We are nearing July 31, an important date for all taxpayers as it is the last day for filing FY2017/18 income tax returns (ITR). The tax-filing experience has gradually improved over the years - from a complicated and tedious process to an easy and user-friendly one - as India has mostly done away with paper-based filing. The country has embraced electronic filing, or e-filing, which involves digital verification either through a 10-digit alpha-numeric electronic verification code (EVC) or through a one-time password based on Aadhaar. These measures have been taken to make the process quite simple and, hence, improve tax compliance. Of course, individuals aged 80 or above can file returns manually and the same applies to an individual/HUF whose income is up to Rs 5 lakh and who does not claim any refund. But for the rest of us, it has to be done digitally, keeping in mind the recent changes.
If you miss the July 31 deadline, you will still have a window to file your ITR before the end of the financial year. It means for this year, you can file a delayed ITR until March 31, 2019, but it will come with a cost. "If you file it after the due date but before December 31, 2018, you will end up paying a fee of `5,000 under section 234F of the Income Tax Act. You have to pay Rs10,000 if you file it after December. Non-filing of ITR may lead to penalties if there is any tax payable. In extreme cases, tax authorities may invoke prosecution provisions under Section 276CC," says Kuldip Kumar, Partner and Leader, Personal Tax, PwC India. So, it is always better to file your ITR on time. Also, the recent digital drive has enabled the taxman to keep a close watch. So, they will keep sending reminders to those who delay or fail to submit their returns.
In case you are not able to collect all relevant information and documents on time due to unavoidable circumstances, file your ITR along with the documents and data you already have and pay the due tax before the deadline mentioned above. It will save you from paying the mandatory late fee. You can revise your return later on when you get the updated information. If your total income (after deductions) does not exceed Rs5 lakh in the concerned financial year, the maximum late fee payable will be Rs1,000 if you file your return between August 1, 2018, and March 31, 2019. If your income is below the basic tax exemption limit and there is no refund due, you are not required to file ITR and no late fee will be applicable.
What Changed This Year
If you have been paying taxes for years, note that things will be different from now on. You need to know the key changes in the tax-filing process that came into effect from April 1, starting with which ITR form you should use (see table Which Forms to Fill). Here is the low-down to get you going.
Use of ITR Form-1 (Sahaj): If you are a non-resident Indian (NRI) or a resident but not ordinarily resident (RNOR), you can no longer use the simple one-page ITR Form-1 (Sahaj). "ITR Form-1 can only be used by ordinarily resident taxpayers with income of less than Rs50 lakh from salary, one house property (except carry-forward losses) and other sources (except winnings from lottery, horse races or dividend income exceeding Rs10 lakh)," says Kuldip Kumar, Partner and Leader, Personal Tax, PwC India.
Salary break-up: Earlier, a salaried taxpayer had to submit his/her gross salary, but this has now changed. You need to provide a salary break-up, including non-exempt allowances, the value of perquisites, profit in lieu of salary and deductions claimed under section 16 of the Income Tax (IT) Act. "These details are available in Form 16 and Form 12BA, which employers issues to their employees," points out Kumar.
Details of income from house property: When you are providing details of income from house property, you have to mention the Permanent Account Number (PAN) of your tenant in the form ITR-2. It was optional last year, but this year it has been made mandatory. "Those using ITR-1 will have to provide a detailed account, viz. gross rent received, tax paid to local authorities and interest paid on borrowed capital. People using ITR-2 have been providing such details and this change is only for those using ITR-1," adds Kumar.
Overseas account details for NRIs: If you are an NRI, you will now find a field in ITR-2, ITR-3 and ITR-4 where you can provide your overseas bank account details and get the refund in your foreign bank account.
Disclosure of fair market value: The new forms require you to disclose the fair market value when you are reporting capital gains from sales of unlisted shares.
Asset and liability declaration: The government, in its effort to curb anti-money laundering activities, has brought in more transparency in the tax-filing process and taxpayers are required to reveal greater details of their assets and liabilities. However, these disclosure norms will be applicable only when your taxable income exceeds Rs50 lakh. "The assets to be reported are land, building, jewellery, archaeological collections, paintings, vehicles, yachts, bank balance, insurance policies, shares and securities, loans and advances and cash in hand. If there are corresponding liabilities in relation to these assets, the same should be reported under the liabilities section," says Kumar.
Additionally, if you have a foreign bank account, you must disclose it. "People need to be extremely careful when providing details about their overseas assets under the FA Schedule (applicable to ordinarily residents having assets/accounts, etc., in a foreign country)," says Kumar. India has existing treaties with many other countries to get information regarding any financial irregularity. So, any omission or misrepresentation can have serious repercussion under the new anti-black money law.
Prepare For Tax Filing
If you are a salaried person, keep a few things handy before starting the filing process. These include your PAN, correspondence address, Form 16 issued by tax-deducting entities, Form 16A featuring your bank transactions and interest details, a detailed break-up of salary and other income, details of income from house property, capital gains, deductions under sections 24B, 80C, 80D, 80E and all other eligible deductions. "Before starting, you must have all the information with you and the same should be kept in digital or printed format for reference. Also, keep your phone near you and keep it fully charged as you may need it to e-verify tax filing," says Anil Rego, Founder and CEO of Bengaluru-based Right Horizons Financial Services.
If you are filing ITR for the first time, you must have a PAN and an Aadhaar number. Once you have these, register on the tax department's website (incometaxindiaefiling.gov.in) to generate your password, and then log in for e-filing. To enhance log-in security, you can also opt for the second level of authentication that can be activated through a feature called the e-filing vault. "It is also essential to link your Aadhaar number with PAN and register your e-mail ID and mobile number correctly as these will be required to access EVC. E-verification is a crucial step in successful filing of ITR. Apart from EVC, all important details will be sent to the registered modes of communication," points out Archit Gupta, Founder and CEO ClearTax, an e-filing intermediary.
Self-filing: "For a salaried taxpayer, the process of ITR filing is quite simple and straightforward as most of the work has already been done by the employer while issuing salary certificates. So, this class of taxpayers can do it on their own without any professional help. In case of any query or concern, abundant guidance is provided on the income tax portal," says Taranpreet Singh, Partner at New Delhi-based TASS Advisors, a firm specialising in tax solutions and services. Akash Dwivedi, Deputy General Manager, Taxmann.com, concurs. "An individual facing fewer complexities in his/her tax affairs or filing ITR-1/ITR-4 can go for self-filing," he says. Simply put, if you are Internet savvy and comfortable with numbers, you can easily fill in simple returns such as ITR-1 and ITR-4 without any professional help.
Professional help: If self-filing is not your cup of tea because you have too many queries and doubts or a complex mix of salary and business incomes, it is wise to get professional help. Although a salaried taxpayer may not have a business income in most cases, there could be other sources of income, making the filing process a little complex. "If an individual has only salary income and savings bank interest, he/she can file it. In case one has business income or income from property sale or gains or losses from the stock market/mutual funds, it is better to approach a tax consultant," says Sameer Arora, Managing Partner at ATMS, a Mumbai-based CA firm.
"Taxpayers who may have other incomes such as capital gains may need some technical assistance to avoid potential errors or discrepancies at a later stage. In fact, the government has introduced a Tax Return Preparer (TRP) Scheme to provide affordable professional assistance to small taxpayers. In my view, where the tax issue is not complex, small taxpayers may seek guidance from TRP Scheme for filing returns on their own to avoid omissions or errors," says Singh of TASS Advisors. Additionally, there are many third-party websites which can help you file taxes and also provide assistance.
"In case you are doing it yourself, you need to have a PC and Internet connection and must know the rules to do the job. Many salaried professionals also use tax-filing websites, which have different plans for different levels of service," points out Rego of Right Horizons
Data protection: While filing your ITR, you provide a lot of personal data which could be misused if it falls into the wrong hands. "A person filing ITR through third-party websites or tax consultants should be cautious about how they function when it comes to data privacy, encryption level and data retrieval," says Dwivedi of Taxmann. You need to verify the credentials of the professional or the website and do due diligence about the track record and the trust level of people in such entities. "One should be extremely cautious of data privacy as he/she is sharing critical information. Further, everybody should have copies of the documents filed with the Income Tax Department along with a record of username and password of the e-filing site," says Arora of ATMS.
When you have decided to opt for professional help after doing due diligence, you should disclose each financial transaction/event (that may or may not have tax implications) to the tax consultant or on the third-party website. "Disclosure of facts will help the advisor evaluate your tax position correctly and explore suitable tax-planning avenues to help you achieve better tax efficiency. If you are using a third-party website, it is important to have a non-disclosure contract signed with that entity due to the confidential nature of the information," says Singh of TASS Advisors.
Handling House Property, Capital Gains
Income from house property: If you have income from house property, you need to provide all rent details. You are entitled to deduct all municipal taxes from this rental income. You will also get a standard deduction of 30 per cent on net rental income. If you have an ongoing home loan against a rented property, the interest amount up to Rs2 lakh will be eligible for tax deduction against the rental income. In case you wish to avail income tax benefit on interest and the principal amount of a home loan for a self-occupied property under section 24B (up to Rs2 lakh) and section 80C (up to Rs1.5 lakh), you need to provide a break-up of the interest and the principal amount paid. You can get a statement for the same from your lender. If you are staying in a rented house, you can claim HRA exemption, depending on your basic income and the city of residence. Under section 80GG, one can also claim a deduction for the rent paid if he/she is self-employed or salaried but not getting HRA from the employer and does not own any residential property.
Capital gains: If you have invested in stocks, debt instruments and mutual funds, you can get detailed statements from your brokers and fund houses for filing purpose. Having an online brokerage account also gives you access to details of capital gains from your investments. "You can manually enter the details of asset sales or use an excel sheet to upload all sales entries at one go. In case there has been a lot of trading activities, say if you are a day trader buying and selling large quantities of stocks or regularly trading in Futures and Options, the IT Department will classify it as a business activity. In such cases, you need to file ITR-4 and show the profits/losses from share trading under the head Income from Business and Profession," says Rego of Right Horizons. If you have capital gains from the sale of house property in the assessment year, you need to show that in your filing. You have the option to claim exemption on this capital gain under sections 54, 54EC and 54F by providing the details of your investments if they fall under any of these sections.
Most people expect a speedy refund from the IT department but do not know how long it takes to process an ITR and credit the refund (if any) to the bank account. "There is no defined timeline for this," says Gupta of ClearTax. "But the earlier you file, the faster it could be processed." You can also check the status of your tax return on e-filing portal by clicking on View Returns/Forms. "Anecdotal evidence suggests that women taxpayers may get refunds faster. Usually, these are processed within 90-120 days of filing. But sometimes, it can take a long time if the refund amount involved is large or there is extra scrutiny," says Rego.