Tax filing has become simpler and more convenient than the complicated process it used to be a few years ago. Yet, a lot of taxpayers find it difficult to file their returns and outsource the entire process to a tax
professional. That's surprising because some of the private e-filing
portals handhold the taxpayer through the entire process, and even offer guidance if you cannot find your way.
The story this week is meant to empower the reader to file his tax return himself. We have broken down the process into five steps. You start with checking your tax credit statement and reconciling it with the tax you have paid during the year. Next, you choose the correct form for filing your return. The choice of the form will depend on the type of income you have. Admittedly, this is a tricky area and even the tax experts we spoke to were divided on where the taxpayer stands.
After this, you have to decide on the mode of filing. While e-filing is mandatory for those earning more than Rs 5 lakh a year, how you do it is still your call. We also tell you what to look out for if you file your return through a private portal.
Lastly, we caution you against the common mistakes that taxpayers make. Over the next four weeks, millions of Indian taxpayers will file their returns. Many of them will make mistakes and their returns will invite notices from the tax department. We hope that after reading our story, you will be able to file an error-free return.STEP 1: CHECK YOUR TDS DETAILSStart by reconciling the tax you have paid and the TDS details in your Form 26AS.
Before you get down to filing your tax return, you should check whether the tax you paid during the year has been correctly credited to you. You can do this by checking your tax credit statement. Also know as the Form 26AS, it has details of the tax paid by an individual. Any TDS linked to your PAN or self assessment tax paid by you during the year will reflect in this form. If you are a salaried taxpayer, you need to match the TDS details in the Form 16 from your employer with the details in the Form 26AS. If your bank or bond issuer has deducted tax on the interest income, it would be in this statement.
You can access the Form 26AS on the Income Tax
department's e-filing portal (https:// incometaxindiaefiling.gov.in/). When you click on "Check tax credit statement" you will be directed to the relevant page. First time users will have to register before they can log in and access their tax credit statement. But there is an easier way if you have a netbanking account. Just click on your tax credit statement and you will be directed to the Traces (TDS Reconciliation Analysis and Correction Enabling System) webpage without the hassles of registration.
If there is a mismatch in the details, you need to bring it to the notice of the establishment that deducted the tax and get the mistake rectified. "Tax authorities use Form 26AS as the basis for issuing notices and refunds. Therefore, you must verify the details in advance," says Vineet Agarwal, director, KPMG India.
The Form 26AS should serve as a warning for taxpayers who, deliberately or otherwise, under-report their income in the tax return. Many taxpayers wrongly assume that if TDS has been deducted on the interest earned on fixed deposits and bonds, they don't have to pay any more tax. But TDS on bank deposits is 10% while the tax may be 30% if the person earns over Rs 10 lakh. If he ignores the income from interest, the tax department will immediately find out. The TDS will reflect in the Form 26AS but the corresponding income will not be reported. "The Form 26AS will help a taxpayer identify and report the sources of income which he might have missed out," says Vaibhav Sankla, director, H&R Block, a tax consultancy firm.
STEP 2: CHOOSE THE RIGHT FORMMost taxpayers falter at this stage because they don't know which form is applicable to them. The ambiguity in the rules only adds to the confusion.
The form to be used for filing your tax return is crucial. If you choose the wrong option, the return may get rejected. The frequent changes in rules of tax return filing has not helped matters much. The simple ITR-1 is the most used tax form, but many assessees may not be using it correctly. Last year, the Central Board of Direct Taxes had made it mandatory for taxpayers to use ITR-2 if their exempt income exceeded Rs 5,000 a year.
This rule is open to a lot of interpretations. Going by the definition, exempt income would include the allowances for house rent, leave travel, medical and transport. So, most salaried taxpayers would have to use ITR-2 instead of ITR-1.
"This exempt income should mean taxfree maturity proceeds of life insurance policies, PPF, dividend income and EPF withdrawals and so on. However, if you were to go strictly by the wordings, you will have to include the basic allowances that form part of most salaried individuals' packages," says certified financial planner Pankaj Mathpal. Others feel that exempt income in this context only refers to earnings like dividend and agricultural incomes and not the allowances from employers.
However, Vaibhav Sankla, director, H&R Block, maintains that tax department's notification will have to be followed in letter and spirit. "Last year, many assessees who should have opted for ITR-2 because they had exempt income of more than Rs 5,000 used ITR-1 for filing their returns. Though their returns were accepted, the same leeway may not be extended this year," he says. The tax department has not issued any formal clarification on this matter.
One of the advantages of choosing a private portal is that it automatically chooses the correct form for you. As you enter the details of your income and the exemptions claimed, the portal processes your return using the appropriate form. But, as we will explain later, this convenience comes for a price.
STEP 3: CHOOSE THE RIGHT MODEIf you are cost conscious, you can e-file your tax return for free through the official website. Go for a private portal if you are seeking convenience.
E-filing is mandatory for taxpayers with an income of over Rs 5 lakh a year. You can do that for free through the official website of the income tax department, or you can file through a private portal by paying a small fee.
If you opt for the tax department's portal, you will have to complete the process on your own. It has become simpler this year, with Java utility being made available, but the filing through a private portal is far more convenient.
This convenience comes for a cost: you pay anything between Rs 250 and Rs 1,500, depending on the form you use and the type of income you have. Some portals charge a small fee for scrutinising your returns for mistakes and ensuring that all deductions have been availed.Choosing a tax filing portalCharges are not the only factor. Here are other things to consider when choosing an e-filing portal.Is the e-filing portal comprehensive?
Some portals make the process very simple for taxpayers. While this helps, some exemptions may be missed if the form is not detailed enough. The more questions the portal asks you, the better it is for you.Assistance during and after filing
Will the e-filing portal guide you in the process to ensure there are no mistakes? Some portals offer this service for a small fee. Some even send you an alert if the ITR V has not been posted within the deadline.How free is the free option?
There has been quite a profusion of tax filing portals after e-filing was made mandatory for those earning more than Rs 5 lakh. Choose a portal with a good track record and established credentials.STEP 4: NOTE THE CHANGESThe tax forms seek more information on income and expenses this year.New tax reliefs:
In case of ITR-1, the form now has created space for claiming deduction under section 80EE that is available to first-time home buyers. So, if you have obtained a home loan in the period April 1, 2013 to March 31, 2014, you can claim an additional deduction of Rs 1 lakh on the housing loan interest paid. However, to be eligible for this tax benefit, your loan amount should be less than Rs 25 lakh and the value of this self-occupied house should not exceed Rs 40 lakh.Exempt allowances:
You will now have to furnish details of allowances exempt under section 10. ITR-2 has incorporated fields for providing information on house rent allowance, leave travel allowance, tax paid by employer on non-monetary perks and other allowances. Till last year, you only had to mention the sum total of all such tax-exempt allowances.Capital gains:
You will have to provide detailed information on capital gains too. The new form ITR-2 requires you to divide capital gains into several categories, based on the nature of the capital gains and the asset sold.House property:
If you sell property after three years, you can claim deduction on the capital gains by using the amount to buy another house or investing in bonds issued by the NHAI or REC. In the ITR-2, you will have to provide details of such deductions claimed on capital gains.Refunds:
The tax department will not send you a cheque anymore. The refund will be directly credited to your bank account through ECS. So make sure your bank account and branch code details are correct.STEP 5: MISTAKES TO AVOID1. WAIT TILL LAST DAY:
The earlier you file your return, the better it is. E-filing websites tend to get clogged just before the deadline expires. The refunds also come faster if you file earlier.
2. MISCALCULATING TAX:
If you changed jobs during the year, the first company may have deducted tax correctly, but the second might have deducted very little. Calculate the tax by adding both incomes.3. IGNORING INTEREST:
The new Sec 80TTA gives deduction of up to Rs 10,000 on interest from a savings account. This does not include the interest earned on bank deposits. That is taxable.4. NOT SENDING ITR-V:
E-filing your returns does not complete the process. If you didn't use a digital signature, you have to send your ITR-V by post within 120 days of uploading the return to the CPC.5. IGNORING ITR-V INSTRUCTIONS:
Don't send the ITR-V by courier. It should be sent by ordinary or speed post. Also, it should be printed in black and signed in original. No photocopies.
Source:-The Economic Times