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Home / Money / Personal Finance /  Things to be noted before filing your tax returns

Tax filing for assessment year 2022-23 (for financial year 2021-22) opened last week on the e-filing portal of the income tax (I-T) department. While the deadline for filing returns is 31 July and there are no early bird prizes, doing this well in advance gives you enough time to file your taxes correctly.

The first thing you need to do is collect all relevant documents (see table) and reconcile them to avoid mismatch in information. Also, several changes have been made in the ITR forms seeking additional information. Take for instance ITR 1. The taxpayer has to give a detailed break-up of salary income—in terms of salary, profits in lieu of salary, perquisites, exempt allowances and deductions. “The government has notified a new format of Form 16 wherein this detailed break-up of salary must be given by the employer," said Archit Gupta, founder and CEO, Clear.

Those who have not submitted all tax-saving investment proofs to their employer will have to themselves gather relevant documents to claim any tax breaks. “It is advisable to match the same with AIS (Annual Information Statement) as well," said Yeeshu Sehgal, head of tax markets, AKM Global, a tax and consulting firm.

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Interest on PF

The current assessment year will be the first time that taxpayers need to declare interest earned on contributions in excess of 2.5 lakh in their provident fund (PF) account. This threshold applies to the contributions made by employees and not employers. It also includes contributions made to the voluntary provident fund (VPF). The contribution limit is 5 lakh for government employees.

The Employees’ Provident Fund Organization (EPFO) will maintain two separate accounts– non-taxable and taxable—for members who contribute over 2.5 lakh and compute tax on interest earned in the latter.

As per EPFO guidelines, tax will be deducted at source (TDS) at the rate of 10% on annual interest where the PAN is linked to EPF accounts, whereas TDS will be 20% in case the PAN is not linked. Taxpayers should note that EPFO will not deduct tax on the interest accrued if the TDS amount computed is up to 5,000, but that does not mean that the taxpayer’s individual tax liability is absolved.

The excess interest is to be reported under income from other sources head, and if the TDS is not deducted, it will be added to the total income and taxed as per slab rates.

“Taxpayers can import the details of interest and tax deducted amount from Form 16A issued by the PF organisation or their respective Form 26AS," said Gupta.

Capital gains

Taxpayers who have sold a building or land in FY 2021-22 will have to disclose all information related to the sale proceeds this year onwards. “Sale of house property triggers capital gains and additional information is being sought to ensure enhanced transparency in calculation of the related capital gains," said Saraswathi Kasturirangan, partner, Deloitte.

Under long-term capital gains (LTCG) section in the ITR form, taxpayers now have to mandatorily give both the date of sale and purchase of the property. This is done because LTCG from real estate, which triggers when the property is held for over 24 years by the taxpayer, qualifies for tax exemption if the gains are invested as per section 54 (sale proceeds of residential property invested in residential property), 54EC (sale proceeds of residential property in government specified bonds) and 54F (sale proceeds of non-residential property in residential property). Declaring the date of sale and purchase brings in transparency as to whether the property is a long-term capital asset or not to qualify for these tax breaks.

Any costs borne towards renovating or improving the house property that is sold also qualify for deduction from the sale price while computing capital gains. Such costs can be indexed to account for inflation. Taxpayers have to provide the original cost of improvement also along with the indexed cost in the ITR form.

Also, if the house was renovated multiple times, the year-wise details of all such improvement costs undertaken will have to be provided.

“This rule only applies to residential properties and not the sale of commercial properties," said Prabhakar KS, founder CEO, Shree Tax Chambers.

Reconcile AIS

Annual Information Statement, introduced in November 2021, is an exhaustive financial statement that contains information on all financial transactions of a taxpayer, including income from different sources, foreign currency purchase, TDS and TCS, advance or self-assessment tax paid to the government, refund initiated, statement of financial transaction that captures high-value transactions, etc.

It is important that taxpayers cross check all the incomes given in AIS with TDS certificates, interest income certificates and Form 26AS as any unreported income that is highlighted in AIS or a mismatch will lead to scrutiny from the IT department.

If the taxpayer believes any information in the AIS is incorrect, they should submit feedback to the IT department to get the error rectified before filing the ITR. “It is advisable for taxpayers to reconcile the investment and income details and file the tax return based on actual numbers," said Kasturirangan.

Any dispute resolution can take 1-2 weeks, so it is advised that you submit feedback, if any, at the earliest to avoid defaulting on the ITR filing deadline.

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