Under Indian Income Tax Act, 1961 filing of income tax returns is compulsory if your total taxable income before allowing any deductions under section 80 exceeds the basic exemption limit. Thus it is our duty and responsibility to pay our taxes honestly and file the returns diligently. Here are some useful tips for hassle free filing of tax returns.
Taxes, after all, are dues that we pay for the privileges of membership in an organized society”– Franklin D. Roosevelt
1. Remember due dates
In case of individuals due date is 31st July. But if the accounts of the individual are to be audited or if he is a working partner in a firm whose accounts are to be audited, the return can be filed by September 30.
If you don’t file your return before the prescribed date, following consequences arise:
a) In case taxes already paid and return filed before the end of the assessment year (i.e., 31st March), nothing to be worried about.
b) In case taxes also not paid by due date, then simple interest @ 1% per month is levied u/s 234A.
c) If you file the return after the end of the assessment year (i.e., after 31st March), then a penalty of Rs 5,000 may be imposed upon you.
Furthermore, in all the above cases, you lose the benefit to carry forward your losses (business losses and capital losses), if any. Also, you cannot revise the return in future because belated return cannot be revised.
2. Organize your papers
Get hold of all the relevant information and documents (including Form 16, rent receipts, evidence of all the tax saving investments, loan certificate in case of house loan, saving account statements, copy of mutual funds and share investments and credit card statements) and put them in a separate file.
You will require them for detailed tax calculations and also for mentioning the details of exempted income and specified high value transactions in the return. These documents can also help you in future to substantiate the income and exemptions/deductions claimed, in case the return is picked up for scrutiny assessment.
3. Deposit self assessment tax, if any
Before you start filling up the form, make a detailed computation of all your taxable income and calculate your tax liability. In case any taxes are due for payment, deposit the money in an authorized bank along with self-assessment challan (Challan No. ITNS 280). Alternatively, pay through internet banking. You have to quote the receipt number of challan in your return.
4. Always fill the correct ITR form
Out of the eight forms, only first four are relevant for individuals and HUFs
ITR1 Individuals having only salary and interest income
ITR2 Individuals and HUFs having income from any source except business or profession
ITR3 Individuals and HUFs who are partners in a firm but who do not have their own proprietary business or profession
ITR4 Individuals and HUFs who have their own proprietary business or profession.
It is quite possible that ITR1 is applicable to you because you are having taxable income only from salary and interest. But please carefully note that, if you have any exempt income other than agriculture and interest income (in addition to taxable salary and interest income) you cannot file ITR1. In that case, go for ITR2.
Please also note that in case clubbing provisions are applicable to you (for example clubbing of spouse/minor child income with your income), then also you will have to file ITR2 instead of ITR1.
5. Show Exempted Income
It is binding upon you to show the exempted income also, if asked for in ITR form, or else your return can be treated as defective. For example, schedule EI of ITR2 specifically asks you to mention your exempt income like interest, dividends, long term capital gains etc.
6. Mention details of specified transactions
Don’t forget to furnish details of following high-value transactions in ITR:
a) Cash deposits of Rs 10 lakh or more in the savings account
b) Credit card payments exceeding Rs 2 lakh
c) Investments of over Rs 2 lakh in mutual funds
d) Investments of over Rs 5 lakh in bonds or debentures (other than RBI bonds)
e) Investments of over Rs 5 lakh in RBI Bonds
f) Investments of over Rs 1 lakh in shares
g) Purchase or sale of immovable property valued at Rs 30 lakh or more
Although it has not been specified, you should consider the aggregate payments/investments for the above mentioned limits (e.g., credit card limit of Rs 2 lakh is not be taken for a individual card, but all the cards put together) because it’s always better to err on the side of caution.
7. Show other income
Ensure that you show all your taxable income.
No doubt, it is very difficult to keep track of interest credited in your savings account deposit, but disclosing it is mandatory, even though the amount may be small.
Besides, also don’t forget to consider your other incomes like interest on FDs, interest on NSCs, notional rental income of your second home (even if, it is not let out), capital gains etc.
8. Don’t attach any annexure
No documents – including challans, TDS certificates, proof of tax-saving investments, computation sheets – are to be attached.
However, don’t throw them away. Keep all the supporting documents in your income tax file along with the return copy and acknowledgement slip for future reference.
9. Take help of TRPs
If you face difficulty in filling up the forms yourself, you can take the help of certified tax return preparers (TRPs) by paying a nominal fee. But remember that they are not authorized to give tax saving advice. Alternatively, you can approach tax advisors/consultants.
10. Sign the ITR
Finally, you have to sign the return yourself. In case you have gone abroad, than any other person having power of attorney from you can sign it on your behalf.
But, before signing re-check and ensure that the form is filled in completely and correctly – in particular, your personal details, the PAN, bank account details (in case of refund).
11. Get it xeroxed before submitting
Earlier, ITR was used to be filled in duplicate so that one copy was returned to the taxpayer after fixing the acknowledgement stamp. Now, as there is separate acknowledgement sheet, you need to ensure - before submitting the return - that you keep a photostat copy for your records.
12. E-filing
At present, e-filing is optional for individuals. Go for it only if you have got the digital signatures, which avoids paper work and visit to the ITO. Otherwise, it is better to follow the conventional route of manually filling up the form and submitting it physically to the ITO because e-filling without digital signatures is not much different from filing returns offline.
Finally, it is not only your obligation to file return of income under tax laws, but it is also required for obtaining various loans, overseas travel visas etc.
To conclude, as the old saying goes, “Prevention is better than cure,” it is better to pay taxes and file return properly so that you don’t face any problem at a later stage, in case your return is selected for scrutiny.
I had always wanted to file my income tax returns but the plethora of paperwork always discouraged me. Finding an agent who could stand in long queues at the income tax office – of course, for a fee – to file my returns was also not me.
But then friends also scared me saying not filing tax returns will put me in banks' bad books as and when I'd apply for a home loan. That was a real shocker for I am planning to buy a house and I need to put this tax record straight.
Not that I don't pay my taxes. It's only that I don't file my tax returns (Remember paying taxes and filing returns is not the same thing). Our company's accounts department very religiously deducts tax at source – which they fondly call TDS and which also finds a mention on my salary slip. It's only that that I hate paperwork. Online banking, online news, online mutual fund investments is what I love. Internet, it seems, has made (or will make) an entire generation lazy. But then if I can also file my income tax returns online I am not complaining at all.
Welcome to the e-AGE. You can file your income tax returns online... J
Income Tax Department of India facilitates a tax payer to file his Income Tax returns online through their website. It is an easy process and following are the steps involved according to IT department website:
Here is the link to IT Department's eFiling website.
We keep on carping about the high taxes by keeping in view only maximum marginal tax rates, without ever giving a thought to the exemptions and deductions we avail.
Taxes are determined based on your taxable income. Taxable income is broken down into different brackets or slabs, each to which a different tax rate applies. The highest tax slab rate relative to a taxable income is called marginal tax rate. Put simply, the highest rate of tax applicable on your marginal or additional income is called marginal rate of tax and is the rate you pay on your last rupee of income.
Marginal vs. Effective Tax Rate
Marginal tax rate is important because while making investment decisions, you need to consider your marginal tax rate. However, marginal tax rates do not fully describe the impact of taxation.
The effective tax rate refers to the actual rate of tax borne by you. It is the average rate of tax which you actually pay on your total earnings / income (i.e., both taxable plus non-taxable income). It is obtained by dividing the total amount of tax paid by you by your total earnings expressed as a percentage and indicates your effective tax burden which is always lower than your maximum marginal rate.
Two basic reasons for substantial difference between your marginal tax rate and your effective tax rate are:
1. Your entire income doesn’t get taxed. For example, you are entitled for various exemptions (e.g. HRA, long term capital gains on sale of equity shares, dividends etc) and deductions (such as section 80C and 80d) due to which your taxable income is much lower than your actual total earnings during a particular year.
2. Further, unlike corporate tax rates, your total taxable income doesn’t get taxed at a flat rate. There are different slab rates of tax applicable to individuals. Right now, the lowest tax slab rate is 10% and the highest is 30% (plus surcharge and education cess). Besides, there are certain other incomes which are taxed at concessional rate of tax. For example, short term capital gains under section 111A are taxed at a flat rate of 15% (plus surcharge, if applicable and education cess).
Furthermore, ‘Effective rate of tax’ is also different from ‘Average rate of tax’ which is average rate levied on your ‘Taxable Income’ and is calculated by dividing ‘total tax obligation’ with ‘Taxable income’. Your ‘effective rate of tax’, on the other hand, reveals the average rate of tax for all your income (taxable as well as non-taxable).
Let’s clarify the difference with the help of an example. Suppose that you’re having a total annual income of Rs 17 lakh out of which Rs 4 lakh is exempt (i.e., not taxable) from income tax. Further, let’s say that you are entitled to deductions amounting to Rs 1.6 lakh under various sections of income tax such as section 24(b) and section 80. Thus, your taxable income comes to Rs. 11.4 lakh (which includes short term capital gains of Rs 2,30,000 taxable u/s 111A @ 15%). Based on the tax rates applicable to ‘other individual’ (i.e., neither women nor senior-citizen) for the assessment year 2009-10 (PY 2008-09), the total tax liability works out to be Rs 2,40,760. So, we arrive at an effective tax rate of 14.16 per cent, which is less than half of marginal tax rate and almost two-third of average tax rate (marginal tax rate of 33.99% and average rate of tax of 21.12% ).
Now, finally calculate your effective tax rate.. :)
| For the Assessment Year 2009-10 |
| Taxable income slab (Rs.) | Rate (%) |
| Up to 1,60,000 Up to 1,90,000 (for women) Up to 2,40,000 (for resident individual of 65 years or above) | NIL |
| 1,60,001 – 3,00,000 | 10 |
| 3,00,001 – 5,00,000 | 20 |
| 5,00,001 upwards | 30* |
