITR form, all details are filled in the form itself and even if you haven’t got your Form 16, you can file your I-T return. It is sufficient to provide the details such as the name, address and the tax deduction account number (TAN) of the employer along with amount of salary received, deduction claimed, total tax deposited and refund due, if any.
This is for income from other sources where the tax has been deducted at source. Again, you do not need any annexure; you only need the TAN number of the deductor, the organization’s name and address, total tax deducted and other details.
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