INTRODUCTION Abstract Need for Study Objectives Scope & Limitations
INCOME TAX RETURN
Abstract Income Tax Act, 1961 governs the taxation of incomes generated within India and of incomes generated by Indians overseas. This study aims at presenting a lucid yet simple understanding of taxation structure of an individual‟s income in India for the assessment year 2013-14.
Income Tax Act, 1961 is the guiding baseline for all the content in this report and the tax saving tips provided herein are a result of analysis of options available in current market. Every individual should know that tax planning in order to avail all the incentives provided by the Government of India under different statures is legal.
This project covers the basics of the Income Tax Act, 1961 as amended by the Finance Act, 2007 and broadly presents the nuances of prudent tax planning and tax saving options provided under these laws. Any other hideous means to avoid or evade tax is a cognizable offence under the Indian constitution and all the citizens should refrain from such acts.
[2]
INCOME TAX RETURN
Need for Study In last some years of my career and education, I have seen my colleagues and faculties grappling with the taxation issue and complaining against the tax deducted by their employers from monthly remuneration. Not equipped with proper knowledge of taxation and tax saving avenues available to them, they were at mercy of the HR/Admin departments which never bothered to do even as little as take advise from some good tax consultant.
This prodded me to study this aspect leading to this project during my MBA course with the university, hoping this concise yet comprehensive write up will help this salaried individual assesse class to save whatever extra rupee they can from their hard-earned monies.
[3]
INCOME TAX RETURN
Objectives To study taxation provisions of The Income Tax Act, 1961 as amended by Finance Act, 2007. To explore and simplify the tax planning procedure from a layman‟s perspective. To present the tax saving avenues under prevailing statures.
[4]
INCOME TAX RETURN
Scope & Limitations This project studies the tax planning for individuals assessed to Income Tax. The study relates to non-specific and generalized tax planning, eliminating the need of sample/population analysis. Basic methodology implemented in this study is subjected to various pros & cons, and diverse insurance plans at different income levels of individual assesses. This study may include comparative and analytical study of more than one tax saving plans and instruments. This study covers individual income tax assesses only and does not hold good for corporate taxpayers. The tax rates, insurance plans, and premium are all subject to AY 2013-14 only.
[5]
INCOME TAX RETURN
COMPANY PROFILE IFIANS Corporate Service Pvt . Ltd. team is a professional firm since 1997, offering services and has been synthesizing the learning from a vast experiencebase and converting that into advantage for its clients.
With a watchword of commitment, we provide all sort of services related to Accounting, Auditing, Taxation, Business process outsource, Income Tax, Financial services, Company law matters, Fringe Benefit Tax, Wealth Creation, Real Estate Matter for Residents & NRI's etc. thereby freeing up valuable time of yours to apply in running your business.
The sphere of our service network includes Corporate Houses, Banks, Co-Op Societies, Public Sector Undertakings, NGO, NRI's and individuals. We are committed to provide tailor made services to the individual needs of each client. Our aim is to provide a professional service to our clients at a reasonable cost using state of the art technology.
Our team offers a formidable range of expertise and experience. Everything from business accounting and taxation to business start-ups and corporate finance. We keep a close eye on all the essentials for you and offer proactive advice on how you can improve your personal, family, or business finances.
We have experienced, professionally focused team of finance professionals supported by senior Chartered Accountants, Advocates, Company Secretary, Attorney's who are dedicated to provide efficient services in a consistent manner.
[6]
INCOME TAX RETURN
We provide following income tax services for Resident Indians:
Filling of Income return for Individuals, HUF, Firms, Trust, Co-Op. Soc., Private Limited & Limited Companies (including MNC‟s).
Income tax returns for Landlords, Rental income, Professionals ,Doctors,
Architects.
Electrical & Engg. Contractors.
Rectification, Revision or Appeal of Income tax orders.
To follow up for income tax refunds.
To get the clearance certificate for going abroad.
Payments on which income tax deduction at source required.
Annual return for TDS in electronic form ( eTDS ).
Registration of trust for charitable purposes.
Advance tax computation.
Obtaining advance Ruling.
Tax planning, Specific advice on taxation & Consultancy in TDS matters.
Other Compliances as per Income Tax Act.
[7]
INCOME TAX RETURN
Management Team
Director
Mr.Praveen Nagpal
Associate Director
Mrs.Puneet Nagpal Miss. Anuja Dudhane Miss. Apurva Khote
Hr Manager No. of Senior Employees
8 nos.
No. of Junior Employees
6 nos.
Office Helping Staff
4 nos.
Our clients At ifians, we specialize in Financial Accounting, Service tax, Income tax and Investment Advisory Services. Few of our premier clients are:
Elements
M/s Lisa Home Solutions Pvt. Ltd. (www.lisahomesolutions.com)
ASC Computers
TXIS (Technology Xpress Info Systems) Pvt. Ltd.
Jain Excellency Services
M/s Ashwamegh Travels
Virtual HR Services
Lily Chilly
We also expertise in filing salary returns and investment consultation. We are providing services to more than 3000 customers across Pune Mumbai, Hyderabad and Bangalore. Our clients work with various organizations as:
[8]
INCOME TAX RETURN
Tech Mahindra Ltd
Infosys Technologies Ltd.
Avaya India Pvt Ltd
Amdocs development Centre India Pvt. Ltd
Cognizant Technology Solutions India Ltd
Wipro Technologies
Accenture India Pvt. Ltd.
IBM India Pvt ltd.
Oracle Financial Solutions India Ltd.
Tata Consultancy services (TCS) ltd.
System Plus India Pvt. Ltd.
BMC Software Ltd.
Persistent Systems India Ltd.]
SunGard India Pvt Ltd.
Pimpari Chinchwad Municipal Corporation
GKN Sinter Metals Ltd.
V-Life Sciences India Pvt Ltd.
EDS India Pvt Ltd.
Benninger India Pvt. Ltd
Websym technologies Pvt. Ltd
Foseco India Pvt. Ltd
Symantec India Pvt. Ltd.
John Deere India
Cap Gemini
Mahindra Satyam
[9]
INCOME TAX RETURN
INTRODUCTION OF INCOME TAX Income tax in India is levied by the Government of India on taxable income of individuals, companies, Hindu Undivided Families (HUFs), co-operative societies, firms, and trusts (recognized as association of persons and body of individuals) and any other artificial person. Imposition of tax is different for every individual. Income tax imposition is regulated by the Indian Income Tax Act, 1961. The Central Board of Direct Taxes (CBDT) has the overall responsibility of regulating the Income Tax Department in India. It is a division of the Department of Revenue under the Ministry of Finance, Government of India. Income tax is a tax payable, at the rate enacted by the Union Budget (Finance Act) for every Assessment Year, on the Total Income earned in the Previous Year by every Person.
[10]
INCOME TAX RETURN
MEANING AND DEFINITION In Income Tax in India are divided in to two types they are: 1.
Direct Taxes
2.
Indirect Taxes.
Income Tax, Wealth Tax, etc., where the entire burden falls in the taxpayer directly is called as Direct Taxes, whereas like Service Tax, VAT, etc., are called as indirect taxes as these will be passed on through a third party.
Income tax can be defined as all sources of income other than agricultural income which Central Government collects levies on that and shares the same with the states.
As per Income Tax Act of 1961, all persons who are considered as an assessee determined on the basis of the person‟s residential status in India and their when their income exceeds the maximum exemption in the prescribed limit and the income tax will be levied at the prescribed rates according to finance act, such type of income tax has to be paid on the total income in the previous year to be paid in relevant assessment year.
[11]
INCOME TAX RETURN
HISTORY
The history of taxation system shows that taxes were levied on either on the sale and purchase of merchandise or livestock. Further it suggests that the process of levying and the manner of tax collection were unorganized. But it suggests that all historical leaders and head countrymen collected taxes to run its authority. In other words taxes on income, sale, purchase and properties were collected to run the ruling Government machineries. Further, these taxes were collected to meet their military and civil expenditure and also to meet the common needs of the subjects like maintenance of roads, drainage system, government buildings, administration of justice and other functions of the region.
Although, there were no homogeneous tax rate structures but it depended on the production capacity and commodity of that particular country and/or region. These taxes were collected in cash or in kind and it entirely depended on the type of commodity or service on which it was levied upon. The history of taxation suggests these were done to store government buffer stocks to meet emergencies. Taxes were levied on all classes of citizens. Taxes were paid in the form of gold-coins, cattle, grains, raw-materials and even by rendering personal service.
In India, the tradition of taxation has been in force from ancient times. There was a perfect admixture of direct taxes with indirect taxes and they were varied in nature. India's history of taxation suggests existence of a large and composite taxable population. With the advent of the moguls in India the [12]
INCOME TAX RETURN
country witnessed a sea of change in the taxation system of India. Although, they also practiced the same norm of taxation but it was more homogeneous in structure and collection.
The period of British rule in India witnessed some remarkable change in the whole taxation system of India. Although, it was highly in favor of the British government and its exchequer but it incorporated modern and scientific method of taxation tools and systems. In 1922, the country witnessed a paradigm shift in the overall Indian taxation system. Setting up of administrative system and taxation system was first done in the history of taxation system in India. The period thereafter witnessed rapid growth and modernization of the Indian taxation system and the present.
[13]
INCOME TAX RETURN
OBJECTIVES OF TAXES
Raising revenue: The primary purpose of taxes is to raise the revenue
for the government. The modern government has to perform several functions for the welfare of the public. The performance of these functions involves substantial amount of public expenditure.
Regulation of consumption and production: Taxes are sometimes used
to discourage the consumption and production of unnecessary or harmful goods like liquor, tobacco etc. This also results in the diversion of production form luxury goods to necessities.
Encouraging domestic industries: Taxes in the form of custom duties
are used to reduce the import of certain goods that are domestically available and thereby the domestic industries for the production of these goods. For example, high customs duties on goods like TV, AC etc switch over the demand for the foreign brands.
Stimulating investments: The instrument of taxation can also be used in
the stimulating investment of the private sector. This can be done by providing various tax-incentives in the form of tax-holidays, investment allowance and lower profits.
Reducing income inequalities: Taxation policy of the government is
often used in reducing the income inequalities of incomes and assets. Inequality of income can be reduced by the system of progressive taxation under which the rich people are required to pay much more taxes than poor. The taxes collected from the rich can further be utilized for providing social services which benefit the low income groups.
Promoting economic growth: Taxation policy can also be used for
promoting economic development of the country. The revenue collected by the [14]
INCOME TAX RETURN
government can be used in promoting development of industries and agriculture. The government can also use these funds in building a better infrastructure like transport and communication, power etc.
Development of backward regions: Tax system can be used in ensuring
the development of backward regions. Entrepreneurs can be motivated to set up their industries in the backward regions by providing tax concessions to them.
Ensuring price stability: Direct taxes like income tax can be used to
ensure price stability. These taxes reduce the disposable income of individuals and thereby reduce their purchasing power. This results in the fall in aggregate demand in the economy and thereby reducing demand-pull inflation.
[15]
INCOME TAX RETURN
CHARACTERISTICS OF GOOD TAX SYSTEM A good tax system should adhere to certain principle that becomes the characteristics of good tax system. These principles are called canons of taxation.
Canons of equality: Canon of equality states that persons should be
allowed to pay their taxes as per their ability to pay. The burden of tax should be fair and just. Equality of tax burden can be achieved if the rich people are taxed more than the poor people not only in terms of tax but also in the terms of tax rate. This canon tries to achieve the objectives of economic justice.
Canon of certainty: The canon of certainty implies that the tax-payer
should be informed about every detail relating to the payment of each and every kind of taxes.
Canon of economy: Every tax has a system of cost of collection which is
the administrative cost of collection. The canon of economy should be such that the cost of collection should be minimum . It will be useless to impose a tax that involves huge expenditure in its collection.
Canon of productivity: All taxes should be productive. The canon of
productivity implies two things. In the first place, the tax system should be able to generate enough revenue to meet the required expenditure. Secondly, taxes should be imposed in such a way as not to obstruct and discourage production.
Canon of elasticity: The canon of elasticity implies that the taxes should
be levied that the yields of the taxes can be easily increased or decreased as per the need of the government.
[16]
INCOME TAX RETURN
Canon of diversity: The canon of diversity requires that the tax system
should be such that the government depends on the number of the taxes so that every class of citizen may be called upon to contribute something towards the state revenue.
Canon of simplicity: The tax system should be easy and simple so that
the tax payer can easily understand its implication, the basis and the method of calculation etc. without the costly help of the expert WHO IS LIABLE TO PAY INCOME TAX?
There are seven categories of persons chargeable to tax under the Act. a)
an individual
b)
a Hindu undivided family
c)
a company
d)
a firm
e)
an association of person or body of individuals ,whether incorporated or
not f)
a local authority
g)
every artificial juridical person not falling within any of the preceding
categories. Therefore any person not falling in the above mentioned categories, may still fall in the four corners of the term “person” and accordingly may be liable to tax under section 4. The person by whom income tax or other sum of money is payable under the Act is the ASSESSEE
[17]
INCOME TAX RETURN
RESIDENTIAL STATUS
Residential Status
Resident Ordinarily Residents
Resident but not Ordinarily Residents
Non Residents
The three residential status, viz., Resident Ordinarily Residents
Under this category, person must be living in India at least 182 days during previous year Or must have been in India 365 days during 4 years preceding previous year and 60 days in previous year. Ordinary residents are always taxable on their income earned both in India and Abroad.
Resident but not Ordinarily Residents
Must have been a nonresident in India 9 out of 10 years preceding previous year or have been in India in total 729 or less days out of last 7 years preceding the previous year. Not residents are taxable in relation to income received in India or income accrued or deemed to be accrue or arise in India and income from business or profession controlled from India.
Non Residents [18]
Non Residents are exempt
INCOME TAX RETURN
from tax if accrue or arise or deemed to be accrue or arise outside India. Taxable if income is earned from business or profession setting in India or having their head office in India.
[19]
INCOME TAX RETURN
INDIVIDUAL HEADS OF INCOME Income from Salary Income from Other Sources
Heads of income
Income from Capital Gains
Income from House property
Income from Business or Professio n
Income from Salary
All income received as salary under Employer-Employee relationship is taxed under this head. Employers must withhold tax compulsorily, if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and provide their employees with a Form 16 which shows the tax deductions and net paid income. In addition, the Form 16 will contain any other deductions provided from salary such as: 1.
Medical reimbursement: Up to 15,000 per year is tax free if supported by
bills. 2.
Transport allowance: Up to 800 per month (9,600 per year) is tax
free if provided as
transport allowance. No bills are required for this
amount. 3.
Conveyance allowance: is tax exempt.
[20]
INCOME TAX RETURN
4.
Professional taxes: Most states tax employment on a per-professional
basis, usually a slabbed amount based on gross income. Such taxes paid are deductible from income tax. 5.
House rent allowance: the least of the following is available as
exemption Actual HRA received 50%/40%(metro/non-metro) of basic salary Rent paid minus 10% of 'salary'. basic Salary for this purpose is basic+DA forming part + commission on sale on fixed rate. The exemption for HRA u/s 10(13A) is the least of all the above three factors. Perquisites and Exemptions u/s 10 The term "Perquisite" includes value of any benefit or amenity/value of any concession provided by the employer to the employees. Perquisite Valuation does not include certain medical benefits. Section 10 exemptions are available for the following perquisites: 1.
Leave Travel Concession u/s 10(5)
2.
Perquisites paid to Indian Citizens Employed Abroad 10(7) no
3.
Tax Paid on Behalf of Any Employee by the Employer 10(10CC)
4.
Any sum received under Life Insurance Company
Income from House property
Income from House property is computed by taking into account what is called Gross Annual Value of the property. The annual value in case of a self occupied house is to be taken as NIL. (However if there is more than one self occupied house then the annual value of the other house/s is taxable.) From this, deduct Municipal Tax paid and you get the Net Annual Value. From this Net Annual Value, deduct: [21]
INCOME TAX RETURN
30% of Net value as repair cost (This is a mandatory deduction)
No other deduction available
Interest paid or payable on a housing loan against this house
In the case of a self occupied house interest paid or payable is subject to a maximum limit of Rs.1,50,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) and Rs.30,000 (if the loan is taken before 1 April 1999). For l non self-occupied homes, all interest is deductible, with no upper limits. The balance is added to taxable income.
Income from Business or Profession
Income arising from profits and gains of any Business or Profession; income derived by a Trade/ Professional/ similar Association by performing specific services for its members; any benefit from business whether convertible into money or not, incentives for exporters; any salary, interest, bonus, commission or remuneration received by Partner of a firm; any amount received under a Key man Insurance Policy which also covers Bonus; income from managing agency and speculative transactions; is taxable.
Income from Capital Gains
Under section 2(14) of the I.T. Act, 1961, Capital asset is defined as property of any kind held by an assesse such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not consist of items like stock-in-trade for businesses or for personal effects. Capital gains arise by transfer of such capital assets. Long term and short term capital assets are considered for tax purposes. Long term assets are those assets which are held by a person for three years except in case of shares or mutual funds which becomes long term just after one year of [22]
INCOME TAX RETURN
holding. Sale of long term assets give rise to long term capital gains which are taxable as below:
As per Section 10(38) of Income Tax Act, 1961 long term capital gains
on shares/securities/ mutual funds on which Securities Transaction Tax (STT) has been deducted and paid, no tax is payable. Higher capital gains taxes will apply only on those transactions where STT is not paid.
For other shares & securities, person has an option to either index costs
to inflation and pay 20% of indexed gains, or pay 10% of non indexed gains.
For all other long term capital gains, indexation benefit is available and
tax rate is 20%
Income from Other Sources
This is a residual head , under this head income which does not meet criteria to go to other heads is taxed. There are also some specific incomes which are to be taxed under this head. 1.
Income by way of Dividends
2.
Income from horse races
3.
Income from winning bull races
4.
Any amount received from key man insurance policy as donation.
5.
Income from shares (dividend other than Indian company)
[23]
INCOME TAX RETURN
Personal Tax Rates: For Individuals,HUF, Associations Of Persons(AOP) and Body Of Individuals (BOI) The chargeability is based on nature of income, i.e., whether it is revenue or capital. The rates of taxation of income are-: Income Tax Rates/Slabs Rate (%) (as per A.Y.2013-2014) → Up to 2,00,000(for men & women) = 0%, → 2,00,001 – 5,00,000 = 10%, → 5,00,001 – 10,00,000 = 20%, → 10,00,001 upwards = 30%, Up to 2,50,000 (for resident individual of 60 years or above)= 0, Up to 5,00,000 (for very senior citizen of 80 years or above)= 0. Education cess is applicable @ 3 per cent on income tax, surcharge = NA
[24]
INCOME TAX RETURN
TAX DEDUCTION There are various India Tax Deductions or tax exemptions provided by the Indian Income Tax Act. The tax deductions help to deduct an amount from the taxable income and help to save tax. Each year, one can save thousands of rupees in income tax through income tax exemptions.
The Central Board for Direct Taxes (CBDT) governs the Indian Income Tax department. The department is also part of the Department of Revenue which is managed under the Indian Revenue Service (IRS) under the Ministry of finance govt. Of india.
Income taxes are imposed by the government of India on taxable income of Hindu Undivided Families (HUFs), companies, individuals, firms, co-operative societies and trusts (which are identified as a body of Individuals and Association of Persons) and any other artificial person. There are separate levy of taxes on each persons which are governed by the Indian income tax act 1961.
Some of the income tax deductions and tax exemption limits for the financial year 2012-2013 are given below –
Income Tax deductions –
Section 80c of
Section 80C is one of the most common income tax
the Indian
deductions. This is quite popular as it encourages [25]
INCOME TAX RETURN
Income Tax
monthly savings from income. If someone has a
Act
taxable income in the highest tax bracket, the deductions under this section can help one reduce the taxable income by 1 lakh rupees. This deduction can be availed if one has invested money in Life Insurance premium, Provident Funds, mutual fund investments in ELSS (Equity Linked Savings scheme), bank deposits (more than 5 years), National Saving Certificate (NSC), tuition fees, principal part of EMI on housing loan, ULIPS (Unit Linked Insurance Plans). The maximum tax deduction or tax exemption Limit is „100000.
Section 80D of
This section of India Tax Deduction is helpful if
the Indian
there is no coverage of health and medical expenses.
Income Tax Act
It is better if one gets health and medical insurance for oneself, spouse, dependent parents and dependent children. Through this one can claim deduction till `15000/- per annum for the insurance premium. The limit for senior citizens is Rs20,000.
Section 80G of
According to Section 80G in the India tax deduction
the Indian
rules, donations to National Children Foundation,
Income Tax Act
University or educational institution of national importance, Prime Minister's Relief Fund, charitable institutions etc are deductible from the taxable income. Income tax deduction for 50% of the [26]
INCOME TAX RETURN
donated amount is eligible for other donations. The maximum tax deduction or tax exemption limit is 100%. For various funds and 50% for other donations. Section 80DDB
If you have a dependent who suffers from any of the
of Income Tax
ailments specified under Section 80DDB, the Income
Act:
tax Act allows you to claim an annual deduction of Rs 40,000. The deduction is higher at Rs 60,000 if
Pay lower if someone is ill
the patient is a senior citizen. Conditions: The IT Act has defined certain diseases to claim this deduction, which include neurological diseases, malignant cancers, full-blown AIDS, chronic kidney failure and haematological disorders. Dependents can include spouse, children, parents and siblings. However, there are a few conditions. The patient should be wholly or mainly dependent on the taxpayer and should not have separately claimed deduction for the disability. If the amount spent is reimbursed by the employer or an insurance company, there is no deduction.
Section 80GGC
You can you lower your tax if you have political
(80GGB for
affiliations. Amount contributed to a recognized
corporates) of
political party can be claimed as a deduction without
Income Tax
any ceiling under Section 80GGC (80GGB for
Act:Political
corporate). The donation can also be made to the
affiliations can
electoral trust which works for the purpose of
[27]
INCOME TAX RETURN
be some times
conducting elections. There is a ceiling to the
beneficial
deduction a taxpayer can claim in a year. Condition: Only cash donations are taken into account. Food, clothes and medicines do not qualify. Under Section 80G, donations to charitable organizations get deduction ranging from 50% to 100%. It is good to know how much deduction you can claim before you sign a cheque. The quantum of deduction is limited to 10% of the gross total income of the donor.
Set off Long
According to Income Tax Act if you have made any
term gains by
long-term capital gains from sale of property, gold or
short term
debt funds, you can set them off against short-term
capital losses
capital losses made on stocks and bring down your tax liability. This can be especially useful for someone who has booked profits on gold ETFs and physical Gold for the year.
Section 80E of
The interest paid on an education loan is fully
Income Tax
deductible from taxable income under Section 80E.
Act:
This deduction now includes loans taken for vocational courses. Say, if a parent or legal guardian
Use education loan to lower your tax
takes the loan, he can claim deduction for the interest paid for upto8 successive years, starting with the year in which interest is first paid.
liabilities Condition: Loans taken for siblings and other relatives and from employers or individuals are nt [28]
INCOME TAX RETURN
qualifying for deduction. Disabilities can
If a taxpayer suffers from a disability, he can claim
lower your tax
deduction of Rs 75,000 under Sec 80U. If he has a
bracket
disabled dependent, he can claim the deduction under Sec 80DD. Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness and deduction is available only if the impairment is at least 40%. If the disability is severe (80% or above), the deduction is Rs 1 lakh a year. The dependent could include the taxpayer's spouse, children, parents and even siblings.
Condition: Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on himself or on the disabled dependent. However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance, and should not have claimed deduction for the disability under Section 80U separately.
[29]
INCOME TAX RETURN
Take unlimited
When it comes to buying a second house, the taxman
deduction for
can be very encouraging. Under Section 24b, one can
your second
claim deduction of up to Rs 1.5 lakh for interest paid
home loan
on a home loan. But if the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as a deduction. Also if you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or a deemed income is charged to tax.
[30]
INCOME TAX RETURN
TAX EXEMPTIONS According to Income Tax Act, 1961 there is a provision of exemptions in income tax. Tax Exemption induces reduction of the tax burden on a specific section of the society to achieve some level of equilibrium among all. To encourage some economic activities through the process of reduction of the tax burden on some organizations or individuals involved in that activity is also another cause for Tax Exemptions. Tax Exemptions have the authority to bring about social and economic changes within the society followed by unprecedented consequences. However, for such exemptions on tax some conditions are mandatory to follow. Some of them are like
The age of the individual taxpayer
The public services performed by the individual taxpayers
The type of property owned by the individual
The geographic location of property
The net income of the individual paying the tax
The value of the taxable property
India tax exemptions are specified incomes on which a person can get exemptions. It means that at the time of calculating annual income, this type of income will not come under the purview of tax.
Some of these exempted incomes are as follows:
Agriculture Income.
Share of partner in total income of a firm which is assessed separately. [31]
INCOME TAX RETURN
Interest on securities and bonds including premium on redemption of bonds
by Non Residents.
Interests on amounts in Non-resident (External) account in any bank in
India being maintained as per FERA, 1973.
Interest on specified central Government's savings certificates which were
subscribed to in convertible foreign exchange remitted from a country outside India as per FERA by an individual citizen.
Income of individuals engaged in research work in India under duly
approved research schemes and remuneration received from foreign government for training in a government office or undertaking as employee.
Gratuity not exceeding Rs.3.5 lakh.
Receipt in respect of commutation of pension as per specified limits.
Leave encashment not exceeding 8 months salary and subject to specified
conditions.
Receipt of amount on voluntary retirement up to ` 5,00,000.
Payment on a Life insurance policy, including bonus thereon but excluding
therefrom amounts received u/s 80DDA(3).
Receipt of Payment from Public provident fund or Statutory Provident
Fund.
Receipt of Payment from superannuation fund.
Special benefits and allowance to employee viz., house rent allowance.
Interest payable to any bank incorporated outside India and approved by
RBI.
Scholarships granted to meet the cost of education
Receipt of any amount in connection with an award instituted by
Government etc.
Income of a university or other educational institution. [32]
INCOME TAX RETURN
Income of a hospital or other such institution working exclusively for
philanthropic purposes.
Income of news agency having been set up in India for the sole purpose of
collection & distribution of news.
Income of specified mutual funds registered and/or set up under /by SEBI
Act, 1992.
Income of Exchange risk administration fund having been set up by public
financial institutions either jointly or separately as per specified conditions.
Some other categories includes combat-pay to military officers,
inheritances, payments for personal injuries, employee discounts, and income from local bonds. There are a number of protected classes like widows, people above 65, war-retired persons, and disabled persons However, one should not get confused with the concepts of Tax Deduction and Tax Exemption, as when an expense received by a taxpayer is deduced from the gross income it results in the lowering of the net taxable income it is tax deduction and not Tax Exemption. There are many types of income and benefits being exempted from income taxes to a limited extent.
[33]
INCOME TAX RETURN
ITR-1 SAHAJ Indian Individual Income tax Return
FORMS OF INCOME TAX This Return Form is to be used by an individual whose total income for the assessment year 2013-14 includes:(a) Income from Salary/ Pension; or (b) Income from One House Property (excluding cases where loss is brought forward from previous years); or (c) Income from Other Sources (excluding Winning from Lottery and Income from Race Horses) This Return Form cannot be used by any resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India.
ITR-2 For Individuals and HUFs not having Income from Business or Profession
Note: Further in a case where income of another person like spouse, minor child, etc. is to be clubbed with the assessee this return form can be used only if the income being clubbed falls in to above income categories Note:Those who have total income below 5 lakh rupees & those people who have exemption under sec. 10/c is less than 5,000 Rupees they require to fill the ITR -I form This Return Form is to be used by an individual or a Hindu Undivided Family whose total income for the assessment year 2013-14 includes:(a) Income from Salary / Pension; or (b) Income from House Property; or (c) Income from Capital Gains; or (c) Income from Other Sources (including Winning from Lottery and Income from Race Horses). Further, in a case where the income of another person like spouse, minor child, etc. is to be clubbed with the income of the assessee, this Return Form can be used where such income falls in any of the above categories. This Return Form should not be used by an individual whose total income for the assessment year 2013-14 includes Income from Business or Profession. [34]
INCOME TAX RETURN
Note:Those who have total income above 5 lakh rupees & those people who have exemption under sec. 10/c is above than 5,000 Rupees they require to fill the ITR -II form & it is mandatory to do E filling.
ITR-3
ITR-4
For Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship SUGAM (ITR-4S)
ITR-5
Sugam - Presumptive Business Income tax Return ITR-4 For individuals and HUFs having income from a proprietory business or profession For firms, AOPs and BOIs
ITR-6
For Companies other than companies claiming exemption under section 11
ITR-7
person including a company whether or not registered under section 25 of the Companies Act, 1956 required to file a return under sub-section (4A) or subsection (4B) or sub-section (4C) or sub-section (4D) of section 139
[35]
INCOME TAX RETURN
TAX RETURNS
There are five categories of Income Tax returns. 1.
Normal Return
2.
Belated Return
3.
Revised Return
4.
Defective Return
5.
Returns In Response To Notices 1. Normal Return Returns filed within the return filing due date. that is 31 July of concerned previous year. 2. Belated Return In case of failure to file the return on or before the due date, belated return can be filed before the expiry of one year from the end of the relevant assessment year. 3. Revised Return In case of any omission or any wrong statement mentioned in the normal return can be revised at any time before the expiry of one year from the end of the relevant assessment year. 4. Defective Return Assessing Officer considers that the return is defective, he may intimate the defect. One has to rectify the defect within a period of fifteen days from the date of such intimation. If the assessee wants more time, he can
[36]
INCOME TAX RETURN
file an application to the A O and a further 15 days can be granted at the instance of the A O. 5. Returns In Response To Notices Assessing officer in the process of making assessment, may serve a notice under various sections like 142(1), 148(1), 153A(a) or 153C. Returns are required to be furnished within the date specified on the respective notices.
[37]
INCOME TAX RETURN
ONLINE TAX IN INDIA
In India, online tax filing has become an integral part of the process of registering tax returns. With the increasing penetration of internet and rising levels of web awareness and work pressure among tax payers, many people now prefer to fill the tax according to their convenience and avoid the cues.
HOW TO FILE ONLINE TAX IN INDIA The basic steps for filing tax returns online in India can be mentioned as below: Customers need to sign up with the service provider to be able to avail their services After signing up, customers need to enter their financial details. The returns will be generated on the basis of the entries. Once the data is entered the software reviews it. After the computation is done, the clients need to give the payment on the basis of the filing plan chosen by them. Next, the user needs to authorize the service provider to file the tax returns on their behalf. The acknowledgment will be provided via e-mail once the process is completed and the document is signed digitally. The customer receives an ITR-V if the document is not signed digitally. Following are the major benefits for tax payers who use the tax filing portals: These companies provide the users in depth knowledge of tax laws [38]
INCOME TAX RETURN
The technology used by these companies is comparable to the best banks across the world Tax computation services are provided free of cost. Tax payers only need to pay when they are filing the tax returns They do not put the users off with unnecessary pop-ups or advertisements Majority of these sites are backed by the Income Tax Department. This means that these companies are authorized to file tax returns with the IT department on behalf of their customers Tax returns can be prepared and filed by customers from any income class.
[39]
INCOME TAX RETURN
E-FILLING A.
Select appropriate type of Return.
B.
Download Return Preparation Software for selected Return Form.
C.
Fill your return offline and generate a XML file.
D.
Register and create a user id/password AT Incomtaxindiaefiling.gov.in
E.
Login and select relevant Assessment year on left panel under "Submit
Return" F.
In Next screen ,select the form Name (whichever is applicable in your
case) (i) Select digital signature NO (ii) In next screen Browse and select XML file prepared by you and click on "Upload" button G.
On successful upload acknowledgement details would be displayed.
Click on "Print" to generate printout of acknowledgement/ITR-V Form. H.
In case the return is digitally signed, on generation of
"Acknowledgement" the Return Filing process gets completed. I.
In case the return is not digitally signed, on successful uploading of e-
Return, the ITR-V Form would be generated which needs to be printed by the tax payers. This is an acknowledgement cum verification form. A duly signed ITR-V form should be mailed to “Income Tax Department – CPC, Post Bag No - 1, Electronic City Post Office, Bengaluru - 560100, Karnataka, ” BY ORDINARY POST OR SPEED POST ONLY within 120 days of transmitting the data electronically. ITR-V sent by Registered Post or Courier will not be accepted. No Form ITR-V shall be received in any other office of the Income-tax Department or in any other manner. In case, Form ITR-V, is furnished after the [40]
INCOME TAX RETURN
above mentioned period, it will be deemed that the return in respect of which the Form ITR-V has been filed was never furnished and it shall be incumbent on the assessee to electronically re-transmit the data and follow it up by submitting the new Form ITR-V within 120 days. This completes the Return filing process for non-digitally signed Returns.
[41]
INCOME TAX RETURN
[42]
INCOME TAX RETURN
THE PROCESS OF TAX FILLING IN INDIA Many people are, naturally, unhappy to see the tax deducted at source (TDS) eroding their salaried income. They are a bit happy too, in a way, as they feel the major task of paying tax is finished with & they need not worry about anything. Well, they are so wrong! Anybody who pays tax has to also file income tax returns.
Every single person who pays tax in India has to file his/her income tax. Do not assume that just because you do not have your own business and are getting a salary working for somebody, that you don‟t need to file the tax returns. Yes, even a salaried individual in India has to file income tax returns.
Many salaried people think that the tax is deducted at source (called TDS), but are unaware that it is not only their income from a job that is taxed. Their income from any other source is also liable for tax, such as if they are earning a part-time income from an online job, are having fixed deposits in a Bank, etc. So you must file your income tax returns before the end of the financial year. The process of tax filing involves submission of tax along with necessary documents declaring yearly income of the individual or company. In India the process of tax filing is governed by the Ministry of Finance. The Ministry of Finance of Government of India has different departments that are involved with the process of tax collection. The most important department that is associated with the process of tax filing in India is the Department of Income Tax, Government of India. The corpus [43]
INCOME TAX RETURN
accumulated from individuals and companies as income tax are forwarded to the Ministry of Finance, Government of India. The revenue so collected is used to run the Government of India machineries. The whole process of tax filing in India is done in accordance with the Income tax acts and rules as promulgated by the Department of Income Tax, Government of India. The main purpose of filing tax returns in India is to have records of structured information. The tax of an individual or a company is submitted against an account number which is an unique combination of alpha-numeric character called Permanent Account Number (PAN). This PAN enables the taxing authority to record each and every relevant details pertaining to tax declaration of a particular person or company in India. This is a fool proof process and there is no place for discrepancies.
Over the years the process of tax filing in India has made tremendous progress. Gone are the days when one had to wait for endless hours to see his yearly tax declaration being verified and accepted. Today, the department of Income Tax under the government of India has facilitated its citizens with e-fling process. The procedure involves filing of income tax returns over Internet. This has in fact simplified the arduous mechanical tax declaration process in India. Now an individual or company can file his tax according to his convenience by simply quoting the unique PAN. All the required information regarding filing process and necessary documents are mentioned therein. The concerned individual or company should fill-up the relevant electronic form according to the instructions given therein.
[44]
INCOME TAX RETURN
The important declarations that are to be made while undertaking the process of e-filing tax are as follows -
Information required for individual tax payer
A copy of last year's tax return
Bank Statement
TDS certificates
Savings certificates / Deductions
Interest statement showing interest paid to the individual throughout the
year Information required for corporate tax payer
A copy of last year's tax return
Bank Statement
TDS certificates
Savings certificates/Deductions
Interest statement showing interest paid to the corporate throughout the
year
Profit and Loss Account
Balance Sheet
[45]
INCOME TAX RETURN
Is there a fine for not filing income tax returns in India?
Yes, there definitely is a fine for not filing income tax returns in India. For every month delayed, you are paying 1.5% per month. If you do not file your income tax returns before the last date of the assessment year (March 31st), you will have to pay a fine of Rs.5000/-. What is the last date of filing income tax returns in India?
1. For those with income above INR 40lakhs, the last date for filing income tax returns in India is September 31st.
2. For those whose income is below INR 40lakhs, the last date for filing income tax returns in India is July 31st.
3. For both the above groups of tax payers, they can still file their income tax returns before March 31st; but then each month delayed means more interest to be paid on the delayed tax.
[46]
INCOME TAX RETURN
TAX PENALTIES The major number of penalties initiated every year as a ritual by Income Tax Authorities is under section 271(1)(c)which is for either concealment of income or for furnishing inaccurate particulars of income. "If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person(a) has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142, or (b) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,(ii) in the cases referred to in clause (a), in addition to any tax payable by him, a sum of ten thousand rupees for each such failure; (iii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income
[47]
INCOME TAX RETURN
MERITS OF DIRECT TAX
Economical: Direct taxes are very economical in the sense that the cost of
collecting these taxes are relatively less as they are usually collected at the source and they are paid to the government directly.
Certainty: Direct taxes satisfy the canon of certainty. The tax payers know
that how much they have to pay and on what basis they have to pay. The government also knows fairly the amount of tax it is going to collect.
Equity: Direct taxes can be made to conform to the principle of ability to pay
by choosing the most appropriate rate schedules. By making the rate structure possible and progressive their burden can be put more on rich than poor.
Reducing inequalities: Direct taxes are progressive in nature. Rich people
are subjected to higher taxes on the basis of their higher income and hence reduces the inequalities of income and wealth.
Civic consciousness: When one knows that his taxes shall be well utilized
for the benefit of the public such as the developmental and defense projects , infrastructural development, establishment of government schools, hospitals, maternity homes etc., they take active part in the process of payment of taxes. They pay their dues on time and pay it will honesty. On the other hand, the in direct taxes go in the hands of the traders and the citizens do not have any account whatsoever in the utilization of these taxes. Hence, it acts an disincentive for them.
[48]
INCOME TAX RETURN
DEMERITS OF DIRECT TAX
Unpopular: Direct taxes are directly imposed on the person. They
cannot be shifted. Tax payers feel their pinch directly.
Possibility of tax evasion: Direct taxes encourage tax evasion. People
conceal their income from the tax official so as to evade taxes. In (India, there is a large scale tax evasion on the part of the businessman.
Inconvenience: The main drawback of the direct taxes is that they cause
a lot of inconvenience to the tax payers. Sometimes, the tax payers are required to pay the entire tax in one instalment. Besides, the tax payers have to give and elaborate documents on their income and expenditure.
Adverse effects on the will to work and save: Direct taxes may have an
adverse impact on the will to work and save. Higher rates of income tax may discourage people to work hard or work overtime. Similarly, the direct taxes may reduce their willingness to save.
[49]
INCOME TAX RETURN
CONCLUSION At the end of this study, we can say that given the rising standards of Indian individuals and upward economy of the country, prudent tax planning before-hand is must for all the citizens to make the most of their incomes. However, the mix of tax saving instruments, planning horizon would depend on an individual‟s total taxable income and age in the particular financial year.
[50]
INCOME TAX RETURN
BIBLIOGRAPHY Books:
T. N. Manoharan (2007), Direct Tax Laws (7th edition), Snowwhite Publications P.Ltd., New Delhi.
Dr. Vinod K. Singhania (2007), Students Guide to Income Tax, Taxman Publications, New Delhi
Income Tax Ready Reckoner – A.Y. 2007-08, TaxMann Publications, New Delhi
Websites:
http://in.taxes.yahoo.com/taxcentre/ninstax.html
www.efiling.incometaxofinfia.gov.in
emudra
http://in.biz.yahoo.com/taxcentre/section80.html
http://www.bajajcapital.com/financial-planning/tax-planning
http://www.incometaxindia.gov.in
[51]
