Many make mistakes while filing tax returns. Follow these rules so that your return is flawless.
We all believe we are paying a lot of tax. The time has come to record it as well.
By filing your tax return, you declare how much income you earned during the year, the deductions you claimed and the tax you paid. The equation is simple, yet many taxpayers mess up their tax returns--either out of greed, ignorance of rules, or just lack of time. Some mistakes are not very serious offences and the taxpayer will get away with an additional tax demand. But some errors, such as not mentioning cash deposits after demonetisation or foreign assets and income, can land the taxpayer in serious trouble.
How can taxpayers avoid these mistakes? This week's story lists out 10 commandments for those who will be filing their returns in the coming weeks. There have been several changes in tax filing rules in the past year. Our canons of prudent tax filing take note of these changes and accordingly guide taxpayers so that their returns are flawless. Get cracking on your return right away .
1. FILE RETURNS IF INCOME EXCEEDS BASIC LIMIT
Do you have to file your tax return? Taxpayers hold many misconceptions about this. The rules say an individual has to file his tax return if the gross taxable income is above the basic exemption limit. This limit is `2.5 lakh for general taxpayers, `3 lakh for senior citizens (above 60) and `5 lakh for very senior citizens (above 80). Remember, the gross income is computed after taking into account exemptions such as house rent, conveyance and other allowances, but before the deductions.
2. VERIFY TDS DETAILS IN FORM 26AS
The next step is to verify whether the tax deducted on your behalf has been credited to your PAN. While the tax deducted by your employer will reflect in Form 16, check out your Form 26AS online to make sure that all other taxes (advance tax, TDS on interest and other incomes) have also been credited to your PAN. If there is a discrepancy, notify the deductor and get it rectified. The tax authorities consider this document as the sole proof of taxes paid by you. Once the return is filed, the tax department's system reconciles the details in the return with the amounts appearing in the taxpayer's Form 26AS.Expect a notice if the two don't match.
It is easy to access your Form 26AS if you have Netbanking and your PAN is linked to the account. A few clicks will take you to Form 26AS. Details get updated after a lag of a few days.
3. CHOOSE THE RIGHT FORM FOR FILING RETURN
One big confusion among taxpayers is which form they must use to file their return. Here is a guide to the forms that individuals have to use:
4. MENTION CASH DEPOSITS AFTER DEMONETISATION
If you deposited more than `2.5 lakh in cash in your bank after demonetisation, it has to be reported in the tax return.Mind you, the Income Tax Department has already got details of the cash deposited by individuals. This information can be matched with the ITR. In case there is a mismatch in the reporting, the individual can expect a notice.
The penalty for misreporting can range from 50% to 200% of the underreported income. You can also be prosecuted for submitting a false statement.
Moreover, banks are supposed to report if an individual makes cash deposits of more than `10 lakh in a financial year in one or more accounts or opens fixed deposits of over `10 lakh.
5. INCLUDE INTEREST AND OTHER INCOME IN RETURN
Six out of 10 taxpayers think interest from tax-saving fixed deposits is tax free.While these deposits help save tax under Sec 80C, the interest is fully taxable. Till two years ago, TDS kicked in when the interest income from deposits made in a bank branch exceeded the threshold of `10,000 in a financial year. Investors used to split their deposits across branches to avoid TDS. Now, TDS applies if the combined income from deposits in all branches of a bank exceeds the threshold. TDS also applies to recurring deposits if the interest during a financial year exceeds `10,000. As soon as TDS kicks in, the details of the PAN reaches the tax department.
6. MENTION YOUR AADHAAR IN THE TAX RETURN
Individuals who have the Aadhaar must mention it in their tax returns.Only those who do not have an Aadhaar are exempt from the rule.
If you have the Aadhaar, it is also necessary to link it with the PAN if you are filing your tax return. This is very easy and takes five minutes.
7. DON'T IGNORE INCOME FROM FORMER EMPLOYER
Some people think they can get away with a lower tax if they don't mention the income from the previous employer in thir return. This is a misconception. If some tax has been deducted on the income from the first employer, it will be reflected in Form 26AS. If the person doesn't report that income, the discrepancy will get picked up and he will get a tax notice.
The smart thing to do is to inform the new employer about the income from the previous job so that the tax liability is correctly calculated.
8. DISCLOSE FOREIGN ASSETS AND INCOME
You have to give details of your foreign bank account's holding status (as an owner and as a beneficiary), account opening date, interest accrued during the year and schedule and field number under which the same income is reported.
9. DISCLOSE ALL ASSETS IF EARNING OVER Rs 50 LAKH
Last year, the threshold for 10% surcharge on tax was lowered from `1 crore to `50 lakh. This year, the surcharge was raised to 15%. Taxpayers in that income bracket were also required to mention details of the physical assets they owned. Now, the tax department wants them to also give details of their financial assets.
One will have to declare any land or building under immovable assets.Movable assets list includes cash in hand, vehicles (including yacht, boats and aircraft), jewellery, bullion and other valuable metals.
10. FILE BEFORE DEADLINE AND VERIFY RETURN
SEE ALL COMMENTSADD COMMENT
Here is one last rule you cannot afford to ignore. File the return before the 31 July deadline. Till last year, there was no penalty for filing delayed returns. One could even file returns of the previous two years without a hitch if all his taxes were paid. But the rules have now been changed.
Earlier, belated return could be filed at any time before the expiry of one year from the end of the relevant assessment year. So, the returns for the financial year 2014-15 (assessment year 2015-16) could be filed till 31 March 2017. However, now, belated returns may be filed before the end of the relevant assessment year. This reduces the time window by a year.