Friday, June 15, 2012

Income Tax Returns Filing: Why You Must Do It

This is the time of the year when your employer starts sending out your form 16 and emails about filing your income tax. The question a lot of people ask is 'My tax is deducted at source by my employer. Why should I go through this process of filing income tax return?'. Other common excuses which come up are:

1. Government has stated that individuals who earn below Rs 5 lakh income need not file income tax returns
2. The deadline for filing tax returns is far away, why bother now
3. My employer has already paid my tax and I have no other income, why should I file for income tax returns
4. I have anyway missed the deadline for filing tax returns (July 31), so now it does not matter whether I file the returns or not.

Though these are common perceptions, nothing could be further away from the truth.
Before I tell you why you cannot avoid filing your income tax returns, I shall just define some common tax related jargon you may come across.

1. Form 16: It is certificate issued by the employer to employee stating the details of income earned and the tax deducted on your behalf and paid to the government. Every employee who is subjected to TDS is supposed to receive their Form 16 by April 30 every year.
  • No Form 16 is required if TDS is not deducted from salary
  • If TDS is deducted by banks to the pension holder, banks should also issue Form 16. For interest income      the bank issues form 16A

2. Assessment year: It refers to the financial year starting from 1st April.

3. Form 26 AS - Form 26AS is a consolidated tax statement issued to all PAN holders. This statement with respect to a financial year will include details of:
a) tax deducted at source (TDS);
b) tax collected at source (TCS); and 
c) advance tax/self assessment tax/regular assessment tax etc. deposited in the bank by the taxpayers (PAN holders). 

Now for the question - Why must I file my Tax returns?

When you file your tax returns every year, you manage to create your financial record with the tax department.This financial / tax history is positively viewed and favourably used by most agencies with whom you may need to interact, such as when you avail any kind of loan (home, personal, vehicle loan, etc), when you apply for VISA etc.Income tax return is also essential for making any investment and goes to prove that you have a valid source of income to make such investment.

Please remember that the Income Tax Officer (ITO) has the power to re-assess / reopen cases where she/he believes that income has escaped assessment. Such power is vested with the ITO up to 7 years from the end of the financial year. Every year the income tax department pulls out random list of people to scrutinize. In case they find any anomaly in the tax paid, you would have to pay a steep fine and an interest of 1% every month for the tax not paid.

I missed filing my tax return before the deadline. What can I do now?

Even if you have missed the July 31 deadline, you can go ahead & file your tax return immediately without any further delay. Penal interest is applicable for delayed filing, ONLY IF you have any pending tax liability.Suppose your entire tax liability has been paid up before March 31, 2011 then there is no penal interest liability for you to take care of at the time of filing your returns.

But note that in case you fail to file your tax returns at least before March 31, 2013, you may be liable to pay a penalty of Rs 5,000.

Can I be exempt from filing my tax returns?

Individuals with salary income below Rs 5 lakh are not required to file their tax return subject to certain conditions being met.

1. Single employer income
2. Savings account interest up to Rs 10,000
3. PAN should be correctly declared to the employer
4. Employer should have deducted tax on both salary & savings account interest

In case you satisfy all these conditions, you can be exempt from filing your tax.

How do I file my Income Tax returns?

You can do it physically or can do it online. For physical filing, visit the Income Tax department in your city and submit the paperwork as required by them.

For e-filing, you can use the form 16 given by your employer and use it on the many e-filing websites which offer this service. Alternatively you can do it for free at the Income Tax e-filing portal. 

Once you e-file you would be sent an ITR-V form to the email address you have provided (by the IT department). Take a copy, sign it and post it to the address as provided to you in the email. In case you have a digital signature, you do not have to post the form. 

If you have more questions related to your Income Tax filing, you can post your queries as comments or mail me your queries.

1 comment:

  1. Unlike the official website, the steps to file returns via these portals are not uniform. Accountants in New Jersey