Rules and regulations Under Taxation

Rules and regulations Under Taxation. All of us believe that we are paying a lot of tax. Well, the time has come to record it as well. By filing your income tax return, you declare how much income you earned during the year, the deductions you claimed and the tax you paid.

The equation is fairly simple, yet many taxpayers mess up their ITR—either out of greed, ignorance of tax rules, or just lack of time. Take for instance the interest that nearly every taxpayer earns from bank FDs, recurring deposits and NSCs.

This interest is fully taxable but is rarely mentioned in the tax returns. “Our research shows that nine out of 10 taxpayers go wrong in reporting their interest income,” says Sudhir Kaushik, Co-Founder, and CFO of Taxspanner.com.

Some of these mistakes are not very serious offenses and the taxpayer will get away with a mere additional tax demand. But some other errors, such as not mentioning cash deposits after demonetization or foreign assets and income, can land the taxpayer in serious trouble.

This week’s cover story lists out 10 commandments for those who will be filing their returns in the coming weeks. There have been several changes in the tax filing rules in the past year. Our canons of prudent tax filing take note of these changes and accordingly guide taxpayers so that their returns are flawless. The tax filing deadline is still a month away. But our advice to you is to get cracking on your return right away.

 

Who needs to file tax returns?

Rules and regulations Under Taxation. If the gross taxable income after exemptions, but before deductions, exceeds the basic limit, or if a tax refund has to be claimed, you need to file your tax return.

I: THOU SHALL FILE RETURNS IF INCOME EXCEEDS BASIC LIMIT

Do you have to file your tax return? Taxpayers hold many misconceptions about this. Some think if their income is not taxable, they needn’t file their return. Others believe that if tax has been deducted at source, their tax compliance is taken care of. The rules say that an individual has to file his tax return if the gross taxable income is above the basic exemption limit. This limit is Rs 2.5 lakh for general taxpayers, Rs 3 lakh for senior citizens (above 60) and Rs 5 lakh for very senior citizens (above 80).

II: THOU SHALL VERIFY TDS DETAILS IN FORM 26AS

Once it is clear that you have to file returns, the next step is to verify whether the tax deducted on your behalf has been credited to your PAN. While the tax deducted by your employer will reflect in Form 16, check out your Form 26AS online to make sure that all other taxes (advance tax, TDS on interest and other incomes) have also been credited to your PAN.

If there is a discrepancy, notify the deductor and get it rectified. The tax authorities consider this document as the sole proof of taxes paid by you. Once the return is filed, the tax department’s system reconciles the details in the return with the amounts appearing in the taxpayer’s Form 26AS.

III: THOU SHALL CHOOSE THE RIGHT FORM FOR FILING RETURN

One big confusion among taxpayers is which form they must use to file their return. Most tend to use the ITR 1 because it is simple to fill. The rules relating to forms have changed this year. Here is a guide to the forms that individuals have to use:

ITR1 OR SAHAJ

Use it if you have…

Income from salary or pension Income from one house property Income from other sources (interest, dividends, etc)

Don’t use if…

You are carrying forward losses Your total income exceeds Rs 50 lakh You hold foreign assets Agricultural income exceeds Rs 5,000 You have taxable capital gains You have income from business or profession You earn income from more than one house property

ITR 2

Use it if you have…

Income from salary or pension Income from house property Income from capital gains Income from other sources Income as a partner in firm Foreign assets and income Agricultural income of over Rs 5,000

Don’t use if…

You have income from business or profession

ITR 3

Use it if you…

Are an individual or HUF with income from proprietary business or profession. Have income from house property, salary, pension and other sources

Don’t use if…

You have opted for presumptive taxation

IV: THOU SHALL MENTION CASH DEPOSITS AFTER DEMONETISATION

If you deposited more than Rs 2 lakh in cash in your bank after demonetisation, it has to be reported in the tax return. Mind you, the Income Tax Department has already got details (name, address, PAN) of the cash deposited by individuals. This information can be matched with the ITR. In case there is a mismatch in the reporting, the individual can expect a notice.

You can get into serious trouble if you don’t report the cash deposits in your return. The penalty for misreporting can range from 50% to 200% of the under-reported income.

V: THOU SHALL INCLUDE INTEREST AND OTHER INCOME IN RETURN

Almost six out of 10 taxpayers are under the misconception that interest from tax-saving fixed deposits is tax free. They don’t realize that these deposits help save tax under Sec 80C, but the interest is fully taxable. “Our research shows nine out of 10 taxpayers go wrong in reporting interest income,” says Sudhir Kaushik, Co-founder & CFO, Taxspanner.com. The tax department has introduced new rules to plug this leak

VI: THOU SHALL MENTION YOUR AADHAAR IN THE TAX RETURN

After a bitter legal and political battle, there is some clarity on the Aadhaar and your tax return. Individuals who have the Aadhaar must mention it in their tax returns. Only those who do not have an Aadhaar are exempt from the rule. “Don’t treat the Aadhaar as an optional requirement. If you don’t quote your Aadhaar, the return can get accepted right now but you may get a notice for willfully holding back information required to be mentioned in the return,” says Kuldip Kumar, Partner and Leader Personal Tax, PwC India.

VII: THOU SHALL NOT IGNORE INCOME FROM PREVIOUS EMPLOYER

When people change jobs, they often see a drastic drop in their tax outgo. Often, the new employer doesn’t take into account the income earned from the previous job. Tax is deducted on the assumption that income for the remaining months is the only income for the year. But this mistake is discovered when he files his tax return. At that time, the incomes from the two employers are added and the deduction and exemption are halved.

VIIII: THOU SHALL DISCLOSE FOREIGN ASSETS AND INCOME

This has caused a lot of problems for taxpayers who have been abroad in recent years. You have to give details of your foreign bank account’s holding status (both as an owner and as a beneficiary), account opening date, interest accrued during the year and schedule and field number under which the same income is reported. Any misreporting of foreign assets immediately puts you in the dock.

IX: THOU SHALL DISCLOSE ALL ASSETS IF EARNING OVER Rs 50 LAKH

When it comes to taxes, the rich in India don’t have it easy. Last year, the threshold for 10% surcharge on tax was lowered from Rs 1 crore to Rs 50 lakh. This year, the surcharge was raised to 15%. Taxpayers in that income bracket were also required to mention details of the physical assets they owned. Now, the tax department wants them to also give details of their financial assets. One will have to declare any land or building under immovable assets.

X: THOU SHALL FILE BEFORE DEADLINE AND VERIFY RETURN

If you have followed all the commandments, here is one last rule you cannot afford to ignore. File the return before the 31 July deadline. Till last year, there was no penalty for filing delayed returns. One could even file returns of the previous two years without a hitch if all his taxes were paid. But the rules have now been changed.

Leave a Reply

Please Login to comment

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  Subscribe  
Notify of
%d bloggers like this: