Society

Income Tax for beginners

Filing income tax returns is crucial for your financial growth. PHOTO: S. SIVA SARAVANAN  

The deadline for filing your Income Tax Returns this year is August 31, which is less than a month away. Now, for a lot of people, filing tax returns is an exercise that is about as pleasant as multiple root canals, and with good reason — the system isn’t friendly to anyone who doesn’t possess an intermediate knowledge of tax, and even having a Chartered Accountant file your returns isn’t entirely hassle-free. In order to be more organised and better equipped, an understanding of the process is necessary.

Should you file returns?

People with employers who deduct tax for them are fine with not filing their returns — at least until they decide to travel to a first world country whose visa regulations, apart from requiring one to furnish details about everything, from medical history to underwear size, also requires three years of filed tax returns.

There are also other reasons, including job and loan applications, but for me, the most important reason is that there is a chance that the tax, which is lying to your credit with the department is more than what you’re actually liable to pay and hence, you’re eligible for a refund. It is when you file your returns that you get your refund, and there really is no greater joy than receiving money from the Revenue.

It is important that you make the effort to get your returns done on time because the department only has two deadlines: one regular deadline that is four months from the end of the year, and one ‘delayed’ deadline (which attracts interest) that is 24 months from the end of the year. Once you miss both, it becomes impossible to file your returns for that year.

Financial Year and Assessment Year

A Financial Year (FY) is any year that begins on April 1 and ends on March 31. The Assessment Year is nothing but the following year in which your tax returns are filed.

Income Tax Returns are always labelled according to Assessment Years; therefore, a return for AY 2015-16, is for the income you have earned during FY 2014-15.

Types of Income

The Income Tax Act divides the kinds of income that one can receive, into five broad categories — salaries, income from house property, profits or gains from business or profession, capital gains, and other sources. Each type of income is treated differently under the Income Tax Act. The kind of income you receive determines the Income Tax Return form you have to file. The more composite your total income, the more tortuous the form — if you receive a combination of incomes, it is best you find yourself a chartered accountant.

TDS, Advance Tax, and Self Assessment Tax

TDS is tax deducted at source, which is a percentage (except on salaries) of the income receivable by you, paid to the department on your behalf, by the person who is providing the income. If you receive interest from Fixed Deposits from banks, the bank cuts a percentage of this interest and deposits it with the department before crediting you with the rest. The Forms 16 and 16A are nothing but statements issued by these deductors of the amount of tax that they have deducted, and is lying to your credit. The total amount of TDS that lies in your credit is compiled into a single form called the 26 AS, which is available in the Income Tax India E-filing website.

Advance Tax, on the other hand, is a scheme where you pay the bulk of the taxes you owe during the financial year itself, instead of waiting till when your return is due. It came into existence to ensure a steady income for the government, and taxpayers who don’t scrupulously adhere to it face additional interest. It’s a cruel world.

If both TDS and Advance Tax don’t cover your tax liability, you will have to pay Self Assessment Tax, which is calculated at the time of filing your return.

Filing Your Return

If you’re new to filing, you should first register yourself with the e-filing website where registration is quite simple. The ITR 1 form (salaries and interest income) is perhaps the only form I’d recommend you file by yourself — every other form is confounding, and requires the help of a Chartered Accountant. Today, there are also a few websites such as ClearTax (cleartax.in) and MyITReturn (myitreturn.com) that help you file your return, and even consult a CA, without even leaving your desk.

In conclusion, yes, filing your income tax return is not the most pleasant task, and it is tempting to shelve it until an actual need arises. However, filing your returns is vital to your financial growth and it also stands as proof that you’re a citizen who isn’t just aware of the law, but also abides by it.



What to take to your CA

Your PAN Card, your e-filing password, your bank statements across all the accounts you operate (including loan accounts) Details of insurance payments and donations, and if you are a freelancer or an independent professional, your credit card bills. Your tax returns also ask for your Aadhar and passport numbers — it is an optional detail, but ifyou have both, take those as well.

Section 80 deductions

The Income Tax Department allows roughly 18 ‘deductions’ from your total income to lighten your tax burden. The most common deductions that are applicable across all tax payers are 80C, 80D, 80TTA and 80G. 80TTA covers Savings Bank interest, which is deductible up to Rs.10,000. Section 80C (including 80CCC and 80CCD) covers payments that have been made towards Life Insurance, PF and PPF Schemes and other unit linked savings schemes. The maximum deduction you can avail, however, is Rs.1,50,000, so keep that in mind before the people at your bank try to sweet talk you into investing in their dime-a-dozen savings schemes.

80D deductions are exclusively for medical and health insurance premium payments. The deduction is, limited to Rs.15,000 if the premium paid is just for yourself, increases to Rs.20,000 for yourself and your spouse, and goes upto Rs.40,000 if it is paid for yourself and your parents who are senior citizens.



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Printable version | Mar 6, 2021 11:34:55 AM | https://www.thehindu.com/features/metroplus/society/income-tax-for-beginners/article7503202.ece

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