Thursday, July 18, 2013

New Rules Of Filing Income Tax Return & How They Impact You


on Thursday, July 18, 2013

 The First they made it compulsory for businesses to e-file their tax returns. Then they made it mandatory for taxpayers with incomes of over Rs 10 lakh to take the online route. This year, the income tax authorities have cast a wider net and made e-filing compulsory if your taxable income is above Rs 5 lakh a year. The lowered threshold represents one of the key changes in the tax filing rules this year. Some of these are mere tweaks, such as mentioning your bank's IFSC number, instead of the MICR code, in the return. However, some of these variations are tectonic, such as the mandatory e-filing for incomes above Rs 5 lakh a year.

E-filing tax returns : E-filing of tax returns has grown ten-fold since its introduction in 2006. Less than 8% of the 3.37 crore taxpayers e-filed their returns in 2007-8. Last year, 45% of the 5 crore taxpayers took the online route. That's a big jump and the figure is expected to go up significantly this year. 

The change has spawned a massive opportunity for tax e-filing portals. These websites charge individual taxpayers between Rs 200 and Rs 4,000 for uploading their tax returns. You can also do it for free on the official website of the Income Tax Department. However, private tax filing portals hand-hold the taxpayer through the process. They guide you while filling the form and even correct you if you make a mistake. 

Filing tax returns online is easy. The average taxpayer won't take more than 30-40 minutes to enter all the details and upload the return. However, the average taxpayer also harbours several misconceptions about e-filing.

One can get a tax notice, irrespective of whether one files his return online or offline,

Tax returns are picked up for scrutiny through a computer-assisted selection procedure that has no human intervention. If the computer detects certain discrepancies in the return, it raises the red flag and the individual gets a notice. In fact, there is a greater probability that a return filed offline will get picked up for scrutiny. The information in your physical return is ultimately fed to the computer by operators. 

A typing error at this stage can introduce a discrepancy in the return, leading to a notice being sent to you. This problem can be avoided when you file online because the chances of going wrong are lesser. The e-filing portals further reduce the risk of errors by calculating the tax as you fill in the form. Some e-filing companies, such as Taxspanner, even verify your return for a small fee. 

If you are ready to shell out Rs 200, the portal will check if you have entered correct information and alert you when you are going wrong. Tax professionals go through your return form, tallying the numbers and cross-checking the information before it is uploaded.

Choose the right form :

The online filing data reveals that more than 32% of the 2 crore individual taxpayers used the basic ITR 1, also known as Sahaj, to file their returns last year. Only 11% used the more complicated ITR 2. These statistics indicate that a lot of taxpayers who should have used ITR 2 filed their returns using the simpler Sahaj form. The income level does not matter; what is important is the source of income. For instance, if one had made capital gains or earned rent from more than one house, he should have used ITR 2. Whether the popularity of ITR 1 was out of ignorance or a deliberate attempt to conceal income is not clear. However, the government has now changed the rules to capture a better picture of the income of taxpayers. 

If you received more than Rs 5,000 tax-exempt income during 2012-13, you will have to use the ITR 2 for filing your return this year. Exempt income includes tax-free sources of income, such as the interest on PPF, tax-free bonds and dividends. Also, a taxpayer is not supposed to use ITR 1 if he has foreign assets or has claimed tax relief under any double taxation avoidance treaty.

Experts are divided over the interpretation of exempt income in this regard. "This change will have a big impact on the salaried taxpayers because HRA, LTA or conveyance allowance are commonly availed of by most of them. This effectively means that a vast majority of salaried taxpayers will have to use ITR 2 this year. Even if they don't claim HRA exemption, they get LTA, or at least Rs 800 conveyance allowance per month, which is exempt.

The taxpayers who have not filed or stopped filing would do well to take heed of the warning. If you have not filed your return for last year as well, you can do so now. A return filed after the due date is a delayed return. If you file your delayed return before you get a notice, you have a better chance of getting away lightly. The taxman will not take you to task for not filing your returns, just a mild rap for waking up late.

If a taxpayer uses the wrong form and the mistake is discovered by the tax authorities, the return may be rejected. Every year, thousands of defective returns are sent back to taxpayers. A defective return is not an earth shattering matter. If you get a notice, you will have to file a revised return within 15 days. If you meet the deadline, the return is treated as valid. Get delayed and your return will become invalid and you will have to file afresh. If you discover on your own that you have made a mistake in the return or used the incorrect form, you can file a revised return to rectify the mistake. Your new return will over rule the previous one if the assessment has not been completed.

Check your TDS details :

Before you sit down to file your returns this year, spend a few minutes to check whether the tax you paid for last year has been correctly credited to your name. The Form 26AS has details of the tax deducted on behalf of the taxpayer and can be easily checked online. Checking your tax credit details online is child's play if you have a Net banking account with any of the 35 banks that offer this facility. Otherwise you can go to the official website of the Income Tax Department and click on 'View Your Tax Credit'. First-time users will have to register but it takes less than five minutes before you can log on and view your details. "It is necessary that taxpayers check their TDS when they file their returns.”

read how to check /view form 26AS from tdscpc website 

Forms seek more information if salaried people are feeling jittery about using the more detailed ITR 2, imagine what partners in firms and businessmen are going though. In an attempt to dig deeper for undisclosed income, the government has made it mandatory for partners, professionals and businessmen with an income of over Rs 25 lakh to furnish details of their assets and liabilities. There is a new 'Schedule AL' in the ITR 3 and ITR 4. If the taxpayer's income exceeds Rs 25 lakh during the year, he will have to declare his assets and liabilities.

Don't forget to submit the ITR V 

The most important form in the whole process is the ITR V. This is the acknowledgement of your return. If you file offline, this form has to be submitted along with the ITR. If you file online without digital signature, this form has to be sent to the CPC in Bangalore by snail mail within 120 days of uploading the return. This also means that for a vast majority of e-filing taxpayers, the process is not fully online. The CBDT is considering a proposal that will do away with the physical posting of the ITR V. However, till then you will have to send it by ordinary post.

Others feel that the cost of digital signature should be brought down and its usage expanded to cover other areas as well. "If e-filing has been made mandatory, the government should also make the use of digital signatures mandatory.”

By :CA M K Agarwal ([email protected])


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Income Tax return form in PDF(ITR1,2,3,4,4S,5,6,) and excel (ITR-1,2,4,3.4 5.6S)now available for manual filing and efiling of income tax return for ay 2013-14

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  1. itr 1 is not getting validated. what to do.

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    Replies
    1. what error has been shown ? please provide details

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  2. my gross salary was -5,58,888/-. HRA and transaport allowance were-1,29,426/-. income chargeable under salary was - 4,29,426/-. dedcution u/s 80C- 9,360/-. I have filed return through ITR-1 after showing the direct gross income of Rs. 4,29,426/-. is there any issue?????

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    Replies
    1. No issue ,As given above experts are divided on this issue ,but as such there is no concealment of facts involved in such cases . So don't worry .

      But person who have not filed there return yet should select ITR-2 on safer side .

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  3. It is surprising and also misleading to say that assessees claiming exemption of more than Rs.5000 shall not use ITR-1 and shall use only ITR-2 this year. There is no such specific instructions available in the official web site of IT Department. Besides, ITR 2 is not calling any details about how and on what grounds you are claiming tax exemption. Only seggergation of exempt and non exempt salary income is required to be specified in ITR-2 which requirement was there during earlier years also. If it was the intention of Government to make the assessee declare the gross amount of allowance, exempted portion of such allowance and the ways and means of claiming exemption for say, HRA, LTA, Terminal Earned Leave, Conveyance Allowance, Education Allowance, Uniform Allowance etc.,the ITR-2 would have carried such sheets for entering details. No such details have been called for in ITR-2. Further, assessee is specifically required to state exempted income from Interest, divident etc, if it is more than Rs.5000. It will however, not be added to total income. Only a simple declaration of such income is called for. This makes it very clear that you are not called upon to give details of your HRA, LTA, Conveyance exemptions. Let the IT department call for such details, the salaried class is happy to furnish the same. But, when it has not called for the cited details, why do you presume it without justifiable grounds or possible ways and means of declaring such details? This being the situation, why do certain people are creating a doubt in the minds of public about this exempted income?

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    Replies
    1. To certain extend we are of the same view .But on following points we beg to differ from you.

      First there is specific and clear cut instructions as per notification 34/2013 dated 01.05.2013 that a person having exempted income more than 5000 can not file itr-1(Sahaj or itr-4S.

      Notification 34/2013)

      Further the same has been given in instruction of itr-1 and itr-4S

      However ,it is true that there is diff. of opinion that what should be the meaning of Exempted income here

      Exempted income are provided in section 10 of the income tax act and this section also covers HRA, Con all LTA etc.

      So our intention is here to inform the correct details to all , so that they can take informed decisions.

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  4. I do understand your concern and have been benefitted by your updates more than anyone else. But, the notification you have cited uses the words "income not chargeable to tax". It is not the same as allowances claimed exempted. Take for example, stipend, Dividend etc. Bank interest on savings bank account exceeding Rs.10,000 is a typical example where TDS is also made applicable. In such cases, ITR-2 has specific provision, unlike earlier years, to enter such details. But, it is draging too far to apply the notification to HRA, Conveyance Allowance, LTA etc. I am thankful to you for making space for discussion.

    ReplyDelete
    Replies
    1. Income Not chargeable to tax is given under section 10 of the Income Tax act

      Income Not forming part of income (section 10)

      Saving Bank interest deduction is available u/s 80TTA is not an exempted income.


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    2. All said and done, those who suggest use of ITR-2 by assessees having exempted income or exempted allowance shall have to justify the same by guiding them as to where and how they shall show such details in ITR-2, is it not? ITR-2 contains only one sheet EI which seeks details regarding Interest, Dividend, LTCG on which STT is paid,Net Agricultural income and OTHERS (including Minor's exempted income). If the intention is to give details as to HRA, LTA, Conveyance etc., where the same is to be specifically shown? There is nothing new in Schedule S where one is supposed to furnish details of salary income. The notification 34/2013 has never used any term which would imply the meaning nearer to exemptions claimed.Rather it has clearly said Income Not Chargeable to tax. Considering all these, to suggest use of ITR-2 for those who are claiming exemptions for some of the salary components such as HRA, LTA, Conveyance, Education Allowance, Uniform Allowance etc., is nothing but misleading and creating confusion.

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    3. Not only above article suggest about filing itr-2 in above situation but Tax guru Lockotia also confirm so . Please check prog on CNBC 18 aawaz channel today(20/07/2013) on 11.30 AM

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    4. video is now uploaded from cnbc aawaz ,check video from 16.15 minutes .Video is in Hindi

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    5. Yes, it is ultimately those who interpret do suggest use of ITR-2 and niether the Tax authorities nor the ITRs. In the Instructions for filling ITRs also, it breiefly says "Income from agriculture/exempt income in excess of Rs.5000" and not "Exemptions claimed in excess of Rs.5000" as being interpreted. While IT Department is designing user-friendly ITRs, our interpreters are keen in making them unpopular.

      Due to the discussion and your feedback, I could find it more clearly. Thank you for the same.

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    6. what do you mean by Income not chargeable to tax under income tax as suggested by notification 34/2013 ?



















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    7. Sir, it is clearly the income about which ITR-2 or 4 is specifically seeking information in Sheet EI. I have mentioned the heads of income elsewhere in one of my comments above.

      Also consider this point: The instructions to fill ITR-1(Sahaj)has mentioned only Agricultural Income. There is no mention of exempted income unlike in instructions to fill ITR-4S. As you know, ITR-1 is the form opted by salaried class and not ITR-4S (Sugam) unless otherwise they have income from business/profession also. Further, as you know,ITR-4S cannot be used by all professionals. That is why the terminology used in the instructions to fill ITR4S is more specific. It says "income from Agriculture/exempt income in excess of Rs.5000." There appeared several articles in a week's time span about filling up ITRs. Some experts say even if you have earned interest on your PPF account above Rs.5000, you shall use ITR-2. If the same concept is used about EPF interest, LIC sum assured etc., no person can virtually use ITR-1 in India!

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    8. Wait for clarification from department or on safer side file itr-2

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  5. My son is working in Infosys Technologies.He is in USA since 21st May 2012 to this date. In India he is getting basic of salary.Foreign allowances are being paid in USA in $dollor where tax is deducted accordingly. He has bank account in USA.He has filed return of income for A.Y. 2013-14 in ITR-I (sahaj) taking his residential status as NRI.Has he filed correct form of return and status as NRI. Guide me.

    Avinash Kumar Gupta
    Gwalior
    [email protected]

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  6. sir my query is do NRI has to disclose foreign assets , Bank details while filling Income tax return in india for rental income or fd interest only

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    Replies
    1. No , only ordinary resident is required to show foreign assets

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  7. Sir,
    I have already filed ITR-1, now as per your brief discussion regarding exemption income, which includes conveyance allowance, which is above 5000 k in my income.

    So, I need to revised the same.

    ReplyDelete
    Replies
    1. No need to revise the return as the discussion is not conclusive and department has not given clear cut instructions in this regards

      Delete