The tax season is back with a bang. This is the time when salaried individuals start getting their Form 16 TDS certificates from employers and business people get reminders from their chartered accountants to prepare for tax filing. As of now, the last day for filing your income tax return (ITR) is July 31 unless there is an extension. Although it is an annual routine, filing ITR remains a stressful task for many of us, and it could be especially so when new mandates come into play. For instance, there were several tax-related proposals in Budget 2018 which will become effective when you file your ITR this year. Whether you opt for professional services or do it on your own, here is a checklist that must not be ignored, as any mismatch in details, calculation errors or slip-ups, may lead to an enquiry or a demand notice asking you to pay your dues.
Know the Changes
- Mandatory online filing: Only super senior citizens (those aged 80 and above) can file ITR-1 or ITR-4 in paper form; it is compulsory for all other taxpayers to file their ITR online via the e-filing website of the IT Department. This means, unlike the previous year, individuals having income below Rs 5 lakh with no refund will also have to file online if their income is above the basic exemption limit. To make the process more user-friendly, the website will auto-fill the details by extracting information from Form 16.
- Detailed Form 16: Earlier, Form 16 used to mention gross salary but not the details of tax-exempt allowances and perquisites. Now, employers have to provide a detailed break-up of all components, including remuneration received from former employer/s and all tax-related deductions availed of by the employee. The aim is to minimise tax evasion.
- Residential status: Those who are not ordinarily residents need to furnish more details. According to Homi Mistry, Partner, Deloitte India, "For example, one will have to provide information on his/her period of stay in India under residential status. Non-residents need to mention the exact number of days spent in the country during FY2018/19 and in four preceding FYs. Also, an NRI must disclose his/her country of residence and the tax identification number of that country."
- Quarterly reporting of other income: Taxable dividend income and winnings from lotteries, game shows, crossword puzzles, races, gambling, betting and so on (speculative income) will have to be reported as per quarterly earnings for interest calculation under Section 234C.
- Home loan interest: Interest paid on a home loan can be claimed as a deduction from total income up to Rs 2 lakh for self-occupied house property. There is another welcome relief for first-time homebuyers who have opted for housing loans. "As per Section 80EE, an individual with no other house property on the date of the home loan approval can avail a tax benefit up to Rs 50,000 for loan sanctioned in FY2016/17. Therefore, an individual buying her first house can claim a total deduction of Rs 2,50,000 for the interest paid on a home loan," says Rajat Mohan, Partner at AMRG & Associates, a Delhi-based CA firm.
- Foreign income, overseas assets: Taxpayers with overseas earnings and foreign assets will have to provide full details of the same. "Reporting of assets held abroad has been made more robust and detailed compared to previous years. It now includes additional disclosure of custodial accounts, foreign depository accounts and foreign debt and equity interest," says Mistry. Even people who are residents but not ordinarily residents and own foreign assets will have to provide details of their assets held abroad.
- Details of capital gains: You are now required to provide all details related to capital gains and the corresponding taxes you have paid. Capital gains taxes are levied when you sell capital assets such as real estate, shares and debentures or mutual fund units. If you sell immovable assets, including land, building and house property, after holding it for more than two years, you have to pay long-term capital gains (LTCG) tax at 20 per cent on the net sale proceeds minus the indexed costs of acquisition and improvement. You may, however, claim tax exemption if these gains are reinvested in specified bonds (should not exceed Rs 50 lakh in case of bonds) or a residential house in India, subject to specific time frames. In case you sell them earlier, these will be considered as short-term capital gains (STCG) and will be taxable at applicable slab rates. In this case, taxable capital gains will be net sale proceeds less acquisition and improvement costs. "Individuals who have sold an immovable property need to disclose all details such as name and PAN of the buyer, his/her share in the property and the full address of the property sold," says Mistry.
As per the new norms, sale of equity share or equity mutual fund will attract LTCG tax at 10 per cent if you sell after a gap of one year and the gain is more than Rs 1 lakh. In case you sell it before the year is over, it will attract STCG tax at 15 per cent on the entire gain. "Reporting the sale of long-term shares and mutual funds on which securities transaction tax (STT) has been paid is in line with the latest provisions introduced regarding grandfathering of cost of acquisition and exemption of only up to Rs 1 lakh," says Mistry.
ITR forms have also been modified to accommodate these details. "New forms have additional columns to report taxable capital gains in accordance with Section 50C or 112A of the IT Act, 1961," says Kuldip Kumar, Partner and Leader, Personal Tax, PwC India.
Choose the Right Form
Based on the nature of the taxpayer (individual, HUF or Hindu undivided family, firm, company), income sources, income levels and residency status, there are different ITR forms, and you need to ascertain where you stand on these parameters.
If you are a salaried individual and a resident of India, go for ITR-1 or ITR-2, depending on your salary income. "If your salary income does not exceed Rs 50 lakh (income from other sources and one house property are allowed in this case), you can use ITR-1, provided you are not a director of a company, have not held shares of an unlisted company during the financial year and do not own foreign assets. However, when your salary income exceeds Rs 50 lakh, you will have to use ITR-2," says Kumar of PwC India.
"Individuals who are company directors or have held shares of an unlisted company during FY2018/19 cannot use ITR-1 even if their salary income does not exceed Rs 50 lakh. An individual who wishes to claim expense deduction from other income cannot use it either," adds Mistry of Deloitte India.
An individual or a HUF with income from profits and gains of a business or a profession must file ITR-3. This form is quite comprehensive and accommodates all relevant details one has to submit. "The new ITR-3 applies to professionals and splits the existing profit-and-loss account into trading, manufacturing and profit-and-loss accounts. It also seeks details of the annual value of outward supplies/sales/services as per the Goods and Services Tax returns filed," explains Mistry.
Finally, if you are an individual/HUF/firm (other than LLP) with total income up to Rs 50 lakh, including income from business and profession, file ITR-4 for presumptive income under Sections 44AD, 44ADA or 44AE. This form is most suitable for freelancers, consultants and professionals like doctors, lawyers, architects and chartered accountants. But to file ITR-4, you must be a resident Indian. Here, you can opt for the presumptive taxation scheme under Section 44ADA and declare 50 per cent of the gross receipts as your presumptive income and pay income tax accordingly. Again, certain conditions may not allow you to file ITR-4. "Professionals who have presumptive income and are directors in companies or hold shares of unlisted companies or have foreign assets will not be eligible, and they will have to file ITR-3," says Mistry.
Five Golden Rules
Give accurate information.When it comes to tax compliance, accuracy matters most. Doing it right in the first place means you need not do multiple revisions. It will also minimise scrutiny, help you avoid tax penalties and ensure quick refunds. According to Mistry, for the salaried, the process starts with Form 16 as "the salary section of the ITR form should match Part B of Form 16. In essence, Form 16 details (including the break-up of salary as allowances and basic components) should tally with what is disclosed in ITR filing. Any mismatch may lead to queries and delay in the processing of returns and refunds." Therefore, it makes sense to provide all relevant information and documents to your employer so that the organisation can issue an accurate Form 16.
Tally the data with Form 26AS. To make sure there is no discrepancy in the information that the IT department has in its possession and what you are providing through ITR filing, check your Form 26AS as it lists all incomes and TDS paid. "It is your consolidated annual tax statement, something like a tax passbook that records all the taxes deposited against your PAN," says Mohan of AMRG. "Make sure that the details mentioned in this form tally with your ITR not only in terms of TDS amount but also regarding income figures as discussed with the deductor."
Do not delay ITR filing. But in case you miss the due date, typically July 31, it is not the end of the road. "You can file it as a belated return until the end of the assessment year. For example, the belated ITR of FY2018/19 can be filed until March 31, 2020. If you miss that deadline, you will never be able to file the tax return," says Kumar.
If you file your ITR after July 31 but by December 31, 2019, you may end up paying a penalty up to Rs 5,000. In case you postpone it further and file it between January 1 and March 31 of 2020, you may have to cough up Rs 10,000. However, if your taxable income is below Rs 5 lakh, the maximum penalty for the delay will be Rs 1,000. If there is any tax payment due, you will have to pay the amount along with interest at the rate of 1 per cent per month for each delayed month. If your income is below the basic exemption limit, no penalty will be charged in case of a delay.
Filing revised return is possible. If you have made a mistake in ITR, correct it and file a revised return by the end of the assessment year. For income earned during FY2018/19, the final deadline for filing an original or revised return will be March 31, 2020. So, even you are late, file your ITR by this date.
Verify filing on time. Submitting the ITR is not enough. You have to verify it within the stipulated timeline of 120 days or your filing will be cancelled. One can digitally sign the return or e-verify it online through Aadhaar OTP or net banking. Otherwise, send a duly signed ITR-V to the Centralised Processing Centre (CPC), Bengaluru, by ordinary post or speedpost.