It's time to file your tax returns with the 31st July deadline just a month away. Here are a few tips to ensure an error free tax filing process.
File your returns
There is a misconception among some salaried individuals that because the employer has deduced tax at source, they are not required to file tax returns. Even though tax has been deduced and there is no other source of income, or liability to pay tax, employees have to file income tax returns. Every individual has to necessarily file the income-tax returns if the total income, before allowing any deduction, exceeds the exemption limit.
Even if your income is below the exemption limit, which is bound to happen at the beginning of one's career, filing income tax returns will help in the documentation process if you are taking a loan or an insurance policy or when you are applying for a visa.
Pick the correct form
There are eight Indian Income Tax Return (ITR) forms. Depending on the various streams of income you earn, you have to select the return form accordingly. E.g. If you have income from salary, pension and interest income, then ITR-1 is the form for you. If you have capital gains or rental income or you're paying off a home loan in addition to interest income and salary income, then you need to fill ITR-2. Make sure you select an appropriate form after taking into consideration, the flow of income from various streams.
Disclose exempt income
Income such as dividend received on mutual funds, long term capital gain on securities is exempt from tax. However, tax laws require you to report the same in your tax returns even though you do not have to pay any tax on them.
Annual information return
While filing income tax returns, it is essential to disclose any significant investments made during the year, transactions of immoveable property, cash deposits and credit card expenses aggregating or exceeding certain threshold limits. E.g. Credit card payments of Rs 2 lakh or more on a credit card, purchase of shares of a company of Rs 1 lakh or more, and purchase of units of mutual funds of Rs 2 lakh or more etc.
A minor is not required to file a separate income tax return. However, the income earned has to be included in the returns filed by the parents although the amount may be negligible e.g. interest on savings in the bank account.
Avoid omission of interest received on bank account
Section 80L has been omitted from the statute effective April 1, 2006, and therefore, any interest earned from a bank deposit is taxable in the hands of the taxpayer. Hence interest received on the balance in your savings account is taxable. Make sure you take it into consideration while filing returns to ensure avoidable correspondence with the tax authorities.
Submit ITR-V in time (online filing)
After having filed returns online without a digital signature, it is mandatory to submit the ITR-V form generated, to the income tax officials, within 30 days of filing the returns else your return filing date will be postponed to date of submission of ITR-V rather than date of uploading the return. In effect it means that unless the ITR-V has been submitted, uploading your returns online will be treated as equal to non filing of returns.
The bank account number and the MICR code provided should be accurate so as to receive refunds without any hassles. In case of an error, you will have to submit a cancelled cheque showing correct particulars.
File returns on time
This can prove to be costly for the tax payer who has incurred losses and wants to carry it forward to the future years (short term capital loss, house property loss etc.). Under the tax laws, if returns are filed after the due date, losses cannot be carried forward for being set-off against the income in future years. Therefore, it is essential to file returns within the stipulated time frame.
Income tax authorities maintain that returns can be furnished at any time before the expiry of two years from the end of the financial year in which the income was earned. So for the income earned during financial year 2008-09, the delayed return can be filed before March 31, 2011. However, if you have tax outstanding and you do not pay your tax, then a simple interest of 1% per month will be charged on the amount that is outstanding.
Filing tax returns is a task we know is compulsory and has to be done on time, yet we tend to procrastinate and wait till the last moment. As a result, in a hurry you might tend to forget to disclose some items which may prove to be an invitation to the tax authorities to get after you. To protect yourself from coming under the scanner of the tax man, do your bit by ensuring there are no mistakes while filing tax returns.