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Prepare yourself to file I-T returns -- By IBNlive.com

As the month of July approaches, taxpayers are getting ready to file their income tax returns. The procedure for each individual taxpayer is to fill Form 16 and Form No16A (tax deducted on Other Income). To avoid last minute rush one must keep the necessary documents ready, well ahead of the stipulated last date. An individual whose taxable income during a financial year exceeds the exemption limit of Rs 1 lakh (Rs 1.35 lakh in case of females and Rs 1.85 lakh in case of senior citizens) has to file in tax returns.

Which ITR Form is applicable to you?

With the introduction of new income tax return forms based on nature of income earned during the year, one needs to know relevance of each return form and select the right form.

ITR 1: This form can be used only by an individual having a salary and interest income. Form ITR-1 cannot be used if the individual has any income under other heads like:

# Property rental income

# Capital gains

# Dividend income from shares of foreign companies (which is not tax free in India)

# Winning from lotteries or any other prize money

Thus, even under the head “Income from Other Sources”, if the taxpayer has any income other than interest income then he cannot use ITR 1.

On the web site of the IT Department, there are two versions of ITR 1 available for downloading. Version 1 is two pages and Version 2 is three pages, long.

Both versions have additional pages of notes that serve as guidance to the taxpayer, when filling up the form. The font size seems to be the only difference between the two versions though.

It may be noted that this 'Form' is likely to be of use to a very limited number of taxpayers.

Most salaried taxpayers have income from other heads as well as income from sources other than interest (which would be chargeable to tax under the head 'Income from Other Sources'). Therefore, one can only wonder about the actual utility of this form.

File the tax return very easily...!!!

Every person/individual or HUF (Hindu undivided family) - an assessee of any status, as per the Income Tax Act is liable to follow a certain statutory requirements to file a return of income.

It is mandatory for everybody to enter his/her PAN (permanent account number) correctly in the return form. The 'jurisdiction menu' will help you identify your assessing officer.

When total income - from all sources of income - of any person exceeds the maximum amount, which is not chargeable to income tax in any previous year ending on March 31, the person is liable to file the income-tax return.

Let us highlight a few basic income heads and then various steps or the procedure of computing. Heads of income include salaries, income from housing property, profits/gains of business/profession, capital gains, and income from other sources.

Computing procedure

While computing income from the above-mentioned different heads, the procedure is: First, the taxable income from each source is to be computed under each head of income by allowing deductions and then they are aggregated.

For example, in case of an assessee deriving income from his salary and housing property, and also in the form of interest income from a fixed deposit in a bank, firstly, the taxable income under the head 'salaries', then 'income from housing property', and lastly, the taxable income under the head 'income from other sources' for bank interest etc will be computed.

Then all the three incomes under the three heads would be aggregated. From this amount, certain eligible deductions are made to arrive at the net taxable income on which tax is chargeable.

Tax deducted at source

The employer making payment to an assessee earning income from 'salary' deducts a certain amount of tax, from such payment(s) made during the financial year.

Such deduction from the payment is called 'tax deducted at source'. The payment, of TDS, to the government is treated as payment of tax on behalf of the assessee.

Advance tax
In case the assessee does not wish to furnish particulars of his income under other heads to his employer, he has to estimate his total taxable income under the different heads of income during the previous year, and pay tax on it (after excluding the TDS), by the due dates specified under the Income Tax Act. These payments are called 'advance tax payments'. (See Table I)

Table I:


However, the liability for payment of advance tax arises only where the amount of such tax payable by the assesses during that year is Rs 5, 000 or more. Also, any amount paid by way of advance tax on or before the March 31 of that year, is treated as advance tax paid during that financial year.

After the return is prepared and the net taxable income finally determined, it may so happen that, after taking into account the amount of TDS and advance tax, if any, already deducted/paid still some tax or interest (payable for delay in furnishing the return or delay in payment of advance tax) remains to be paid.

This amount should be paid as 'self-assessment tax' before furnishing the return. It is, therefore, important to note that before furnishing the return, the assessee has to pay the entire tax and interest, if payable, and the proof of such tax payments has to be attached with the return. (See Table II)

Table II


Penalty for non-filing of returns

A person who is required to file a return of income compulsorily is liable to a penalty of Rs 5,000 for not filing the return by the end of the assessment year concerned. However, if there is a reasonable cause, penalty may not be levied.

You should not get caught in the Rush of March

Invest Rs.7,500 a month at 8% and you will earn rs.3,254 more than if you had invested Rs.90,000 at one go at the end of the year.
Benefits of regular tax savings(at 8% returns)


Not only the above mentioned results you may loose more than that also, that depends on your investments.

New Income Tax rates for Individuals

Tax proposals from Chidambaram

Here are the highlights of tax proposals by Finance Minister P Chidambaram, who have left the taxpayer unhappy:

Budget(2007-2008) Special::

# Rs 1.95 lakh exemption for senior citizens

# I-T limit for women up at Rs 1.45 lakh

# I-T exemption limit hiked by Rs 10,000

# No change in Income Tax rates

# Dividend distribution tax raised from 12.5 to 15 per cent.

# ESOPs to be brought under FBT.

# Expenditure on samples and free distribution items to be exempted from fringe benefit tax.

# Additional revenue from direct taxes to yield Rs 3000 crore and indirect taxes revenue neutral.

# Tax exemption on aviation turbine fuel sold to turbo prop aircraft extended to all small aircraft less than 40,000 kg.

# Withdrawals by central and state governments exempted from Banking Cash Transaction Tax. The limit for individuals and HUF raised from Rs 25,000 to Rs 50,000. Corporate Tax Rates Unchanged

# No surcharge for SMEs (firms with a taxable income of Rs 1 crore (Rs 10 million) or less).

# Peak Rate For Non Agricultural Products From 12.5% to 10%

# Second and defective steel from 20% to 10%

# No Duty on Coking Coal

# Customs duty on Polyster Fibre and Yarns down to 7.5%

# Duty on Cut and Polished diamonds from 5 to 3%

# Dredgers to be exempt from import duty

# Duty on Drip Irrigation, Agricultural Sprinklers and Food processing machinery from 7.5% to 5%

# General rate on medical equipment to 7.5%

# Duty on Sunflower Oil down 15 percentage points

# Duty on pet foods down from 30 to 20%

# Excise & Service Tax: No change in Excise and Service Tax Rates

# Ad-valorem component on petrol and diesel down from 8% to 6%

# Excise & Service Tax:Relief for deserving cases in job creating sectors

# SSIs exemption from Rs 1 crore to Rs 1.5 crore

# Exemption limit for small service providers from Rs 4 lakh to Rs 8 lakh. Two lakh assessees will go out of service tax. Revenue loss will be Rs 800 crore

# Two lakh people to benefit out of service tax exemption. Govt to lose Rs 800 crore as a result.

# Service tax on Residents Welfare Associations whose members contribute more than Rs 3,000.

# Surcharge on Corporate income tax on companies below Rs one crore removed.

# Tax free bonds to be issued by state-owned urban local bodies.

# Five year tax holiday for two, three, four star hotels and convention centres with a seating capacity of 3,000 in NCT of Delhi, Gurgaon, Ghaziabad, Faridabad and Gautam

# Minimum Alternate Tax being extended to I-T companies.

# Benefits of investment in venture capital funds confined to IT, bio-technology, nano-technology, seed research, dairy among some others.

Raising the limit of Rs 1 lakh under section 80C

The tax collections have been very buoyant in the current fiscal year and if the economic growth continues, the finance minister can expect a further boost next year too. Therefore, the FM could consider raising the limit under section 80C without seriously affecting the tax collections.

Besides, the Rs 100,000 limit is proving to be too less from the point of view of inducing long-term saving through tax benefits. Rising salaries mean higher provident fund deduction; premium payments on the legacy of insurance policies; clubbing of Rs10,000 under section 80CCC with section 80C; large home loans resulting in large repayment of principal - all this leaves very little room, if any, for further saving.

Therefore, a raise in the limit would be very welcome to make meaningful saving for the long-term.

Some tax-relief on bank interest

Re-introduction of section 80L, even with a lower limit of say Rs 7500-10000 would be very useful.

Everyone must keep aside some emergency funds in the savings account & short-term fixed deposits. These carry a very low rate of interest about 3.5-6 per cent. With section 80L abolished two years back, the post-tax return on these works out to practically nothing. In fact, it doesn't even cover a modest inflation of 5 per cent and hence loses value with time.

Since the amount kept in such short-term instruments is not large, and moreover there would be a limit above which bank interest would be taxable, the loss to the exchequer is going to be very minimal. But the benefit to practically every one of us is going to be huge. One, of course, is a decent return and two is the administrative convenience of not being required to keep track of even a few hundred rupees of interest we earn on the savings account balance.

Let's hope the FM takes care of these issues in the forthcoming budget to give a further impetus to long-term financial planning.

Tax Free Income

1. Interest on PPF/GPF/EPF, GOI tax free bonds, saving bank account in a post office and dividends on shares and on Mutual funds.
2. Any capital receipt from life insurance polices i.e., sums received either on death of the insurance or on maturity of life insurance plans. However, in case of life insurance polices issued after March 31,2004, exemption is available only if the premium paid in any year does not exceed 20% of the sum assured.
3. Long term capital gain on sale of shares and equity mutual funds if the security transaction tax paid/imposed on such transactions.

Tax deduction at source

1. Interest from FDs exceeds Rs5,000 in a financial year.
2. Interest from Financial Institutions/Company bonds Debentures exceeds Rs.2,500 in a year.
3. Interest from Housing finance companies/ Banks exceeds Rs.5,000 in a year.

Deductions from taxable income

Deduction under section 80C:Under this section, a deduction of up to Rs. 1,00,000 is allowed from taxable income.
Some specified investment schemes u/s 80C and u/s 80CCC(1)
1. Life Insurance Premiums.
2. Contribution to Employees Provident Fund/GPF.
3. Public Provident Fund(maximum rs. 70,000 in a year).
4. NSC(National Savings Certificates).
5. Unit Linked Insurance Plan(ULIP).
6. Repayment of Hosing Loan(Principal).
7. Equity Linked Savings Scheme(ELSS) of Mutual Funds.
8. Tuition Fees including admission fees of college fees paid for full-time education of any two children of the asses-see.
9. Infrastructure Bonds issued by IDBI,ICICI,REC,PFC etc.
10. Pension scheme of LIC of India or any other Insurance Company.