Priyanka Khanna 6/22/2018 9:23:56 AM
Five simple precautions to take while filing your taxes
The new Income Tax Return (ITR) forms for the Financial Year 2017-18 have been notified by the Central Board of Direct Taxes (CBDT). These new forms, which will be applicable for income earned during the period 1st April 2017- 31st March 2018, mandate further disclosure from the taxpayer. In the light of modifications introduced, taxpayers ought to be more careful while furnishing their income sources, deductions and other details.
Many taxpayers end up receiving a notice from the Income Tax Department due to an inadvertent error made while filing their return. We’ve listed five important precautions to help you avoid being one of them.
1. Choose the right ITR Form
There are 7 ITR forms available and it is imperative to asses and identify the ITR form applicable to you. An honest mistake made in choosing the correct ITR form could result in a notice from the I-T Department sinceareturn filed in the incorrect formis deemed defective.In such a case, the taxpayer will have to submit a rectified return in response to such notice with a plausible explanation.
Here’s how you can choose the applicable ITR form.
|Applicable to||Description of Income||ITR 1*||ITR 2||ITR 3||ITR 4|
|One house property|
|Interest and Dividend Income|
|Income from Multiple house properties|
|Income from Winnings from Lottery and Race Horse|
|Total Income exceeds Rs. 50 Lakhs|
|Foreign Assets/Foreign Income|
|Agricultural Income >Rs. 5000|
|Sale of Shares, Debentures, Immovable Property and other Capital assets|
|Income From Partnership Firm|
|Income from Business/ Profession (other than those who have opted for Presumptive scheme)|
|Individual,HUF, Firm||Income from Business/ Profession (opted for Presumptive scheme)|
*ITR 1 is applicable to individuals only
|Applicable to||Description of Income||ITR 5||ITR 6||ITR 7|
|Firms/AOP/BOI||Income of Partnership Firm (other than those who have opted for Presumptive scheme), Limited Liability Partnership firm, local authority, cooperative bank, other cooperative society, private discretionary trust, any other AOP/BOI and artificial juridical person|
|Company||Income of Companies (Whether Domestic and Foreign) other than those covered under ITR-7|
|Company/ Trust||For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F)|
2. Match your income with Form 16 and Form 26AS
Form 16 is a tax deduction certificate issued by employers to employees. This certificate provides details of salary income, deductions and Tax Deducted at Source (TDS) paid by the employer.
Form 26AS is the consolidated tax statement showing details of TDS, Tax collected at source (TCS), Advance tax paid etc. It also provides details of your income on which TDS has been paid.
While computing the taxable income, TDS is deducted from the tax liability to ascertain balance tax payable or refundable. The TDS reflecting in Form 16 is matched by the department’s record of TDS & Gross Amount Paid in Form 26AS. Until Assessment Year 2017-18, the tax department used to send system generated notices to tax filers should there be a mismatch between the ITR, Form 16 and Form 26AS & thereafter make an automatic adjustment to the income of the taxpayer u/s 143(1)(a) of the Income Tax Act 1961 . As per Budget 2018, the I-T department has been restricted from making such automatic adjustment to the income. The same will be intimated to the taxpayer by way of notice & adjustment will be made to the returned income only after receiving requisite response from the taxpayer. Therefore, as a precautionary measure we recommend you to match the income declared in the ITR with that appearing in Form 16 and Form 26AS. This will also act as verification mechanism before you file your return.
3. Pay heed to schedule specific disclosures
Among the key changes in the new ITR forms are the disclosure requirements pertaining to Assessment Year 2018-19.
While filing ITR 1, you must now provide detailed calculation of income from salary and house property.
Another important disclosure requirement is the “AL schedule”(applicable only where total income exceeds Rs 50 lakh) in ITR 2,3 & 4. Very often,taxpayersfill the forms heedlessly; either leaving the required fields blank or providing estimated value against the assets, income and liabilities.
Extra care should also be taken while reporting foreign assets/ accounts, as non-reporting or incorrect reporting attracts stringent penal consequencesunder the Income Tax Act.
We also note that most people with Public Provident Fund (PPF) accounts fail to disclose the interest which is credited annually, this is because they are under the impression that exempt income need not be reported. However, it is important to report such income under the Exempt Income section of the relevant ITR.
4. Claim all your deductions
Deductions refer to the expenditure, investment and that part of income which is allowed to be subtracted from the gross total income of the taxpayer under the Income Tax Act. These deductionshelp in lessening the tax liability by reducing the income chargeable to tax.
Claiming such deductions is amongst the most important considerations if you wish to reduce tax liability or be eligible for a refund. However, manyoblivious tax payers often fail to claim the deductions under the appropriate section. Moreover, understanding eligible deductions also acts as tax planning mechanism, hence, we recommend that you carefully assess and identify all the deductions that you are eligible.
For this you can refer to the summary of your bank statements and note all the expenses and investments, then categorize the payments, investments or contributions into the relevant section of the IT Act.
Fiveuseful deductions under Chapter VI-A include:
Deduction for investments specified under section 80C, 80CC, 80CCD. These include investments made in specified instruments such as :
Life insurance premium
Public Provident Fund Account
National Savings Certificate
Tax saving mutual fund
Tuition fees paid for full time education
Repayment of housing loan
Deduction for medical insurance premium/ medical treatment (Section 80D, 80DDB)
Deduction in respect of interest on loan for higher education/ house property (Section 80E, 80EE)
Deduction in respect of donations to certain funds, charitable institutions (Section 80G)
Deduction in respect of rent paid (Section 80GG)
5. E – Verify your return or send the ITR V acknowledgement
The process of filing of return is not completed till it is verified. You can verify your return electronically or physically. In case of physical verification, after filing your income tax return, ITR-V acknowledgement is required to be sent to the CPC Bangalore within 120 days of filing the return. Many taxpayers fail to send the ITR-V thus rendering their duly filed return void.
Therefore, we strongly suggestelectronic verification of your return by using any of the options listed below:
Aadhar : For this you must link your mobile number to your Aadhar as this process requires an OTP to be sent to the registered mobile number. Once you enter the OTP and click submit your return will be successfully e-verified. Note that the Aadhar OTP is valid for 10 minutes only.
Net Banking : On your net banking account select the income tax e-filing tab option, this will direct you to the income tax e-filing website. Here you can generate an EVC by clicking on My Account. Note that this EVC will be valid for 72 hours only. Alternatively, you can login on the ITD’s website (https://www.incometaxindiaefiling.gov.in/home) and e-verify your return by selecting the option to generate EVC through net banking.
Demat Account : This method requires pre-validation of your Demat account. On successful validation you will receive an EVC on the registered mobile number.
Bank Account details : This option requires you to login on the ITD’s website and furnish your bank details in the Profile Settings tab. After updating your bank account details, you can generate an EVC through bank account. Note that this EVC will be valid for 72 hours only.
ATM : For this you must have an ATM card linked to your PAN card with a bank registered with the income tax department. You can visit the ATM of your bank generate the EVC by swiping your card and selecting the option to generate EVC for income tax filing.
Email ID and Phone number : This method can only be used if your income is below Rs. 5,00,000 and you do not have a refund. Log in on the ITD’s website and e-verify your return by selecting the option to generate an EVC through registered email id and mobile number.