Income Tax Filing
Income Tax Filing
Income Tax – This is taxes an individual or a Hindu Undivided Family or any taxpayer other than companies, pay on the income received. The law prescribes the rate at which such income should be taxed.
Benefits of Filing Income Tax Returns
Many investors have very low or zero tax liability and therefore this section does not have to file returns mandatorily. Even though they have some sort of income occurring.
And there is another section that only file returns when something urgent requirement comes up asking for their last few years of ITR. They approach a nearby CA and file their old tax returns.
There has been low-Income Tax filing Compliance in India. However, in recent years, the Govt. of India has taken some stringent measures to enforce the Income Tax Law by linking various benefits for prompt tax filers.
Advantages of tax filing are, but not limited to:
Processing of Loans & Visa: If you apply for any loans such as a home loan, car loan, etc., the eligibility and quantum of loan would depend on your income. This can be established through filed ITRs. ITR will help your lender to assess your repayment capacity.
If you plan to travel overseas, proof of earning is required. If you are salaried then a certificate from the employer will work. But if you are self-employed then income proof & details need to be submitted.
Claiming Refund: There could be some TDS cut on some investment. And you will have to file the ITR to claim a refund of the same. Or you may have paid excess tax on your income. To get this refund, you must file ITR.
Many salaried individuals don’t file ITR as they think that the tax on their income has already been deducted and they have Form 16. But your employer may have paid more tax on your behalf. Not taking into consideration your actual house rent, children’s school fees, tax-saving investments or insurances. So, the filing of ITR will enable you to get a refund from the IT department.
Carry-forward Losses: As per Income tax rules, losses are allowed to be carried forward and set off against capital gains. But this applies only to those individuals who file ITR in the relevant assessment year. If you have incurred losses for a year and you have earned below the exemption limit. You must file your returns to be able to carry forward the losses you have incurred. And it gets balanced against future gains and income.
The capital losses can be carried forward for 8 consecutive years, as per the IT Act.
Establishing Income in Compensation Cases: Although the Motor Vehicles Act does not make it compulsory to present the ITR while calculating the compensation in case of accidental death or disability, the procedures approved by Delhi High Court mention the need for ITR for self-employed persons.
This helps to establish the income of the person to arrive at appropriate compensation.
Self-Employed Individual Filing for Tenders: Businessmen, consultants, and partners do not get any Form 16. For such self-employed individuals, ITR receipts become an important document. ITR is the only proof of income and tax payment for them, in all sorts of financial transactions. And if they want to take up some contract or tender, they may be asked to show their tax return receipts of the previous 3 to 5 years.
Being a Responsible Citizen: Staying on the right side of law helps. Similarly, keeping the income tax department informed about your income and taxability helps too. This is only possible when you file your ITR. Those who earn less than the prescribed slab of income can file returns voluntarily. Filing returns are a sign that you are a responsible taxpayer.
Different penalties have been directed for various defaults committed by the taxpayer, under the Income Tax Act. Some of them are mandatory and a few are at the consideration of the tax authorities. Given below are the provisions relating to various penalties leviable.
In case an incorrect form has been used to file the returns, then it will be treated as “defective” and the assessee will be asked to file a revised ITR using the correct form.
Now, the taxpayer gets some time to amend the mistake. And the return must be filed within 15 days from the date of receipt of the intimation, as per Section 139(9). This time limit may be extended by the assessing officer (AO) on an application by the assessee. If the defect is not corrected within the stipulated time, then it will be treated as an invalid return. That is the same as not filing a return at all.
Therefore, the person will be facing all the penalties prescribed to not filing ITR. As well as, interest will get charged, u/s 234A, for the delay.
If it is found that the actual income exceeds the income declared by the person. Or when no return has been filed despite income exceeding the basic exemption limit. Penalty at 50% of tax payable on such under-reported income shall be payable.
200% of the tax will get if under-reporting results from misreporting of income.
As per Section 234F of the Income Tax Act, if you file after 31st July (it was extended to 31st August for AY 2019-2020) but before December, a penalty of Rs. 5000 will be levied. For returns filed after December, the penalty will be Rs. 10,000.
However, to provide relief to small taxpayers, the IT department has stated a maximum penalty of only Rs. 1,000 will get levied. The condition is that your total income is less than Rs 5 lakh.
Penalty for Default
In case a demand notice u/s 156, has been issued to the taxpayer for payment of tax (other than notice for payment of advance tax). Then such amount, as per section 220(1), shall be paid within 30 days of the service of the notice at the place and to the person mentioned in the notice. If the taxpayer defaults in payment of any tax due, then apart from other penal provisions, he is treated as an assessee in default. For an assessee in default, the penalty will get levied as decided by the AO. However, the penalty cannot exceed the amount of arrears in tax.
Before penalizing, the taxpayer is given a reasonable opportunity of being heard. No penalty is levied if the taxpayer can prove that the default due to a good and sufficient reason.
Delay in filing the TDS/TCS statement
Every person liable to deduct tax at source is liable to furnish the statement of TDS, as per Section 200(3). It is termed as TDS Return. And every person liable to collect tax at source, as per Section 206C (3), has to file a statement in respect of TCS, i.e. TCS Return.
If a person fails to file the TDS/TCS return on or before the due date prescribed, then he shall be liable to pay, by way of fee, a sum of Rs. 200 for every day of the delay, as per Section 234E. This amount, however, shall not exceed the amount of TDS/TCS. A late TDS/TCS return cannot be filed this late fee.
Penalty in case of income from undisclosed sources
The AO may make an addition to the income of a taxpayer as per Section 68, 69, 69A, 69B, 69C or 69D if the explanation about the nature and source of his income is not satisfactory.
The AO is empowered to levy penalty at the rate of 10% of the tax payable if any addition is made. However, no penalty shall be levied if this income has been disclosed in the ITR and tax paid, u/s 115BBE, on or before the end of the relevant previous year.
Fee for default in furnishing return of income
The taxpayer, who is required to furnish ITR u/s 139 failed to furnish return of income within due date as prescribed under section 139(1) then as per section 234F, he will be liable to pay penalty same as delayed filing.
- 5000 if ITR is filed on or before 31 December of the assessment year.
- 10,000 in any other case.
However, if the total income of the person is less than Rs. 5 lakh then the fee payable shall be Rs. 1000.
Common Mistakes While Filing ITR
Listed below are some of the most common tax filing mistakes you can avoid.
Selecting an Incorrect Form
The appropriate ITR form for filing of returns must be selected. Failure can result in your return not getting processed by the income tax department.
Which form is to be selected depends on the sources from which income is earned in the financial year and the category.
All incomes that are taxable and/or tax-exempt are to be reported using the correct ITR form applicable. If the ITR is filed in the wrong type of Form, then the return will be termed as “defective”. Then, you will have to file a revised return using the correct form, within a certain time frame.
By using WTA Co. where the selection of form is done technically, you do not have to worry about choosing the right form.
Not reporting all sources of income
A common mistake taxpayers make is failing to disclose all the sources of their income. The income must be disclosed whether it is taxable or exempt.
All incomes, not only the primary one earned from employment, profession or business, are to be reported. Whether they are savings account interest, fixed deposit interest, rental income from house property, income from short-term capital gains and any other source.
Remember, any income earned by a minor from interests, investments, etc. is taxable for the parent. According to the tax slab, an exemption up to Rs. 1,500 u/s 10(32) can be claimed when minor’s income gets clubbed with the parents.
Not reporting such incomes might attract a notice from the income tax department.
If you have switched jobs, make sure you report the income earned through your previous employer also. Not reporting such incomes might attract notice from the income tax department.
Providing incorrect personal information
Because all information will get recorded in the Department’s databank and may be verified, it is extremely important to enter the personal details correctly before filing your taxes. PAN number, name, address, mail id, phone number, date of birth, bank account number, IFS Code, etc. must be accurately mentioned. A minor mistake in these details means that you may miss your refund claim or some other important notifications. So check and re-check before filing.
Failure to Reconcile TDS with Form 26AS
It is important to compare ITR with Form 26AS before filing. Form 26AS includes all the income details, Tax Deducted at Source (TDS), advance tax paid by you, self-assessment tax, etc. TDS may have been deducted from your salary. You must verify the details of Form 16, issued by the employer, with the Form 26AS.
If the TDS is not reflected in Form 26As, your refund and tax deduction credit will be lost. The mismatched would lead to more tax being paid.
Not including exempt income
Income tax laws require all income to be reported, whether exempt or not. Many types of incomes are exempt from tax. For example, long-term gains, dividends, etc. Although you do not have to pay any taxes on them, you still need to report them.
Also, though your gross total income may not exceed the basic exemption limit, you are to file ITR in certain situations.
Entering the details manually
There is a set format for filing returns. All details are to be entered in a particular format, in the rows and columns provided. If incorrectly put in this complicated format, the returns will have errors.
TDS paid then no need to file ITR
Employers are required to deduct tax at source from salary, and interest income respectively. It is mandatory to file an income tax return when your annual income exceeds Rs. 2.5 lakh. And report the interest income in those returns. You should disclose the income on which tax has been deducted and claim credit for TDS in the income tax return.
The interest on deposits with banks is provided after deducting a flat tax rate of 10%. You can claim a deduction under section 80TTA up to Rs 10,000 for interest earned on your deposits. For senior citizens, a deduction of interest up to Rs 50,000, can be claimed u/s 80TTB.
Missing out on the Deductions that can be claimed
A deduction of up to. Rs 1.5 lakh in a financial year by investing in certain funds and schemes. But how much can be claimed from these schemes is complex. Similarly, most taxpayers are not aware of some expenses that are eligible as deductions.
Everyone who earns or gets an income in India is subject to income tax. (Yes, be it a resident or a non-resident of India ). Also read our article on Income Tax for NRIs. Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of ‘Kaun Banega Crorepati’ have to pay tax on their prize money. For simpler classification, the Income Tax Department breaks down income into five heads:
|Head of Income||Nature of Income covered|
|Income from Salary||Income from salary and pension are covered under here|
|Income from Other Sources||Income from savings bank account interest, fixed deposits, winning KBC|
|Income from House Property||This is rental income mostly|
|Income from Capital Gains||Income from sale of a capital asset such as mutual funds, shares, house property|
|Income from Business and Profession||This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers|
We have two types of taxes in India – Direct Tax and Indirect tax.
Direct Tax is a tax that is calculated directly on your Income e.g. tax on salary etc. Income tax is a Direct Tax.
Indirect Tax is a tax that is indirectly charged. And is put on goods or services. So if you are purchasing a mobile phone or a new suit. Most indirect taxes have now come under Goods and Services Tax (GST).
Income Tax (Direct Tax)
Anyone earning an income above a certain amount is subject to income tax. The income could be from salary, rent, and interest income from savings, income from mutual funds, sale of property or business or professional income. Income tax rates are decided at the start of the financial year in the Union Budget (in the Parliament of India). The tax paid on these incomes is called the income tax.
Income Tax Return
It is simply a Form to be filed with the Income Tax Department. A Form to be filed as a statement of income earned. It is arranged in such a way that calculating tax liability, scheduling tax payments or requesting refunds for the overpayment of taxes has been made convenient for the taxpayers. They must, first, determine the type of Income Tax Return (ITR) Form they need to fill before actually filing their Returns. Which Form is to be filled, depends on the income that the taxpayer earns. Its purpose is to report our income and taxes paid thereon to the government.
ITaxpayers and Income Tax Slabs
Taxpayers in India, for the purpose of income tax includes:
- Individuals, Hindu Undivided Family (HUF), Association of Persons(AOP) and Body of Individuals (BOI)
Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax of 30% of profits, the individual,HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under. People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate. In India, we have four tax brackets each with an increasing tax rate.
- Income earners of up to 2.5 lakhs
- Income earners of between 2.5 lakhs and 5 lakhs
- Income earners of between 5 lakhs and 10 lakhs
- Those earning more than Rs 10 lakhs
|Income Range||Tax rate||Tax to be paid|
|Up to Rs.2,50,000||0||No tax|
|Between Rs 2.5 lakhs and Rs 5 lakhs||5%||5% of your taxable income|
|Between Rs 5 lakhs and Rs 10 lakhs||20%||Rs 12,500+ 20% of income above Rs 5 lakhs|
|Above 10 lakhs||30%||Rs 1,12,500+ 30% of income above Rs 10 lakhs|