Season for filing Income Tax returns is on. The time limit for filing return of income for individuals and non-tax audit business entities for financial year April 1, 2016 to March 31, 2017, which in income tax language called assessment year 2017-18, is July 31, 2017.
Do not wait till the last date to approach your tax consultant with required data. Do your home work properly by getting passbooks updated, list out details of all bank deposits, other investments and interest earned thereon, note down details of rent from house property, sale of capital assets and shares of companies, redemption of mutual funds. Obtain salary certificate in Form 16 if you are employed and note payments made towards life insurance premia, provident fund, medi-claim insurance, and other claims for deductions. Proofs of these incomes and payments are not required to be attached to the tax returns, but should be preserved in case you are called up for scrutiny assessment. Also have ready explanation for all large deposits and withdrawals made in your bank accounts. Make sure you have not missed out any income.
Do not worry if you are unable to obtain TDS certificates, as list of taxes deducted from your income is available in your account on the web site of Income Tax department. Income tax department allows your claim for TDS based on the data uploaded on the web site.
By logging into your account of income tax website @ www.incometaxindiaefiling.gov.in with your user ID and password, you will be in position to get complete information about filing of your tax returns, payment of taxes, pendency of assessment, demand status, refund issue, etc from financial year 2008-09 onwards. Download the tax return form applicable for Assessment Year 2017-18 and try to compute the income for current year based on tax computation prepared by your tax consultant for previous year.
For your better understanding I am giving you an overview regarding tax computation.
The income of a tax payer from all sources is divided under broad five heads namely: (i) Salaries (ii) Income from house property (iii) Profits and gains from business or profession (iv) Capital gains and (v) Income from other sources.
The income under each of these heads is first required to be computed based on provisions of the Income Tax Act and Rules. For example, income under the head salaries is to be taken as per Salary Certificate in Form 16 issued by employer.
In case of income from house property, you are entitled for deduction of 30% of gross rental income without requiring incurring any expenditure. One house property can be treated as self-occupied, and for other house properties you are required to calculate deemed rent as per rules, even if they are vacant. From self- occupied house property, you are entitled to deduct interest on amount borrowed for construction/purchase up to Rs 2,00,000. However, for rented properties there is no such limit.
Capital gains are classified as short term and long term. If any capital asset, other than specified securities, is held for more than 36 months before transfer or sale, it is treated as long term after indexation of cost. However, in case of specified securities period is more than 12 months. Long term capital gains are taxed @ 20% irrespective of the tax bracket. Short term capital gain is added to other income and taxed at the rate applicable to your tax bracket. Long term capital gain from sale of listed company shares and equity mutual funds held for more than 12 months is exempt from tax, while short term capital gains are taxed @ 15%.
Taxable business income is not the same as income as per profit and loss statement. It is arrived at after making adjustments for specified admissible expenses and income.
Any income not specifically taxed under any other head of income will be taxed under ‘income from other sources’ eg interest on deposits and securities, dividend from co-operative societies, rent of vacant land, gifts in excess of Rs 50,000 from non-specified relatives, other miscellaneous income.
There are certain incomes which are completely exempt from tax and do not form part of total income. Most common examples are dividends from Indian companies, income from units of mutual funds, interest on PPF, Sukanya Samriddhi account, postal saving account up to Rs 3,500 and tax free securities issued by the central government, amount received on maturity of life insurance policy, share of profit in partnership firm.
Though agricultural income is fully exempted from tax, if the same is in excess of Rs 5,000 it is aggregated with taxable income for the purpose of determining rate at which non agriculture income will be taxed.
From the gross total income calculated as above, deductions are allowed in respect of various specified payments, investments and expenditure as provided under the Act as under:
a) Under section 80C-Payments made towards life insurance premia, contributions made to public and other provident funds, deposit in Sukanya Samrudhi account, investment in National Saving Certificates and accrued interest there on, payment made towards repayment of loan for residential house, specified bank fixed deposits etc. All this is subject to maximum deduction of Rs 1,50,000.
b) Contribution made to New Pension Scheme upto Rs 50,000 u/s 80 CCD.
c) Medical insurance premium up to Rs 25,000 and for senior citizen Rs 30,000
d) Interest on saving bank account up to Rs 10,000 u/s 80TTA
e) Deductions are also available for expenditure incurred for maintenance of disabled dependent, for medical treatment of specified diseases, for specified disabilities under various provisions section 80.
Under Section 5A of Income Tax Act 1961, Goan spouses who are governed under Communion of Properties as per Portuguese Civil Code, are entitled to divide their total income except salary in equal shares in the hands of each spouse. Also each spouse is eligible for above deductions separately. This results in substantial tax savings.
On net taxable income arrived at after above deductions you are required to calculate income tax liability as per current tax rates.
In case Total income is less than Rs 5 lakh, you are eligible to claim tax rebate of upto Rs 5,000 u/s 87A.
In addition, you are required to pay Education Cess and Secondary and Higher education cess @ 2% and 1% respectively and surcharge at 12% if total income exceeds Rs 1 crore.
From your gross tax liability, you should deduct advance tax paid and TDS. The balance due, if any should be paid before filing of tax returns. The refund due will be credited to your specified bank account directly after your tax return is processed.
Linking of Aadhar card and PAN is compulsory to file tax return for current year.
You will be required to state in the return if amount more than Rs 2,00,000 (in aggregate) is deposited in bank accounts during the demonetisation period ie November 09, 2016 to December 30, 2016.
Before approaching your tax consultant to file your tax returns, work out your income and tax liability in above manner. In course of time you will be able to dispense with his services.
Be glad if you have to pay lot of taxes. It means you have made lot of money. It is better to pay taxes on income rather than having no income to pay taxes. If paying taxes still hurts, get solace from the words of Justice Oliver Wendell Homes “I like to pay taxes, with them I buy civilization.”
