First the good news – due to certain problems with the IT E-filing site, the deadline for filing IT returns have now been extended till August 5th. So, if you were one among the many who were late, you can still go ahead and file your returns now. While the penalty for filing delayed returns is only from next year, there are important reasons why you must do it on time. It is the right thing to do, you have a chance to rectify it if required, your refunds get processed quicker.
It is important to understand that you need to account for ALL income when you are trying to arrive at your taxable income in a Financial year. In fact, some of these incomes may well be exempt from taxes but it still needs to be declared in the form. In the terminology of Income tax, there are 5 heads in which you need to categorise your income. These are as follows:-
- House property
- Profits or gains from Business or Profession
- Capital gains
- Other sources
Let us look into these income sources one by one. For most people filing tax returns, salaries are the bulk of their income. This will be your source, if you are employed by a company or business or another individual and get paid for your time. It does not matter whether you work full time or part time, as long as there is an Employee – Employer relationship, the income can be classified as salaries. When you need to give data for your tax filing purpose, note the following :-
- Your Employer has to give you Form 16 which will record the total salary paid including the monetary value of perks, exemptions allowed for different allowances like HRA and Transportation, Exemptions under 80 C, 80 D etc.
- The Form 16 also shows the total tax deducted as TDS and the tax liability. This is why some people think that is enough for tax return filing. However, this is not true as you will be having other sources of income in most cases.
Income from House property is relevant if you own one or more house property. You need to remember the following while filling up this schedule:-
- Even if you are staying at the house, it still needs to be documented in the ITR returns. For self occupied houses the income will be nil.
- If the property is rented you have to show the actual income from it. Many people think that for a single house there is no need to declare income – this is completely incorrect and you must never get into this.
- Standard deduction on income is at 30 % and you can also charge for any taxes or other regulatory expenses incurred in the house.
- Interest can be charged up to a maximum of 2 lacs per house.
- After all these deductions from rent received during the year the total income from House property will be calculated.
- If you have a single house and it is not occupied by you and not rented out, then you can take the income as nil.
- If you have 2 or more properties there will be a deemed income from all other properties except the first one, even if none of them are rented out.
Most salaried people earlier did not have any income from business or profession but it is becoming more commonplace now. There are of course, many others who do not have a salary but have income from business or profession. While looking at income from this head, you need to keep the following in mind:-
- If your Business turnover is more than 2 crores or your professional income is more than 50 lacs, you will need to maintain a set of Accounting books and these will have to be audited as per laid out procedure.
- For others the business income can be taken to be 8 % of gross receipts in business and return filed accordingly.
- For professionals with less than 50 lacs gross receipts, you can charge 50 % expenses and take the rest as income.
- In case you are showing income on presumptive basis, as in the above 2 cases, you will not be able to charge any other expenses to the business.
- If the above does not work well for you, there is always the option of maintaining books, getting them audited and filling up the returns in a more complex manner.
- For example, if your business turnover is 1 crore but your profits have only been 2 lacs, you will have to maintain books and proceed accordingly.
- For a professional earning 40 lacs but having 30 lacs as business expenses, it will again make sense to maintain books and show only 10 lacs as income.
Capital gains can arise out of the sale of any asset such as Real estate, gold, Equity, Debt etc. The important things to be kept in mind are as follows:-
- Short term capital gains are added directly to your income, Long term capital gains will get indexation benefits.
- For equity LTCG requires holding period of 1 year and is tax exempt. So if you sell your shares after holding them for a year, you do not need to pay taxes on your capital gains. However, you do need to report it.
- For debt LTCG is applicable after 3 years of holding and indexation benefits are there. The tax on the Capital gain post indexation is 20 %.
- In order to save on Capital gains you can put the gains in Capital Gain bonds.
- For real estate, as long as you invest the capital gains to buy something new it will not be taxed.
Other income is literally everything else from dividends, interests, lottery earnings, winnings from horse races etc. Some common mistakes people do are as follows:-
- Where TDS is not deducted at all, such as in Post Office MIS, you must declare the interest as taxable income.
- Where 10 % TDS is deducted as in Bank FD, you must again declare the total interest earned.
- Even if no TDS is deducted as you have given form 15 G / H to the bank, the interest earned by you must be declared.
- Interest exempted from taxes such as interest from Tax free Bonds etc need to be shown too at the appropriate locations.
- Dividends are again tax free in your hands but need to be shown.
I hope with this you will be able to get all your income recognised correctly. After this you will need to look at taxes paid and if any other liability is there still. We will take this up in the next post as this is already too long.