Here's what you need to know about the new rules for filing tax returns
July, 22nd 2015
New forms, additional information, completely paperless filing.... the Finance Ministry has introduced several changes in the way taxpayers will file their returns this year. As a taxpayer you need to be aware of these changes lest you file an incorrect return that gets rejected or results in a scrutiny notice.
This week's cover story looks at the changes in the tax filing process and documentation and explains what taxpayers need to do. There is also a smart step-by-step guide to tax filing that will ensure an error-free return.
Many taxpayers tend to believe that if they have no tax liability or have already paid all taxes, they need not file their returns. "It does not really matter whether you have paid any taxes or not.
Even if all your taxes are paid through TDS by the employer and bank or you have paid an advance tax, you still need to file returns if your annual income exceeds Rs 2.5 lakh," says Archit Gupta, Founder and CEO, ClearTax.in. But before we get there, let's look at the major changes in this year's tax filing rules
The filing deadline has been extended to 31 August so you have about six weeks to file your return. But it's best not to delay the process unnecessarily. If you have got all your documents (Form 16 from employer, bank statement, TDS details, capital gains statement) in place, file your return as soon as possible and get over with it. Why delay something that you cannot avoid.
New tax forms
The massive outcry against the mandatory disclosures of foreign trips and dormant bank accounts in the new ITR forms has forced the government to revise them. The revised forms are much simpler and taxpayerfriendly. But though you won't have to fill a 14-page return, the new forms have retained some of changes proposed earlier.
A new three-page ITR 2A form has been introduced for individuals and HUFs who may own more than one property, but do not have any taxable capital gains, income from business or profession or foreign asset and income outside India.
ITR-1 (Saral) can now be filed by individuals even if they have exempt income. Earlier, individuals were not allowed to use this form if they had exempt income exceeding Rs 5,000. However, individuals having agricultural income exceeding Rs 5,000 will still not be able to use Form ITR-1.
Here's what you need to know about the new rules for filing tax returns Here's what you need to know about the new rules for filing tax returns E-filing scope widened
One major change is that e-filing is now mandatory for taxpayers who are claiming a refund. Even if their income is below Rs 5 lakh, they still need to take the online route. However, this rule does not apply to super senior citizens above 80 years. They can still file their tax returns in the physical mode.
However, e-filing has its own benefits. "E-filed tax returns get processed much faster and the refunds gets credited early and go directly into your bank account. The taxpayer can also track the status of processing of his tax return online," says Sudhir Kaushik, Cofounder and Director, Taxspanner.com.
If you are familiar with tax forms and rules, you can file for free on the Income Tax Department website. Some portals also allow free tax filing. Others charge a small fee for guiding you. Take professional help if not sure. It costs a little, but will ensure that your tax return is error-free.
Property and capital gains under the lens
The new forms also segregate the columns for 'deemed-to-be-letout' and 'let-out' status of property. So, make sure you pay tax for the second house even if it is lying unoccupied. You are liable to pay tax on the notional income based on the prevailing rent in that area.
In case of sale of property, pay the capital gains tax carefully as the new forms seek year-wise particulars regarding any unutilised amount lying in capital gain scheme account to check for long and short-term gains.
"If the property was situated outside India, the new forms require the taxpayer to fill the details of such capital gain income in the Schedule FSI where details of income from outside India and tax relief need to be reported," says Tapati Ghose, Partner, Deloitte Haskins & Sells.
Capital gains now need to be reported separately based on the tax rate applicable on you. If you have deposited any amount in capital gains account scheme, you will have to mention the year in which the asset was transferred, section under which exemption was claimed, year in which the new asset was acquired and the amount utilised out of capital gains account scheme to acquire the new asset. You also need to mention the balance amount in the account.
Foreign income and assets
The revised forms are not as interrogatory as their earlier avatars but they still ask a lot of questions about foreign income and assets. You won't be required to give details of money spent on foreign trips but you still need to give the details of foreign income (amount, nature of income, taxability, country where it was earned, name and address of employer).
If you claimed relief under a Double Taxation Avoidance Agreement ( DTAA) that India has with other countries, you will have to mention details in the return.
Similarly, if you own a property outside India, details like nature of ownership (direct or beneficiary), date of acquisition, income derived from such property and income offered to tax in the return will have to be specified.
Similar details for any financial interest held in a foreign entity will also be required to be declared. Apart from owners, even beneficiaries of assets held outside India or any income generated from the assets will have to report such ownership in their ITRs.
Paperless e-filing now easier
From this year, e-filing will become truly paperless for a large majority of the taxpayers. Till now, they e-filed their returns and then posted the signed ITR-V form to the Centralised Processing Centre in Bengaluru. The objective was to establish the identity of the taxpayer. Now, the identity returns can be verified electronically by generating an electronic verification code (EVC).
The 10-digit EVC is an alpha-numeric code which will be unique for each PAN, and is an electronic verification of the person e-filing the tax. For HUFs, the EVC verification will be for the Karta of the HUF. "A major hurdle has been crossed. This will make the procedure truly paperless," says Vikram Ramchand, Co-founder of Makemyreturns.com.
From this year, the ITRs will also have a space for Aadhaar card holders to mention their Unique Identification Numbers. The Aadhaar is one of the four ways in which the identity of the taxpayer is verified. Of course, if you don't want to use this mode you can still send your ITR V to the CPC by snail mail.
File your return in 12 smart steps
Filing your tax return should not be a complicated process. Here's what you need to do.
Check your tax credit online: The Form 26AS has details of the tax deposited with the Income Tax Department on your behalf. This includes the TDS on bank deposits, salary, consultancy charges or even sale of property. You can access it online through your Netbanking account if it is linked to your PAN. Check whether the tax paid by you is reflecting in the Form 26AS.
Rectify mismatch in Form 26AS: In case of a mismatch, get the deductor to rectify and file a revised TDS return. This is important because the tax department goes by what is stated in your Form 26AS.
Also ensure that the transactions mentioned in the Form 26AS have been reported in your return. If there is a 10% TDS on interest from a fixed deposit, the full interest should have been reported in your return. If you switched jobs during the year, you might have got double exemption and deduction. You have to report both incomes in your return and pay tax accordingly.
Add up income from other sources: Apart from salary, taxpayers also have income from other sources. Add up all the interest earned on fixed and recurring deposits, infrastructure bonds, NSCs, Kisan Vikas Patras and even your savings bank account. Even if TDS has been deducted on fixed deposits, you might need to pay more tax if you are in the 20-30% tax bracket (income of over Rs 5 lakh a year).
Include foreign assets: The tax department is looking closely at accounts and assets held outside India. The new ITR-2 asks for details foreign bank account's holding status (both as an owner and as a beneficiary), account opening date, interest accrued during the year and schedule and fields number under which the same income is reported.
Calculate capital gains: If you sold any mutual funds, stocks, property or gold during the year and made a profit, report the gains in your tax return. Some of these gains will not attract any tax but others might. E-filing portals have inbuilt calculators that tell you how much tax you have to pay.
Report rental income: The new forms have also segregated the columns for 'deemed-to-be-let-out' and 'let-out' status of your property. You are liable to pay tax even if you have not earned any income from it or if it is unoccupied. In case of sale of property, the new forms seek year-wise particulars regarding any unutilized amount.
Claim the deductions: Make sure you have availed of all the tax exemptions and deductions you are eligible for. Even if some exemption or deduction got missed because you could not submit documents to your employer in time, you can claim it now at the time of filing return.
Choose the right mode: Online tax filing is not only easy but also mandatory for certain taxpayers. If your income is more than Rs 5 lakh a year and includes foreign income, then you have to e-file your tax return. Even if the income is below Rs 5 lakh but you are claiming a refund, e-filing is compulsory.
E-filing not only ensures your ITR is error-free, it is more reliable as well. The e-filing portal will automatically choose the appropriate form and calculate the correct tax liability for the current year. What's more, e-filed tax returns get processed much faster and the refunds reach you faster.
Verify your tax return: The procedure does not end with the uploading of your return. You need to verify it also. Till last year, if you did not have a digital signature, you had to send a copy of the ITR V to the Central Processing Centre in Bengaluru. From this year, the tax department has introduced the facility of electronic verification code (EVC) which will make the procedure completely paperless.
But the EVC mode is not fully operational yet. If you can't go paperless, the option of sending the ITR V by post to Bengaluru is still open to you. The ITR V must reach the CPC within 120 days of filing the return. No tax to pay? You still need to file your return
Some taxpayers face a simple dilemma: are they supposed to file their tax returns? Three years ago, the government had introduced a rule that anybody earning up to Rs 5 lakh a year will not have to file returns if all taxes are paid and there is no income from other sources. Though this rule has been removed, a lot of people in that segment still believe they don't have to file their returns.
It's time to clear the air about this. As per the law, if your gross taxable is above the basic exemption limit of Rs 2.5 lakh a year, you have to file your return. "The gross taxable income is after you have claimed all exemptions, such as HRA, conveyance allowance and LTA," says Delhi-based chartered accountant Komal Agarwal, partner in Mahesh K. Agarwal and Company.
As the table shows, the person with an income of Rs 4 lakh a year is not supposed to file his returns because exemptions reduce his gross taxable income to Rs 2.5 lakh. On the other hand, the person earning Rs 3 lakh a year will have to file returns because he does not get any exemptions.
"Even though the deductions under Section 80C reduce his tax to nil, he is required to file his return," says Agarwal. Similarly, even if all taxes have been duly paid, you still need to file your return. In the table, the person with Rs 7 lakh income does not owe the tax department anything. Yet, the law requires him to file his return.
What happens if you are supposed to file your returns but don't? As per the law, the penalty for non-filing of tax return is Rs 5,000. However, experts say it is rare for the taxman to deal with such cases too harshly. Since you have not filed, the department will not have your registered mobile number or e-mail address.
But when your income exceeds a certain level after a few years and you file your returns, you might get a flurry of texts and mails from the taxman asking you to file your returns for the previous years. Matters can take a serious turn if you don't respond to such pleas. The department may also issue a notice for not filing. More strict penalties, of up to Rs 2 lakh, have been recently introduced for not responding to notices from the tax department.
Incidentally, it is mandatory for residents with foreign assets to file returns, irrespective of their earnings. "Individual who qualify as ordinarily resident of India and have foreign asset or income are mandatorily required to file a return in India even if they have zero income here," says Kuldip Kumar, Partner and Leader Personal Tax, PwC India.
Who needs to file tax returns?
If the gross taxable income after exemptions, but before deductions, exceeds the basic exemption of Rs 2.5 lakh, you need to file your tax return.
Here's what you need to know about the new rules for filing tax returns Will the individual have to file tax returns?
Yes: Even though there is no tax, gross taxable income is more than Rs 2.5 lakh a year.
No: After the exemptions, the gross taxable income is below the basic exemption limit.
Yes: Though all the taxes are paid, the individual still needs to file tax return.
How tax filing will be fully paperless
No need to send the ITR V to the Central Processing Centre in Bengaluru after e-filing your return. E-filing is now truly paperless with the Electronic Verification Code. Here's how it can be generated.
Net banking: Several banks such as SBI, ICICI Bank, HDFC Bank and Axis Bank provide verification facility through Net banking. Account holders with validated PAN can use this channel to generate the EVC, which can then be used to verify the tax return.
Aadhaar number: The taxpayer will have to punch in his Aadhaar number on the income tax website. He will get a one-time password which can be used to verify the tax return.
ATM: The EVC can be generated at an ATM of the bank registered by the taxpayer in his return. Though this is not immediately functional, it will eventually be possible to do this using a debit or credit card.
Registered e-mail and mobile number: The taxpayer can also generate an EVC using his mobile number or registered e-mail. However, this mode can be used only if the total income is below Rs 5 lakh and there is no refund claim.