Tax rates have changed and so do the provisions. Moreover, the latest budget has placed more emphasis on compliance than ever before.
Today I’ll take you through why and when you should file income tax returns and things to keep in mind while doing it..
Why file Returns
An Income Tax Return(ITR) is a self-declaration of the total income earned by the assessee- the taxpayer, during the financial year.
There are several reasons and benefits to filing your returns, some of which we shall discuss below.
Think of receiving an income tax notice by post to your home and running after it? It is such a pain to draft replies, pay taxes and file returns(anyway).
How would you feel on receiving an income tax notice?
It’s always good to abide by the laws.
One of the reasons to file your returns is to comply with the provisions of the Income Tax Act, 1961 and all Rules made thereunder.
We shall get into that in a moment.
Banks require your ITRs for the last three years when you approach them for loans- car loan, home loan, business loan and every other loan.
It provides them with a proof for your income and helps assess your repayment capacity.
I’ve known friends with ‘decent income levels’ whose home loans and vehicle loans were passed because they filed returns regularly.
Applying for Visa
Embassies also ask for a copy of your ITRs before approving Visa to assess your financial prosperity and get an assurance that you can stand on your own in a foreign country.
Filing returns is mandatory to claim TDS refund.
In case your liability is much lower than the Tax Deducted at Source(TDS), refunds can be claimed only by filing your income tax returns.
Carry Forward Losses
This applies more to businesses than other taxpayers.
The provisions of the Income Tax Act call for carrying forward losses from business, house property or other losses only if you have filed your returns before the due date.
Any losses for which the returns have been filed after the deadlines cannot be carried forward.
When file Returns
File your ITRs before the deadline or pay a hefty penalty!
Now, let’s take a look at the legal provisions.
Simply stated, if your income for the Financial Year 2017-18(1st April 2017 to 31st March 2018) exceeds Rs. 2,50,000, you have to file returns.
This exemption limit is Rs. 3 lakhs for senior citizens aged 60 plus and
Rs. 5 lakhs for very senior citizens aged 80 plus.
Now that you have decided to file, here’s what constitutes your income.
Your income shall fall under any of these five heads.
- Salaries – the salary income paid by your employer
- House Property – rental income from properties let out
- PGBP – Profits and Gains from Business or Profession
- Capital Gains – Gains arising on sale of capital assets
- Other Sources– Interest, dividend and all others which don’t fall into other heads.
Make sure you to chose the appropriate heads of income while filing returns.
You don’t need to pay taxes for all that you earn.
Save taxes by taking advantage of deductions mentioned under Chapter VI-A of the Act.
Section 80C – Investments
Section 80C offers deduction upto Rs. 1.5 lakhs
This section helps reduce your total income by Rs. 1.5 lakhs for the following items.
- Life insurance premium paid
- Contribution to Provident Fund and Public Provident Fund
- Five-year term deposits with Post Office and banks
- Investment in tax-free mutual funds
- The principal portion of housing loan repaid
- Tuition fees for two children
- And more..
Section 80D – Mediclaim Premium
Under this section, deductions can be claimed for mediclaim premium paid.
A deduction up to
- Rs. 25,000 in case of self, spouse or children and parents aged up to 60 years and
- Rs. 50,000 parents aged 60 plus.
Section 80TTA – Savings Bank Interest
Section 80TTA gives you deduction up to Rs. 10,000 on interest received from Saving bank accounts.
Note that deduction is only applicable to SB Interest and not FD or other interest income.
Here’s a complete list of such other deductions.
Let’s now take a look at the tax rates applicable for the Assessment Year 2018-19.
- It is exempt till Rs. 2.5 lakhs or the basic exemption limit we discussed earlier.
- At 5% on Rs. 2.5 to lakhs Rs. 5 lakhs which mean Rs. 12,500
- At 20% on Rs. 5 lakhs to Rs. 10 lakhs which equal to Rs. 1 lakh.
- At 30% of the balance amount
Surcharge at 10% of the tax amount is applicable if income is greater than Rs. 50 lakhs but up to Rs. 1 crore. This surcharge increase to 15% once the income crosses Rs. 1 crore.
A cess at 3% of the tax amount is also levied.
Compliances have become a lot stricter this year.
Earlier you could file your returns after the deadline by paying interest. That’s no more possible.
If you don’t file before 31st July you have to pay a penalty of Rs. 5,000 till December 31st and Rs. 10,000 thereafter.
If your total income is less than Rs. 5,00,000 the penalty is Rs. 1,000.
Update- As on 28 August 2018
In view of the disruption caused due to severe floods in Kerala, CBDT further extends the Due Date for furnishing Income Tax Returns from 31st August,2018 to 15th September, 2018 for all Income Tax assessees in Kerala, who were liable to file their IT Returns by 31st August,2018.
— Ministry of Finance (@FinMinIndia) August 28, 2018
The due date has been extended to the 15th of September 2018 for taxpayers in Kerala.
Things to look out for..
- Make sure you file using the correct ITR Form.
- Analyse the credits in your bank statements to not miss any income.
- Don’t forget to show any income which has appeared in 26AS.
- Don’t forget to enter your Savings Bank Interest, FD Interest as shown in the statement.
- Fill your bank account details correctly to claim the refund.
- Make sure your contact information is updated.
You can file your returns either through the E-Filing portal or use services like ClearTax.
It’s always good to consult your Chartered Accountant before filing!
It isn’t over.
Once you’ve filed, you need to verify your returns either through net banking accounts, Aadhar OTP or by signing and posting it to CPC Bangalore.
While you sign, make sure to use a blue pen!
Any questions? Comment them down and I’ll get back to you.
Please don’t take anything mentioned here as a financial advice. Consult your Chartered Accountant friend beforehand.
Last updated on 26th July 2018