The advent of online tax return filing websites and the income tax department’s constant upgradation of its e-filing portal (www. incometaxindiaefiling.gov.in) have made the tax return filing process relatively easier in recent years, but for many individual salaried taxpayers and pensioners, it remains a dreaded activity which they put off until the last minute —even beyond 31 July, the due date for filing ITR.
This year, though, such procrastination will mean paying a huge price. Literally. The penalty for late filing is Rs 5,000, making it imperative to meet the 31 July deadline. If the delay is beyond 31 December, the fine is higher at Rs 10,000. Therefore, it’s best to kick off the process right away. Getting a grip on what all you need to file your return and some organised effort will see you through to the other side of 31 July without too many hassles. Read on to find out more.
WHICH TAX FORM SHOULD YOU USE TO FILE RETURN
1. Changes in tax rules
Before you embark on the process to file the return for the assessment year 2018-19 (financial year 2017-18), you need to be aware of some fundamental rules and key changes in the income tax return (ITR) forms this year. Some provisions may have also changed, so you need to avail of deductions and compute your tax accurately.
Knowledge of slab rates, for instance, can help you compute your tax liability correctly. The slab rate applicable to an individual drawing taxable income between Rs 2.5 lakh and Rs 5 lakh has been reduced from 10% to 5%. “Earlier, an individual with taxable income up to Rs 5 lakh was entitled to a tax relief. Now, this limit has been reduced to Rs 3.5 lakh. Also the tax rebate has been reduced from Rs 5,000 to Rs 2,500,” says Alok Agarwal, Senior Director, Deloitte India. Those earning an income in the region of Rs 50 lakh to Rs 1 crore will have to shell out a surcharge of 10%. “Surcharge at the rate of 15% continues in respect of individuals with income more than Rs 1 crore,” he adds.
This is also the year when taxpayers who own more than one property and claim tax benefits on the home loan interest paid will feel the pinch. Till the financial year 2016-17, you could avail of tax break on the entire interest paid – considered ‘loss’ – on home loan for let-out (or deemed let-out) properties. “The entire loss was allowed to be set off against other income without any limit,” adds Agarwal. But from this year, the tax rules have been changed. “The government has restricted the benefit of set-off loss from house property to a maximum Rs 2 lakh per financial year and the balance loss can be carried forward to next eight years,” explains Chetan Chandak, Head of tax research at tax consultancy firm H&R Block.
While this has hurt taxpayers who had invested in property, another change in rule has made them smile. This pertains to capital gains/losses on investments and immovable properties. “Holding period for capital gains to be considered on immovable property has been reduced from three years to two years; also, year 2001 will now be the base year for calculating the capital gains instead of the existing 1981,” says Chandak. The new cost inflation index, too, has been released.
2. Changes in tax forms
This apart, the ITR forms too have undergone several changes this year. “Till last year, only net taxable figures of salary and house property income were required to be disclosed. This year, detailed calculations in respect of salary and house property income are required in ITR-1 and ITR-4. Address of property would also be required for house property income,” says Sandeep Sehgal, Director, Tax and Regulatory, Ashok Maheshwary & Associates.
CHANGES TO NOTE IN THE ITR FORMS FOR INDIVIDUAL TAXPAYERS
1. More details of salary and house property income**
Old ITR form required taxpayers to report only the taxable amount but the new ITR forms require you to give detailed calculation of income from salary and house property.
2. Penalty for late filing of ITR**
A new field has been added where late filers need to provide the details of late filing fees paid.
1. Capital gains as a result of transfer of unquoted shares
A new field has been added for taxpayers to provide information on unquoted shares in accordance with the amendment in Section 50CA of the Finance Act, 2017.
2. Reporting gifts
A field has been added to report the amount taxable as gift.
3. Credit of refund to foreign bank account
A field has been added where NRI taxpayers can provide the details of foreign bank accounts in which they want the credit of the tax refund claimed by them.
4. Claiming credit of TDS deducted in the name of another person
A new field has been added to facilitate the claim for TDS credit where the TDS was deducted in the name of another person or from a common pool or other similar situations.
5. Change of applicability for a partner in a firm
Partners cannot use ITR-2 for assessment year 2018-19; an individual or an HUF, who is a partner in a firm, shall be required to file his ITR only in form ITR-3.
6. Removal of gender field**
Taxpayers now do not need to mention their gender in the form.
** Applicable to both forms
Source: H&R Block
Till last year, if an individual or Hindu Undivided Family (HUF) was a partner in a firm, ITR-2 could be used if they didn’t have any other business income. “Now, such individual or HUF shall be required to file its return in ITR-3 only irrespective of it has any other business income or not,” adds Sehgal. The forms this time provide a separate column for claiming capital gain exemptions under Sections 54, 54B, 54EC, 54EE, 54F, 54GB and 115F. “Further, to avail these exemptions, a taxpayer is required to mention the date of transfer of original capital asset which was missing in earlier ITR forms,” he informs.
TAX RELATED DATES TO REMEMBER
31 JULY 2018
Deadline for salaried taxpayers to file tax returns for the assessment year 2018-19 (financial year 2017-18); missing this deadline will invite a late-filing penalty of Rs 1,000-5,000.
31 DECEMBER 2018
Date till which taxpayers can file their return after shelling out a penalty of Rs 5,000 (Rs 1,000 for those with income under Rs 5 lakh), which will go up to Rs 10,000 if they fail to meet this deadline too.
31 MARCH 2019*
Final deadline for filing returns for assessment year 2018-19. After this date, taxpayers will be allowed to file returns only if the tax authorities allow them to do so under exceptional circumstances.
*AY 2017-18 ONWARD
You can file belated return only till the end of the assessment year. Until AY 2016-17, you could have done so till the completion of one year from the end of the assessment year. However, unlike earlier, your belated return can be revised till the end of the assessment year.
3. Which ITR form is for you
The next step is to identify the form that you need to use to file returns. “If you are using a private tax filing portal to file your return, it will automatically choose the correct form based on your income and assets,” says Sudhir Kaushik, Co-founder of tax filing portal Taxspanner. com. However, if you are using the tax department’s portal, you will have to choose the form yourself. The I-T department has released seven forms this year – for salaried professionals or pensioners, the most relevant forms are ITR-1 (Sahaj) and ITR-2. If you are a self-employed professional or run a small business, you should use ITR-4 (Sugam). Ensure that you mention your name in the manner it appears on your PAN card. “The return will not be processed in case there is a PAN name mismatch,” he adds. Do not forget to update your e-mail ID and mobile number so as to receive timely communication from the I-T department, particularly messages related to return and refund processing. Quoting Aadhaar is a must for resident taxpayers. “Thus, applying and obtaining an Aadhaar number for an individual becomes imperative where a tax return is to be filed,” says Agarwal.
4. Verify TDS details in Form 26AS
To start with, access your Form 26AS – or tax credit statement – available on the e-filing portal and check whether the tax deducted by your employer and other deductors tallies with your Form 16 and TDS certificates. “All the tax credits for salaries and other income should be verified with 26AS. If there is any mismatch, it should be addressed to the employer or payer of such income,” says Sehgal. You can also access your Form 26AS through your netbanking account.
When you sit down to file your return, keep certain key documents at hand, including the Form 16 issued by your employer, bank statements to know the interest income, records of investments and donations made and a copy of returns filed last year. This will reduce the time consumed to file returns as also the scope for errors.
5. What to watch out for
Kaushik of Taxspanner points out that interest income is a virtual minefield. “Many taxpayers think that interest income from fixed deposits is tax free up to Rs 10,000 in a year. Others have the misconception that no tax is payable if TDS has been deducted,” he says. Only interest earned on savings bank account is exempt under Section 80TTA. Interest earned from fixed deposits and recurring deposits is fully taxable at the rate applicable to the individual. Also, TDS is only 10% of the interest earned on deposits. If the individual falls in a higher tax bracket, he will have to pay additional tax. Many taxpayers may be tempted to ignore reporting the interest income in their tax form. This can be a problem. If your Form 26AS shows TDS on interest income, the tax department will send you a demand for additional tax on the income.
Apart from reporting the taxable interest income, taxpayers are also required to report exempt income in the tax forms. Even though dividends, interest on Public Provident Fund and long-term gains from equity funds are tax free, it is best to report them in the tax form. “High value inflows to your bank accounts will be easier to explain when these are already reported in your tax return,” says Archit Gupta, Founder and CEO of tax filing portal Cleartax.in.
Another common issue is the misreporting of salary income. Those who have switched jobs during the financial year have to deal with the complication of entering details after combining information from Forms 16 issued by two employers. “Two Forms 16 present a challenge for many as this usually throws up tax payable once the two forms are combined and income is reported. This happens for cases where the employee could not report salary from first employer to the second employer,” says Gupta of Cleartax. “In such cases, a tax due is likely and must be paid soonest.” Those with a total income of over Rs 50 lakh have to furnish several details, leading to complications. “A lot of questions are received on reporting in Schedule AL,” adds Gupta. Gathering all relevant documents beforehand can help ease this roadblock. If you rely on the online mode for investments, it is likely that your mailbox will contain most information that you need. Gupta lists reporting of income from all sources as another ‘must do’.
Likewise, you must also ensure that you claim all tax benefits you are entitled for – even the ones you might have missed mentioning in the investment declaration submitted to your employer. Chief among these is donations made to charitable institutions, as employers usually do not account for deductions under section 80G. “All Section 80C deductions can be claimed at the time of filing tax returns as also interest on home loan and house rent allowance (HRA). However, leave travel allowance (LTA) and medical allowance claims can only be claimed via the employer, by submitting proofs,” says Gupta.
6. Did you miss any deduction?
Keep an eye out for tax benefits you may have skipped due to oversight or lack of awareness. “Savings accounts generate income in the form of interest from deposits, which can be claimed as deduction to the extent of Rs 10,000 under Section 80TTA of the I-T Act. This is not widely known,” says Chandak. While deduction under Section 24 on interest paid for home loan is a commonly known tax benefit, most assume that they are entitled to it only if the loan has been sanctioned by an institutional lender. “Many taxpayers ignore this deduction if the tag of home loan is not attached to their loan even if they use it to construct or purchase a house. You can avail the tax benefits offered by this section even if it was a personal loan taken from relatives or friends,” points out Chandak.
The only condition to be eligible for this tax benefit is that the loan should be used in the construction or purchase of a house.
You can also avail of tax relief up to Rs 30,000 on interest paid on loan taken for revamp or reconstruction of your house.
While completing the tax return form, ensure that you furnish details of all your bank accounts correctly, especially the one you have chosen for receiving tax refunds. Verify the bank name, account number and IFSC code you have entered in the ITR form before submitting the return. “Tax refunds will be credited by the tax authorities only in the account furnished in the return. There any many instances where refunds are not granted to assessees on account of incorrect bank details,” says Agarwal.
Finally, do not delay e-verifying your return or dispatching the printed and signed ITR-V to the CPC in Bengaluru only by regular or speed post within 120 days of filing the return online. Your return filing will be considered incomplete without these and could attract late filing penalty.