Filing tax returns - pitfalls and precautions

asFiling of Income Tax Returns by Individuals

Pitfalls and Precautions CA Ameet Patel

Statutory Warning! FILING OF INCOME TAX RETURNS

The objective of this presentation is not to scare the viewer. However, such a result could be incidental.

Do You Want To File A Tax Return? FILING OF INCOME TAX RETURNS

SOME BASICS

Filing Individual Income Tax Returns

Some Basics FILING OF INCOME TAX RETURNS

Few Clarifications

Financial Year v/s Assessment Year v/s Previous Year Scope of income depends on residential status Residential status is to be determined every year NRI (under FEMA) is different from Non Resident under Income Tax Act

Total Income

Tax department concerned with your “Total Income” and not any other income Total Income is

Aggregate of all the income various Heads of Income Reduced by deductions available

Tax is payable on Total Income

WHEN IS IT MANDATORY?


When Is It Mandatory? FILING OF INCOME TAX RETURNS

Am I Always Liable To File A Return?

No

When Am I Liable To File A Return? Only When

Total income exceeds the basic threshold limit Carry forward of business/capital loss to the next year

Or When A Person Has Any asset located outside India Signing authority in any account located outside India

Each assessment year/fiscal year is different A person liable to file return in AY 2013-14 may not necessarily be liable in AY 2014-15

Tax Threshold Limits for FY 2013-14 FILING OF INCOME TAX RETURNS

Category of Tax Payer Threshold Limit

Resident Individual tax payers who are very senior citizens (for 80 years or more)

INR 5,00,000

Resident Individual tax payers who are senior citizens (more than 60 years up to 80 years)

INR 2,50,000

Individual tax payers and HUFs (Including women tax payers) INR 2,00,000

WHEN IS THE DUE DATE?


When Is The Due Date? FILING OF INCOME TAX RETURNS Revised Return

A Return of Income filed in time can be revised if one discovers any omission or any wrong statement therein, but before expiry of 2 years from the end of the relevant financial year (31st March)

Type Of Assessee Due Date

Individuals requiring audit of accounts under ‘ITA’ or any other law, working partner of firm subject to audit

30th September

Person subject to transfer pricing regulations 30th November

All other cases 31st July

Belated Return FILING OF INCOME TAX RETURNS

Meaning

Return filed after due date given in the law Return of Income can be filed after the due date, but before expiry of 2 years form the end of

the relevant financial year (31st March)

Disadvantages of a Belated Return

Loss cannot be carried forward in a belated return Belated return cannot be revised

Penalties/Interest In Case of Non-Filing FILING OF INCOME TAX RETURNS

Conditions If a person is required to file a tax return as per the laws and fails to do so or files the same after the due date, the following penalties/interest are applicable Penalty

If a person fails to file a return of income before the end of the relevant assessment year, he

may be charged INR 5,000 as penalty by the Assessing Officer Interest

An interest @ 1% per month (or part of the month) is payable commencing from the due

date of filing the return till the date of filing When return is not filed, interest is calculated up to the date of completion of assessment by

the Assessing Officer

THE FILING PROCESS


The Filing Process FILING OF INCOME TAX RETURNS

Which Income Tax Return form is to be used by me?

Form Number Applicable To Not Applicable To

ITR – 1 (Sahaj)

Individual having income only from Salaries, Family Pension, House Property (HP), Income from Other Sources (IOS)

i) More than one HP ii) B/f losses under HP or loss under IFOS iii) Winnings from Lottery or Income from Race Horses iv) R & OR having foreign assets/signing authority in foreign bank account v) Claim for foreign tax credit/relief under section 90/90A/91 vi) Exempt income exceeding INR 5,000

ITR – 2 Individual/HUF Individual/HUF having business/professional Income

ITR - 3 Individual/HUF who is partner in a firm Individual/HUF having any other business/ professional income

ITR - 4 Other Individual/HUF having business/professional income

The Filing Process FILING OF INCOME TAX RETURNS

ITR 1 or ITR 2?

For AY 2013-14, individuals with exempt income of more than INR 5,000 cannot use ITR 1 Some examples of exempt income are:

Dividend Transport Allowance House Rent Allowance (HRA) Leave Travel Allowance (LTA) Interest on PPF

Hence, even though dividend, etc. earned may not be more than INR 5,000 for the year, one has to include, HRA, transport allowance, etc. mentioned in Form 16 to calculate exempt income

eFILING RETURNS


eFiling Returns FILING of INCOME TAX RETURNS

When Is It Mandatory?

Criteria Electronic Filing

Physical Fining

Digital Signature

All persons whose total income is up to INR 5 lac P P

x

All persons whose total income exceeds INR 5 lac but does not exceed INR 10 lac P

x x

Person claiming benefit of Double Taxation Avoidance Agreement (‘DTAA’) P

x x

Resident and ordinarily resident having assets outside India or signing authority in any account located outside India

P x x

To whom tax audit is applicable P

x P

SOME PRECAUTIONS


Some Precautions FILING OF INCOME TAX RETURNS

Important Points To Note

Choose the correct ITR form Claim deductions and exemptions correctly Even if you are an employee, don’t forget that the ultimate responsibility of correct

claims is YOURS Maintain documents carefully and systematically Most debits and credits happen electronically now – be careful about supporting

documents

Some Precautions FILING OF INCOME TAX RETURNS

Key Considerations

PLEASE maintain and update your bank passbook/statement carefully Keep explanation for every debit and credit entry in the bank account PLEASE maintain mutual fund and DEMAT account statements PLEASE maintain dividend warrants For every credit entry in the passbook ascertain whether the same is taxable or

exempt For every debit entry in the passbook ascertain whether it is deductible from taxable

income or not As far as possible, make all payments by cheque/from bank account so that all tax

saving investments are reflected in the bank account

Some Common Deductions That You Claim FILING OF INCOME TAX RETURNS

Claim Deductions And Exemptions Correctly Deduction for Investment Investment For Premium on Life Insurance Policy Self, Spouse, Children Contribution to Public Provident Fund Account Self, Spouse, Children Contribution by Employee to Recognised Provident Fund Self Tuition Fees to any university/college/school in India (full-time education) Any two children Repayment of Housing Loan Self Fixed Deposit (5 years or more) with a Bank Self Time Deposit with Post Office (Post Office Time Deposit Rules, 1981) Self National Savings Certificates Self Long Term Infrastructure Bonds notified by the Central Government Self Rajiv Gandhi Equity Savings Scheme (50% of amount invested for 1 year only) Self

Health Insurance/Medical Claim and Preventive Health Checkup Self, Spouse, Parents and Dependent Children

A Few Specific Precautions FILING OF INCOME TAX RETURNS

Life Insurance Premium

The annual premium paid should not be more that 20% of the assured sum The limit is reduced to 10% for policies issued on or after 1st April, 2012

An Illustration If the sum assured in the policy is INR 2,00,000 then, the premium up to INR 40,000

is allowed and if the policy is issued after 1st April, 2012, the premium deductible is INR 20,000

If the premium paid exceeds above limit in any year, the whole of amount received on maturity becomes taxable


Donation

Employers cannot give credit for deduction in respect of donations while making the tax deduction from salary

Therefore, this deduction will not reflect in your Form 16 However, you can claim it separately while filing your tax return


Loans (Taken/Repaid)

The Income Tax laws prohibit any person to take or accept or repay any loan exceeding INR 20,000 by “any mode other than an account payee cheque or bank draft”

If you have given/taken a loan – PLEASE obtain a loan confirmation every year

Ensure that you have the PAN of that other person


Gifts

Gift Tax abolished long back Gift from relatives are exempt from taxation – without any limit Gifts from non-relatives exceeding INR 50,000 p.a. taxed to recipient as Income Relative has a wide definition in the Act which means the following:

spouse of the individual; brother or sister of the individual; brother or sister of the spouse of the individual; brother or sister of either of the parents of the individual; any lineal ascendant or descendant of the individual; any lineal ascendant or descendant of the spouse of the individual; spouse of any of the persons referred above

An interesting point is for an uncle, the nephew is not a relative; but vice versa is true

TAX CREDIT


Tax Credit FILING OF INCOME TAX RETURNS

Applicability

TDS from your income is available as tax credit to you – Right? Wrong? You get credit for the taxes ONLY if they appear in your Form 26AS So, what is Form 26AS?

Form 26 AS

A pass book of taxes Every tax payer has a Form 26AS Can be accessed/downloaded from www.incometaxindiaefiling.gov.in TDS credit claimed in the Return of Income and corresponding income should match with the

information in your 26AS Mismatches generally invite notices from the department Ensure that Form 16 and 16A of credit available in 26AS are available with you Ensure that for every tax entry, the “Status of Booking” shows “F” i.e. Final

Status showing “U” for any item means the deductor has made a mistake

http://www.incometaxindiaefiling.gov.in/








Illustration 1


Illustration 2

FILLING INFORMATION


Filling Information FILING OF INCOME TAX RETURNS

Basic Guidelines

Available on the official website of the Income Tax department www.incometaxindiaefiling.gov.in

Certain private software and websites also provide the facility However, the utility by the department is recommended

Utility provided by the Government Facilitates validates the sheet and computes tax Converts information filled into .xml file format .xml format then unloadable on the income tax website

In case of physical filing, a print can be submitted with the jurisdictional Assessing Officer

Imperative to give a functional email address in the return form to effectively communicate with the Income Tax department








Filling Information FILING OF INCOME TAX RETURNS

New Requirements (ITRs)

Introduction of ‘Schedule FSI’ – details of income accruing or arising outside India – in all ITRs except ITR 1

In ITR 3 and ITR 4, a new schedule ‘Schedule AL’ – Assets and Liabilities at the end of the year has been introduced, to be filled where total income exceeds INR 25 lac. Assets and liabilities as on 31st March need to be disclosed.

Personal assets and liabilities (other than business/partnership) need to be disclosed Probable reasons for introducing ‘Schedule AL’

Cases where it has been found that the assets of a taxpayer do not justify the income earned by him Disclosure to help keep a check on the assets acquired and the income earned

Many taxpayers with huge assets are not paying wealth tax Will help Government seek information of the assets and cross-verify tax payment

Assets are to be disclosed at cost How to disclose assets received as gift/inheritance?

PHYSICALLY OR ELECTRONICALLY?


Physically or Electronically? FILING OF INCOME TAX RETURNS

Filing Return of Income

Experience suggests that refunds are received very quickly in case of e-returns Therefore, it is advisable to eFile your returns

E-FILING PROCESS


Filing Process FILING OF INCOME TAX RETURNS

Steps To Upload Returns

Register on the Income Tax eFiling website Login on the registered account Go to eFile Upload Return Select the appropriate ITR Form and the appropriate assessment year Attach the .xml file generated by the utility Select whether it is to be signed digitally or not


Step I Register Yourself


Step II Login To Your Account


Step III Upload Returns


Step IV, V, VI Select ITR Form, AY, .XML File and Applicability of Digital Sign Select “Submit” generates the acknowledgement receipt Save a copy and take a print for your records

DOCUMENTATION


Documentation FILING OF INCOME TAX RETURNS

Points To Remember

An Income Tax Officer can take up a case for scrutiny before the end of 6 months from the end of the financial year in which the return is filed

Hence, until the above period is over, the Assessing Officer can demand documents and explanations

Apart from this, they also have the power to reopen past assessments. This can be done for past 6 assessment years

Therefore, during Diwali cleaning, please do not destroy your old records of past 8 years

ANNUAL INFORMATION RETURN


Annual Information Return FILING OF INCOME TAX RETURNS

The Government does not tax the air yet But the Government’s AIR is very taxing for tax payers What is AIR?


Concept

Annual Information Return (AIR) of ‘high value financial transactions’ Required to be furnished by certain specified agencies In respect of ‘specified transactions’ registered/recorded by them


Class of Person Required to File AIR

Nature and Value of Transaction

Bank Cash deposits aggregating to INR 10 lac or more in a year in any savings account

Credit Card Company Payments made in respect of a credit card aggregating to INR 2 lac or more in the year

Mutual Fund Receipt from any person of INR 2 lac or more for acquiring units of that Fund

Company/Institution issuing Bonds/Debentures

Receipt from any person of INR 5 lac or more for acquiring bonds or debentures issued by the company/institution

Company issuing Shares through a Public/Rights Issue

Receipt from any person of INR 1 lac or more for acquiring shares issued by the company

Registrar/Sub-Registrar Purchase/sale by any person of immovable property valued at INR 30 lac or more

Authorised Officer of the Reserve Bank of India

Receipt from any person of/ aggregating to INR 5 lac or more in a year for bonds issued by the Reserve Bank of India


Importance of AIR for Individuals

Individuals are not required to file AIR returns However transactions of individuals are reported to the department by AIR returns Hence the high net worth transaction reported, are electronically mapped with the

return of income filed of that individual. Notices can be received

If no return is filed and high value transactions are reported If income disclosed is much less relative to the amount involved in the transaction

reported If you get a notice/scrutiny, you will be asked to match the entries in the AIR

with your records. Have you kept your records?

WEALTH TAX


Wealth Tax FILING OF INCOME TAX RETURNS

Applicability

Wealth tax is chargeable @ 1% on the following assets Buildings Motor Car Jewellery and Bullion Yachts, Boats and Aircrafts Urban Land Cash in Hand more than INR 50,000

Wealth tax is payable if the total value of assets is more than INR 30 lac Due date of filing return is same as that applicable in case of and Income Tax

Return Wealth tax return needs to be filed on the same date as the return of income


APPROPRIATE PRECAUTIONS WILL SAVE YOU FROM THE PITFALLS…!!

Ameet Patel

[email protected]

This presentation is for demonstration purposes only

THANK YOU FOR YOUR PATIENCE

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