These nine steps will help you prepare your tax return and ensure a smooth filing.
As the last date for filing tax returns approaches, many taxpayers are hoping that the deadline will be extended. Our advice is not to wait till the last few days to file your return. Whether there is an extension or not, it is always better to get these things out of the way as soon as possible. If you have got all the necessary documents, why do you want to wait till the last day? Besides, filing your return has become very easy in recent years. If everything is handy, the whole process does not take more than 30 minutes. As you get ready to file, go through our checklist of nine things to keep in mind. These steps will help you prepare a flawless return and ensure smooth filing.
GET THE FORM 16 OR 16A FOR SALARY BREAKUP
For salaried taxpayers, the first step is to get their Form 16 or 16A from their employer. The tax forms now require the assessee to give the breakup of his gross salary, mentioning the various heads of income. You will have to mention the basic salary, HRA and other allowances, such as LTA, uniform allowance, etc. In many cases, the Form 16 will not offer a detailed breakup, but only give a gross salary figure. The taxpayer will have to work backwards by subtracting the amounts claimed for various exemptions from the gross salary and then declare the remainder as his basic salary. Make sure the final salary income matches with that in the Form 16 or 16A.
Some exemptions like HRA can be claimed at the time of filing returns even if it is not mentioned in the Form 16. However, it is better to furnish the required information to your company so that the exemption is factored in the Form 16 numbers. It has been observed that tax returns in which the declared income, exemptions and deductions match those in the Form 16 get processed faster and without a hitch.
You have to file tax returns if…
- Your gross total income (before deductions and exemptions) exceeded the basic exemption limit of Rs.2.5 lakh (Rs.3 lakh for senior citizens and Rs.5 lakh for very senior citizens under the old tax regime).
- Your total sales, turnover, or gross receipts in business exceeded Rs.60 lakh.
- Your total gross receipts from profession exceeded Rs.10 lakh.
- You spent more than Rs.2 lakh on overseas travel.
- You deposited Rs.50 lakh in a savings bank account or Rs.1 crore in a current bank account.
- Your electricity bills aggregated more than Rs.1 lakh
- You have foreign assets or income or signing authority in a foreign bank account.
- Your TDS orTCSwas Rs.25,000 (Rs.50,000 for senior citizens) or more.
- You have to claim the refund of TDS or TCS paid.
VERIFY DETAILS OF TDS, TCS IN FORM 26AS
Before filling up the form, check whether all the tax deducted on your behalf has been credited to you. The Form 26AS has details of all payments made to you and the TDS on these payments. This includes TDS on interest from deposits and bonds and dividend income. It will also have details of tax collected at source (TCS). TCS is levied on certain transactions, including transfer of money abroad or purchase of foreign currency. This TCS can then be adjusted against your tax liability. You can access your Form 26 AS either through the tax department portal or your Net banking account to check if the TDS and TCS deductions are correctly mentioned in it.
If you find that some TDS or TCS has not been credited to you, contact the deductor immediately. “Maybe the deductor has not deposited the TDS or TCS, or maybe the TDS has been deposited but the statement has not been filed yet. It could also be due to the wrong PAN or incorrect amount in the TDS statement,” says Archit Gupta, CEO of tax filing portal, Cleartax. “It takes about 7-10 days for a correction to reflect in the Form 26AS, so one should act immediately,” says Tilotama Gourisaria, Partner in Kolkata-based Agarwal Lodha & Co.
MATCH INCOME AND TDS, TCS DETAILS IN AIS
Once you have checked the TDS and TCS details in your Form 26AS, match them with the details in the Annual Information Statement (AIS). Launched last year, the AIS is a comprehensive statement of all financial transactions conducted by an individual during the year. It has details of all incomes received by the individual (including salary, profession, rent, interest, etc.) from various sources. It also has details of where and how much the individual invested and spent during the year (see graphic).
Though the AIS covers all possible financial transactions, it is still work in progress and some details may not get captured in the form. “The AIS depends on information from multiple sources. It will take some time to integrate all the information at one place,” says Sudhir Kaushik, CEO of tax filing portal, Taxspanner. In fact, the AIS Handbook of the tax department specifically states that “there may be other transactions relating to the taxpayer which are not presently displayed in AIS.
The taxpayer is expected to check all related information and report complete and accurate information in the income tax return”. There could be mismatches as the government’s system might not have acquired complete information. “While filing ITR, taxpayers should go by the actual transaction numbers and not wholly rely on the AIS numbers,” says Gupta of Cleartax. “The AIS may get updated in future even after one has filed his return,” says Chartered Accountant Karan Batra. The good news is that taxpayers can submit their feedback on the information given in the AIS. “A taxpayer can respond whether the information is correct, partially correct or incorrect. The discrepancy can be pointed out in the feedback,” says Gourisaria.
GET CAPITAL GAINS STATEMENTS FROM BROKER, MFs
If you have invested in stocks and mutual funds, you must also get a capital gains statement from your broker and mutual funds. Long-term gains beyond Rs.1 lakh from equities and equity-oriented funds are taxed at 10%, while short-term gains are taxed at 15%.
The tax rate is higher and tax calculation is far more complicated for non-equity funds and other assets, such as gold and real estate. Short-term gains are added to the income and taxed at normal rates, while long-term gains are taxed at 20% after indexation. The average person will not be able to calculate his gains from mutual funds after indexation. Mercifully, mutual funds calculate this for you and even give you the tax liability. You can log on to your mutual fund and get a capital gains statement within minutes. A better idea is to get a consolidated statement from a mutual fund transfer agency, such as
. The statement is in your mailbox within minutes of placing the request. Similarly, stock brokers provide capital gains statements for all trades done during the year.
What’s more, these capital gains statements can be uploaded on tax filing portals where the relevant information gets picked up and duly included in the tax return. However, if your stockbroker does not give the information in the same format as required by the tax filing portal, you will have to key it in manually or put it in a compatible
Don’t ignore this even if you made a loss on equity investments during the year. “Losses can be adjusted against gains from other assets. Unadjusted losses can be carried forward for up to eight financial years,” says Amit Maheshwari, Partner, AKM Global.
INCLUDE INTEREST ON DEPOSITS AND BANK BALANCE
A large number of taxpayers do not report other incomes, including interest on deposits and savings accounts, in their tax returns. There was a time when they could get away with it if they managed to avoid TDS by splitting deposits across several banks. This is no longer possible. “The AIS has details of all the incomes of a PAN cardholder. Every rupee earned as interest will show up in the AIS,” says Kaushik of Taxspanner. Even if you have multiple deposits across different banks and no TDS has been deducted, the interest earned will be mentioned in the AIS.
Don’t forget to report the interest on taxfree options, such as the PPF and Sukanya Samriddhi Yojana, in the tax return as well. While this will not add to your tax liability, you will be able to explain the source of money when the account eventually matures after a few years.
DECLARE INCOME FROM CRYPTO ASSETS
This year’s budget has clarified how gains from virtual digital assets, such as cryptos, will be taxed. However, the taxation of gains in the previous financial year is mired in confusion and contradictions. Will cryptos be treated as equities and long-term gains of up to `1 lakh be tax-free and short-term gains taxed at 15%? Or will they be at par with non-equity assets and short-term gains added to income and longterm gains taxed at 20% after indexation? Batra says that in recent tax notices sent to investors, the department has specifically asked why their income from crypto trading has not been shown as capital gains. “Therefore, it is advisable to show this income as capital gains,” he says.
Kaushik of Taxspanner advises taxpayers to play safe and pay 30% tax on gains as laid down in this year’s budget. His logic: this year’s budget has placed virtual digital assets in the same bracket as lotteries. While the law is not retrospective and applies from 1 April this year, there is also no reason to assume a different tax treatment for previous years.
There is another, more serious complication. “There is no clarity whether cryptos will qualify as Indian or foreign assets. In case they are treated as a foreign asset (if remittance is received in foreign currency), crypto investors will have to declare these holdings in the returns. Failure to disclose foreign assets may expose the individuals to stringent proceedings under the Black Money Act,” points out Aditya Agarwal, Partner in Mahesh K Agarwal & Co. He says it would be prudent to report crypto holdings in Schedule FA as foreign assets in order to avoid getting into legal problems later.
FURNISH DETAILS OF FOREIGN ASSETS, INCOME
Foreign assets are indeed a minefield littered with potential tax mistakes. All foreign assets, including foreign bank accounts, financial interests, immovable property, accounts in which an individual has signing authority, and any other capital asset held by the individual outside India, must be reported in the tax return, irrespective of the total income of the individual. Given the complexity of the task, many people may be tempted to omit this. This can prove costly. Willfully holding back information on foreign assets can invite serious charges under the Black Money (Undisclosed Foreign Income And Assets) and Imposition of Tax Act, 2015.
“Misreporting can lead to penal consequences under the Black Money Act, which can be as high as `10 lakh per year. The undisclosed income will be taxed at 30% without adjustment of any expenses and a penalty of up to 90%. It may also entail imprisonment up to seven years,” cautions Gupta of Cleartax. Don’t think you can get away once the return is processed. “Cases can be opened even up to 16 years later, and penalties can be levied for non-disclosure of foreign assets,” says Kaushik.
CHECK DEDUCTIONS, EXEMPTIONS IN FINAL FORM
Once you have filled all the details, don’t be in a hurry to submit your return. Filing the tax return has become easier in recent years, thanks to the pre-filled forms and integration of information from various sources. Even so, many taxpayers have noticed discrepancies in the AIS and glitches in tax returns. “Use the pre-fill option very carefully,” cautions Kaushik. “Make sure that no deduction or exemption has been missed.” Before you submit the form, go through each section carefully to see if all the details are correct.
It is a good idea to pay a finance professional to assist you in the task. Tax portals charge a small fee for assisted filing, where a tax expert will examine your return before it is submitted to the department. “Taxpayers’ knowledge is restricted to the basic provisions of tax laws. Tax professionals add value and save you both time and money,” says Maheshwari. It’s a small fee for peace of mind that your tax return is flawless and will not lead to a notice.
VERIFY THE TAX RETURNS BY FILING THE ITR V
The tax filing process does not end with the submission of the ITR. A crucial step still remains. After you submit your return, you need to verify the same within 120 days. If not verified within this period, the return becomes invalid and you could get slapped with a penalty for nonfiling. There are six ways to verify your income tax return.
Aadhaar-based OTP: For this, your mobile number and PAN must be linked to your Aadhaar.
Net banking: Verify the return by logging to the tax filing portal through your Net banking account.
Bank account: Generate Electronic Verification Code (EVC) through your bank account. For this, you must have a pre-validated bank account.
Demat account: The process is the same as bank account to generate an EVC.
Bank ATM: Your ATM card can generate an EVC, but this facility is restricted to a few banks.
Signed ITR-V: Send a signed copy of ITR-V to the tax department at: CPC, Post Box No – 1, Electronic City Post Office, Bengaluru – 560100, Karnataka.