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ITR could well prove irksome tax return
July, 12th 2007

Most of us have less than three weeks left to file our tax return and as all of us know only too well, this has to be done using the new Income Tax Return (ITR) forms that have replaced Saral forms that are lengthy, intimidating and full of jargon. In any case, this article is not about comparing the pros and cons of the new forms against the erstwhile Saral.

This is a pointless exercise the government has specified that the new forms will have to be used and like it or not, thats what we will have to do.

Do you have to file a tax return?

The basic exemption limits are Rs 1,00,000, Rs 1,35,000 and Rs 1,85,000 for men, ladies and senior citizens respectively.

Earlier, one had to file a return only if the net income after deductions was higher than the basic exemption limit. However, now, even if the income is higher at the gross level, a return has to be filed.

In terms of an example, say Rashmi earned a salary of Rs 2 lakh. She also invests Rs 70,000 in PPF. Therefore, her net income was Rs 1,30,000. Now, since Rs 1,30,000 is lesser than the Rs 1,35,000 basic exemption, earlier, Rashmi neednt have filed a tax return.

However, now, on account of her gross income of Rs 2 lakh being higher than the basic exemption, she is legally obligated to file a tax return, even if such a return is a nil tax one.

Details of the forms

As mentioned in the table, there is a unique form for each category of taxpayer. If you earn only salary, pension and interest income, you can file ITR-1. Note that there are two versions of ITR-1; both are the same, only that one has larger fonts than the other.

However, apart from salary and/or interest, if you earn rental income, capital gains or even dividends from mutual funds or shares, you will have to use ITR-2. It doesnt matter that dividend income is exempted, if you receive it, ITR-2 it is.

Then again, if you have any business income, then ITR-4 will have to be used, notwithstanding any other types of income that you may earn.

No document (including TDS certificate) should be attached to this form. In fact, the official receiving the return has been instructed to detach all documents enclosed with the form and return the same back to the taxpayer. Also, unlike Saral, this form is not required to be filed in duplicate.

I am going to largely dwell on ITR-2 as this the most commonly applicable form.

General scheme of the form

The form has two basic parts - Part A and Part B. There also are fifteen work tables referred to as schedules. The first part, i.e. Part A, mainly seeks general information in terms of requiring identification data such as name, address, PAN, etc.

Part B requires the taxpayer to summarise the incomes under various heads you can look upon it as an outline of your total income and tax computation.

Then come the schedules where details of incomes under various heads and other specifics like set-off and carry forward of losses, clubbing of income, deductions claimed (Sec. 80C etc), declaration of exempt income (PPF interest, long-term gains on equity and dividend income etc.), TDS and advance tax details, etc have to be stated.

Therefore, essentially, these schedules substitute the annexures that were earlier required to be attached along with Saral. For the common taxpayer, most of the schedules will simply not be applicable and the same should be indicated therein.

Note that since it is the data from the schedules that ultimately feeds into the summary tax computation, you need to first fill out of the schedules that are applicable to you.

Therefore, the sequence of filling out the form should ideally be first fill Part A that requires general information. Then directly jump to the schedules and then taking the data from the schedules, fill out Part B. If you try Part B first, it will only be confusing.

There is one particular Schedule called AIR that requires a little bit of discussion. In this schedule there are seven types of transactions, if undertaken during the year, that the taxpayer has to mention. These are:

Cash deposits of Rs 10 lakh or more in any savings account
Credit card payments of Rs 2 lakh or more
Mutual fund investments of Rs 2 lakh or more
Investment in any bonds or debentures amounting to Rs.5 lakh or more
Payments of Rs 1 lakh or more for shares issued by a company
Property purchase or sale of Rs 30 lakh or more
Investment in RBI bonds of Rs 5 lakh or more
Even though, prima facie, this appears to be a simple reporting of the specified transactions, there arise a number of issues. For most of the items, it is unclear whether information on each transaction (if it is above the limit) has to be separately mentioned or it is the cumulative amount.

Then again, treatment for joint holdings is not clear. For credit cards, what about the treatment for corporate card payments (as against personal payments) where the company reimburses the individual?

How does one treat SIPs? For shares, whether secondary market purchases need to be included? Should it be the net amount (purchase minus sale) or the gross one? What about under-construction property where payments are made in instalments?

Since no clarifications are coming, it is suggested that in this regard, a taxpayer errs on the side of caution. When in doubt, give more information than what you think necessary there is no penalty for extra information, but not the other way around. Basically, if you have nothing to hide, what can the taxman find?

However, notwithstanding the above, the core problem with the form, in my view, is the widespread use of income-tax jargon, not only in the language but also in terms of references to section numbers and provisos of the Act.

Though it is possible for one to fill the form on ones own, I would suggest that for the first year at least, it would be advisable to seek professional help. Once you get familiarised with the general format and flow of the form, from next year on, you can do it yourself.

Apart from the usual chartered accountants (CAs), the government has specified that specially trained tax return preparers (TRPs) can be employed to file returns for a nominal fee of Rs 250. Details of TRPs in your area can be found at

Summing up

Though the intention of the government behind the TRP initiative is good, reportedly not all of them are fully ready yet. Also, TRPs need to be available in every location of the city or town and it will take time for them to reach a critical mass such that they become really effective.

This itself is enough cause to postpone the last date for filing. Plus, the uncertainty regarding the AIR schedule needs to be addressed. Lastly, the design of the new forms, in a bid to be as comprehensive as possible, seems to have compromised somewhat on accuracy. There are some typos and other arithmetical errors in the flow that need to be ironed out.

In the light of all of the above, should the due date of filing the return be forwarded to say 30th of September, it would save the common taxpayer not only money (in view of the higher fees that CAs generally charge vis-a-vis a TRP) but an immense amount of inconvenience.

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