It's time to undergo what is an annual ritual for every earning individual. Most cringe at the thought of the work ahead, some love to ignore it till the last day because it is boring and cumbersome, while others just hope that their trusted chartered account (CA) will take care of the matter. The job we are talking about is filing of income tax return (ITR).
The process of filing tax returns has significantly evolved over the years, largely due to extensive use of technology. Even though the entire process can now be completed in 15-20 minutes, many feel that it is a herculean task. "It is the fear of being caught on the wrong foot by the Income Tax (IT) Department that scares most people in the country," says Archit Gupta, Founder of ClearTax, an e-filing site which claims that more than 3 per cent tax returns in India are filed via its platform.
The Central Board of Direct Taxes (CBDT) has already notified the new forms for this financial year, The deadline for filing ITRs has been fixed as July 31. However, before you dash off to your computer and open the IT Department website, there are a few changes in ITR forms this year that you should know about so that there are fewer chances of making a mistake and getting an IT Department notice.
NEW DEVELOPMENTS THIS YEAR
New ITR for rich taxpayers
If you are an individual or Hindu Undivided Family (HUF) with annual income of more than Rs 50 lakh, you will have to enter some more details in the return form about your assets and liabilities. The CBDT has issued a new set of return forms in which fresh reporting columns have been introduced (in ITR 2 and ITR 2A). Earlier, these details were furnished as part of the wealth tax return, which has been abolished from this assessment year. Experts say the aim of new ITR forms is dealing with the menace of black money.
These ITR forms have a separate section - Schedule Assets and Liabilities (AL) - where details of assets and liabilities have to be provided. Moveable assets such as cash in hand, jewellery, vehicles, yachts, boats and aircraft figure in the list of assets that have to be declared.
This is besides immovable assets such as land and building. Liabilities in relation to these assets must also be recorded. However, even though the ITR forms have been notified, there is confusion as to how cost of gifted assets and inherited jewellery will be valued. Because of the not-so-clear communication, rich taxpayers may find it a bit challenging to file ITR this time around.
According to Kuldip Kumar, Partner, Personal Tax, PwC India, "As per the instructions with the forms, the assets should be declared 'at cost'. In case of inherited assets or assets received as gift, disclosure can be made at cost in the hands of the previous owner. However, where the cost to the previous owner is also not known, the government needs to provide guidance at what value taxpayer needs to disclose such assets."
In case of inherited/transferred property, there should not be a problem, according to Kumar, because the deed executed at the time of the transfer will indicate the value of the asset. However, it's not so straightforward when it comes to inherited jewellery. "It would be good if such assets are allowed to be disclosed at market value as on date when the taxpayer became the owner of such assets as is provided for capital gains purposes in the similar situation," says Kumar.
Divakar Vijayasarathy, CEO of MeetUrPro, is of the view that in case of jewellery, the disclosure has to be in terms of weight and not value. "To determine the price of gold, one can use the benchmark rates published on the first of April every year on the IT Department website."
Also, there is confusion if the foreign asset disclosure, which is required for Resident and Ordinarily Residents in Schedule Foreign Assets, needs to be included in Schedule AL, too. Kumar clarifies that Schedule Foreign Assets and Schedule AL are two different aspects and should not be mixed up. Ordinarily residents need to include foreign assets in schedule FA and others in schedule AL.
For not ordinarily residents or non residents, schedule FA disclosure is not mandatory and assets in India are to be disclosed in schedule AL.To prevent tax evasion, the IT department had last year sought detailed information on foreign travel and expenditure incurred on that along with details of the bank account(s) in ITR forms. However, the forms were revised after a hue and cry from taxpayers. Now, only the passport number has to be provided.
Disclosure norms on pass-through income
This is for those who have income from investment funds (investment in a venture capital company) or business trusts. A new column called Pass Through Income (PTI) has been introduced in ITR-2A. Form 2A is for individuals and HUFs who do not have income from either business, profession or capital gains and do not hold foreign assets. Here, the taxpayer will now have to provide name and PAN (Permanent Account Number) of the investment fund and specify under which heads he has received income in the last financial year.
In keeping with the times, the IT Department has added another security layer by introducing an additional level of authentication. This is to protect individuals from frauds. The facility is almost similar to online banking. As per the finance ministry release, "By using this facility, taxpayers can prevent anyone from logging in even if they have shared their user ID and password with that person. The dual factor authorisation ensures higher degree of security compared to the simple user ID and password."
To use this facility, an assessee has to log in to his ITR account and select 'E-filing Vault-higher security' listed under the profile settings tab. Thereafter, he can select one option among Aadhaar linkage to generate one-time password (OTP), net banking, or Digital Signature Certificate (DSC) to log in. Once the option is clicked, an OTP is required each and every time one wants to log in to the account. In case of net banking, the assessee will have to log in to the net banking account for accessing the ITR account. In case of forgotten password, one can reset the password using the three options mentioned above.
However, there is more to come, according to the ministry release. "Additional EVC (electronic verification code) options using ATM, bank account validation or demat account validation are shortly going to be introduced. These options will also be available for higher level of security for login as well as resetting of password," according to a finance ministry release.
This year onwards, taxpayers can cross-check their tax liability by using tax calculator, a computer-based programme provided on the IT Department website. It has been calibrated according to the tax proposals in the latest Budget.
Getting your interest income right
The IT Department has warned taxpayers not to be lax in declaring interest income. One of its warning circulars said, "Information regarding interest earned by individuals and business entities on term deposits is filed with the IT Department by banks, including co-operative banks, and other financial institutions and state treasuries." Often it is noticed that taxpayers tend be lax in declaring the total interest earned from deposits.
Given the increasingly integrated ways in data is available and shared by different government organisations, gone are the days when one could hide interest income. The point to be noted here is that interest received on deposits, whether fixed or recurring, is fully taxable unless exempt under Section 10 of the I-T Act. Additionally, interest income where TDS has been deducted also has to be declared.
This is true even if Form 15 G/H has been submitted. This form is for declaring that the taxpayer will be below the taxation threshold even if the interest earned is added to his income. So, this year, when you decide to file the return, be aware of all the above mentioned developments. In case you feel intimidated by the task at hand, do not fret. There are many options available.
Help at Hand
If you are a first-time taxpayer or even otherwise not sure about how to file returns, help is a few clicks away. Over the past few years, several companies have emerged that help people in online filing of returns, and that too at a reasonable cost.
However, before opting for any such service, one must realise that one will be handing over all income and personal details to a third party. Even though these companies claim that none of the data provided are shared with any person or entity, data leak is always a possibility.
Therefore, before selecting any website, read the type of services provided as well as the terms and conditions applicable, before signing up. Also remember to check the value-added services provided by these sites. Some major players in the space are ClearTax, TaxSpanner, H&R Block, MyTaxCafe, MyITReturn, Taxsmile and MeetUrPro. Most of these provide an option for self e-filing using their platform free of cost. Some also do not charge a fee if the person's income is less than Rs 5 lakh.
However, if you want the company to file the return after taking all the information from you, the service comes at a cost. There are various packages available.
Gupta of ClearTax says cutting-edge proprietary technology has eased the return filing process. "Today the entire process has been reduced to just uploading Form 16 and giving other bare minimum details. The rest of the process, starting from choosing the right form, putting other income in order, raising of red flag in case of a discrepancy with Form 26 AS, is automated."
The support extended by these companies goes beyond tax filing. In case you get a notice from the IT Department after filing the return, you can seek help from experts on these platforms while framing the reply.
The experts, if needed, can also represent you in scrutiny cases. Beyond reducing the trouble of filing taxes, some of these portals also help you save taxes by taking care of your financial planning needs. However, these services come at a premium and can cost up to Rs 5,000, a year. However, irrespective of the option you choose (online or offline), there are a few papers you must keep in order while filing returns.
1) PAN Card
An individual's PAN is the most important document in any communication with the tax authorities. Therefore, the taxpayer must be careful while keying in the PAN.
2) Form 16
Form 16 is a certificate of TDS given by an employer in which it details the salary paid to the employee as well as the taxes deducted during the financial year. However, in case no TDS is deducted, the employer need not issue Form 16.
3) Form 16 A
Popularly known as the TDS certificate, it has all the details regarding TDS on income such as interest earned on fixed deposits or savings accounts. It can be procured on request from the financial institution you hold an account with.
4) Form 26AS
This is mostly overlooked, which is surprising considering it is easily accessible on the tax department website (incometaxindiaefiling.gov.in) against your PAN number. It mentions history of TDS deducted by all institutions during the financial year. Hence, it is advisable to match the figures in Form 16 and Form 16A against details in Form 26AS. Often, a discrepancy can cause the taxman to question you.
5) Bank Statement
This is required to calculate the interest earned on savings account. In case the interest earned is more than Rs 10,000, one has to pay tax as per one's tax slab.
6) Fixed Deposit Statement
These deposit statements are important as one has to calculate the interest earned from all such deposits in a financial year and pay tax on the amount earned. In case the amount is over Rs 10,000, the bank deducts tax at the rate of 10 per cent. If the person's tax slab is higher, he will have to pay the difference while filing the return. Same is the case with recurring deposits.
7) Proof of Investment & Deductions
This essentially means the receipts of investments made under various Sections of the Income Tax Act. Normally, salaried individuals hand out these receipts to their employers and these details are captured in Form 16. In case any investment isn't mentioned, one can key in the details while filling the return form for claiming refund of the extra taxes paid.
8) Contract notes (stock trading)
Any gains from trading in shares are considered as capital gains from the taxation point of view. In case the shares were bought and sold within a financial year, it would qualify as a short-term transaction for which tax has to be paid. Most brokers these days provide capital gains statements classifying short-term and long-term gains at the end of each financial year, making it easier for taxpayers to fill in the required sums. Long-term gains from equities, including equity funds, are tax-free.
9) Tax Challan
In case advance tax has been paid, the details of the challan will also have to be keyed in the return form.
10) Property Details
If you have sold any property, land or house in the last financial year, the income generated has to be mentioned in the return.
Things That Must Be Avoided
- Opting for incorrect assessment year
- Selecting the wrong ITR form
- Providing incorrect communication details
- Feeding in incorrect TAN details of employer
- Closing the income tax refund bank account
- Forgetting to verify ITR data with tax department's data against your PAN number
- Failing to declare all sources of income
- Trying to file separate ITRs based on multiple Form16s
- Not reporting foreign assets and accounts