By Rama Karmakar, Senior tax professional, People Advisory Services, EY
It is that time of the year again when you need to take a look at your income and taxes for the previous financial year and file your income-tax return within the due date, i.e. 31st July. In order to file your income-tax return, you need to first determine your total taxable income and then calculate the tax liability on the same. The tax liability needs to be discharged prior to filing the income-tax return.
So how would you ascertain how much taxes you have already paid and how much is yet to be paid?
The first step is to look at the tax which has already been deducted at source. Tax Deducted at Source (commonly referred to as TDS) can be determined by downloading the Form 26AS, which can be accessed by logging into your e-filing account (in the income-tax website) and selecting the relevant Assessment Year. Form 26AS is the annual tax credit statement which reflects the amount of tax which has already been deducted at source on various sources of income such as salary, interest etc., during the financial year.
The most prevalent assumption among individuals is that if tax has been deducted at source on the personal income reflecting in the Form 26AS (such as interest income), no further tax liability exists on this income. But most often this assumption is not correct. Generally, tax on such income is deducted at a lower rate (say 10%) and if the total income of the individual falls in a higher tax bracket (say 30%), the differential tax liability would have to be paid by the individual.
Let us take an example to understand this better:
Abhishek’s total taxable salary income exceeds Rs 10 lakh and therefore he is taxable at the 30 percent tax bracket. He has a fixed deposit of Rs 10 lac with a bank which earns 10 percent interest per annum. So, the interest that he would earn on the fixed deposit would be Rs 1 lac. The bank has deducted tax on the interest income at the rate of 10%. However, Abhishek is taxable on the interest income at the rate of 30% (as his total taxable income exceeds 10 lakh). Hence, he still needs to pay the additional tax of 20% on the interest income (plus the additional education cess).
There could also be a situation where tax is deducted at source by the bank on interest income but an individual’s taxable income is less than the threshold limit of Rs 2.5 lakh. In such a situation, a refund can be claimed of the tax deducted by the bank, by filing the income-tax return. Alternatively, Form 15G/15H could be filed with the bank requesting for nil deduction of tax.
Watch: Simple tips to file income tax return
If you have other personal income, say rental income or savings bank interest income on which no tax has been deducted at source, during the financial year, you would need to pay the tax liability before filing your income-tax return. The details of the tax paid receipt needs to be included in the income-tax return at the time of filing the return.
The tax liability can be discharged by using any of the two modes of payment of taxes, as mentioned below:
- Through Cheque
- If you are making the payment through cheque, you would need to visit a bank which accepts tax payments, with a copy of filled in self-assessment tax challan (form available on the income-tax website) along with the cheque for the amount of tax which needs to be paid.
- Once the bank accepts the cheque, it would provide the counterfoil attached to the self-assessment tax challan, with necessary details to be incorporated in the income-tax return.
E-payment (online payment) is the more commonly used and preferred approach these days to pay taxes. Here is how you could pay the taxes online:
- You would need to login to the income-tax payment website;
- After logging into the web page, you would need to select the relevant challan for payment of self-assessment tax. ITNS 280 is the tax challan for self-assessment tax payment;
- Once you select the tax challan type, you would need to provide your Permanent Account Number (PAN) and other mandatory challan details like accounting head under which payment is made, your address and the bank through which payment is to be made etc. The most important point to note while discharging the tax liability is correct selection of the Assessment Year. Assessment Year is the year in which your tax return is assessed i.e. financial year succeeding the relevant financial year. Therefore, for the financial year 2015-16, the Assessment Year would be 2016-17;
- Once you submit the relevant details in the tax challan, a confirmation screen will be displayed. On confirmation of the data, you would be redirected to the net-banking site of the bank chosen by
; You can login to the net-banking site with the user id and password provided by the bank and enter the payment details;
- On successful payment, a challan counterfoil will be displayed containing Challan Identification Number (CIN), payment details and bank name through which e-payment has been made. This counterfoil is the proof of payment made;
- You can enter the challan details in your income-tax return and file the same.
The payment of tax liability within the due date is important since non-payment of the tax liability within the due dates specified under the Income-tax Act, 1961 (‘Act’), would attract additional interest for the delay in remittance of taxes. Moreover, one cannot file a tax return showing “tax payable”.
Therefore, it is advisable to pay the tax liability as and when required under the Act and thereafter file your income-tax return on time.
(Rahul Agarwalla of EY also contributed to the article. Views expressed are personal)