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Income tax return: Filing
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For most Generation Y professionals, tax is something they would rather not be
involved with. These bright youngsters can tackle the toughest corporate
challenge but fumble when it comes to their own tax planning. It needn't be like
that. Tax planning may appear complicated but once you get the hang of it, it
can be empowering and rewarding. Just spend a little time to understand what it
is all about and the knowledge will benefit you for
the rest of
your life. Here are some basics of tax planning.
Do you have to pay tax?
That depends on how much you earn and under what heads. Some salary components
such as the basic salary, dearness allowance, special allowance and bonuses are
taxable. Others such as house rent allowance, conveyance and other reimb
ursements are exempt subject to rules. But apart from the income from your
employer, you may also earn interest on fixed deposits, bonds and on the balance
in your savings bank account. If you invest in stocks or funds, there may be
dividend income and ca pital gains as well. If you own property, there may be
rental income coming in.
If the income you earned in a financial year (1 April to 31 March) exceeds the
basic exemption limit of Rs 1.8 lakh (Rs 1.9 lakh for females), you have to pay
tax on it. From next year, this basic limit will be raised to Rs 2 lakh. The
threshold is higher for senior citizens but we won't get into that.
Tax deduction at source
Your employer calculates the tax payable and deducts it from your salary. But
since tax is payable on th e combined total income, the TDS by your employer may
not suffice unless your income from other sources (interest, rent, capital
gains, etc) has been factored in. If you changed jobs during the year, you must
report the income from the previous employer a s well. If you don't do that, you
will end up availing the basic exemption twice in a year, which will lead to a
big tax outstanding at the end of the year.
Before your employer deducts tax, you are asked if you have made any tax saving
investments or are eligible for any other deduction or exemption. You can invest
up to Rs 1 lakh in any option under Sec 80C. Some of these are automatic-your
contribution to the PF, for instance. The other options are PPF, NSCs, tax
saving FDs,
ELSS mutual funds,
life insur ance policies and pension plans. Your choice should be guided by your
needs and ability and willingness to take risk. Don't buy an insurance plan if
you don't have dependants. Don't jump into equity-based ELSS funds if you can't
stomach the risk of stock i nvestments. There are other deductions too. Medical
insurance policies for yourself or your parents are eligible for deduction under
Sec 80D. If you submitted documentary
proof of all these
investments to your employer within the stipulated time, the TDS will be low.
But if you missed the deadline, you would have paid more tax than was due.
Do you have to file your return?
The CBDT has exempted
taxpayers with
an income of less than Rs 5 lakh from filing their tax return. However, you can
avail of this exe mption only if you have income from salary and bank interest.
Also, this interest should not exceed Rs 10,000 in a year and you should have
paid the tax due on it. You should also not have any tax refund due.
If you have paid more tax than due, the only way you can get it back is by
filing your return. Don't look at filing your tax return as a painful exercise.
Instead, think of it as sending a bill to the
Income
Tax Department demanding a refund of the amount you overpaid in taxes during
the previous year . The sooner you do it, the better it is for you because the
faster your tax refund reaches you.
Understanding your Form 16
Your employer must have given you a Form 16, which is a certificate of the TDS
from your salary. For most salaried individuals, th e Form 16 has nearly all the
details they need to put in their tax return form. But if they have other
investments as well, there could be TDS certificates from the bank or bond
issuer on the interest they might have earned. These details need to be fille d
in the tax return form.
A refund is not the only reason to file your tax return. Your return is a
declaration of your income and will come handy when you are seeking a loan,
buying property, going abroad or even taking a large insurance cover. Banks want
to see your income details before they extend a loan. Many countries want to
know if you are financially stable before they issue you a visa. Insurance
companies want to know if the cover you want is commensurate with your income.
The income tax return i s your single sheet answer to all these queries.
Not filing your return can have serious repercussions. You can be slapped with a
penalty of up to `5,000 even though all your taxes are paid. Besides, it will
unnecessarily raise suspicion and the income tax department may scrutinise your
finances further.
How to file your return
You can file your return online or offline, by yourself or with the help of a
tax professional. It is advisable to take the help of a tax professional at
least for the first time. A chartered accountant will be able to guide you on
how to fill up the form and choose the ITR form that is applicable to your case.
Once you get the hang of it, you can start filing your return by yourself.
Online filing is very simple and doesn't require too much effort. There are
websites that guide you at every step of the process.
They even choose the correct ITR form for you based on your income so there is
zero chances of you going wrong. For as little as Rs 200-250, some portals even
cross check your return before it is filed to make sure it is error free. It is
a small fe e to pay for peace of mind.
( Courtesy:
http://economictimes.indiatimes.com )
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