Filing of the tax return is not only mandated by the legislation, but such this would also help while applying for a loan, visa etc.
By Shuddhasattwa Ghosh, Partner, People Advisory Services, EY India
With 31 July, the due date to file the tax return fast approaching, it is time for individuals to ensure that their tax return is filed in time. Filing of the tax return is not only mandated by the legislation, but such this would also help while applying for a loan, visa etc. Though the tax return can be filed after the due date, this would come under the belated return category. Unlike some countries like United States, India does not allow to apply for an extension of the due date.
The tax return is required to be filed mandatorily if the taxable income of the individual is more than the threshold limit of Rs 2,50,000. The income threshold applies to each individual and each individual is responsible for filing his/her own tax return. Unlike USA, joint return filing is not applicable in India. Filing of the tax return is not as complex as it sounds. However, there are few points which should be kept in mind before filing the tax return:
Firstly the selection of the correct tax form is very important. Such selection depends on the source of income an individual has in India and therefore, first and foremost an individual is required to ascertain all the sources through which she earns income. For e.g. If an individual has salary and income from one house property, she would be required to file ITR – 1. Where the individual has income from multiple house properties along with interest or dividend, she would be required to file ITR 2A. Where the individual has income from capital gains, she would be required to file ITR 2.
Secondly, the individual should retain all the important documents which would form the basis for filing of the tax return. Few of such documents are Form No. 16, bank statements and interest certificate. In case of a housing loan, the housing loan certificate and interest paid needs to be retained.
The taxpayer should also download Form 26AS from income-tax e-filing website. If she does not have an e-filing account, it is recommended to create an account for easy access to the tax return. Form 26AS is the annual tax credit statement which reflects the income on which taxes are deducted at source. This would allow her to report actual income in the income tax return and claim tax credit for the taxes deducted at source. It is important that all income reported in Form 26AS is reconciled and captured in the return.
Individuals who claim deduction with respect to the housing loan should keep in mind whether the house property is jointly owned. If both the co-owners are contributing towards the purchase consideration, the deduction towards the interest on housing loan would be allowed to both the co-owners (subject to a maximum deduction of INR 2,00,000, if the house property is self-occupied or vacant) at a proportion in which the loan is taken/repaid. If the house property is let-out, the rental income would be considered proportionately in the tax returns of both the co-owners. There is no maximum cap in considering interest paid towards housing loan, where the house property is let-out (the deduction would again be allowed proportionately in case of joint owners).
The individual should also keep in mind that the income received by the minor child needs to be included in the tax return of the parent which has higher taxable income. Specified exemption is allowed to be considered in the income-tax return of the parent where the income received by the minor child is also included.
Various deductions are available under the income-tax laws for specified investments/contributions made. A few examples of such deduction would be premium payment towards life insurance policies, fixed deposit of a minimum tenure of five years, repayment of principal towards housing loan etc. Such deduction is allowed to the individual if the payment is made by him for his spouse and children as well. Tuition fees paid for children can also be considered as a part of deduction. Individual while filing the tax return should go through his/her bank statement to identify the investments made by him which could be allowed as a deduction.
Another important reason why a tax return should be filed within due date is to ensure that the capital loss, if any on sale of shares, properties etc. or any other capital assets can be carried forward to the subsequent years for set off against future gains.
Revenue Authorities in the financial year 2015-16 has introduced new reporting requirements of Assets & Liabilities for individuals whose taxable income is more than INR 50,00,000. In such cases, she is mandatorily required to disclose cost value of all the assets (specified in the tax return form) along with the debts owned in connection with assets as below:
*Jewellery, bullion, etc
* Vehicles, yachts, boats and aircrafts.
As cost value needs to be reported while filing the income-tax return, it is advisable that the individuals retain the receipt for purchase/ deed of any of the above mentioned asset.
An individual should ensure that correct personal details are disclosed in the tax return form. It is preferred that name mentioned in the tax return matches with the name mentioned in the Permanent Account Number. After including the personal details, income and deductions, the individual would need to compute the tax liability based on the progressive tax brackets.
After an individual completes the tax return, she would need to upload the same in Income-tax website (where taxable income is more than INR 5,00,000, e-filing is mandatory). Once the tax return is uploaded successfully in e-filing website, an acknowledgement would be generated and verification of the same is the last step for filing the tax return.
Verification of the tax return could be done either through signing the acknowledgement and submitting the same with the Revenue Authorities or through e-verification (i.e. through net banking or through mobile number linked with Aadhar card). The preferred approach, given the emphasis on use of technology, is e-verification.
To sum up, all the individuals should preferably file their tax return within due date with accurate income details and keep proper documentation of all the information which has been considered in the tax return.
(Rahul Agarwalla, Senior tax professional, EY also contributed to the article)