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The following are the incomes which are need to be filed without fail during the process of ITR:
Interest on savings account is taxable as per Income tax slab rates applicable to the investor. However, deduction under section 80TTA is allowed on interest from savings account with a maximum of Rs.10, 000 – per year. This deduction is available only to individual and HUF. In 80TTA of the Income tax act, interest up to `10000 earned from all savings bank account is exempt from tax. This is applicable for savings bank account, post office or co-operative banks. If the interest earned from these sources exceeds Rs.10000, the extra amount will be taxable.
“TDS on saving interest is not deducted like fixed deposit and term deposit. But the account holder should calculate and declare the interest from all saving bank accounts during the financial year under the head ‘Income from other sources’ claim deduction u/s 80TTA and pay the tax accordingly.
Keeping minimum balance in savings accounts is suggested because the rate of interest is very low and it is also reduced by income tax payable: 2.8% per annum for person in 30% tax slab with 4% interest on saving account.
How Banks Compute Interest on Savings Account?
Many people are either unaware of the actual method of calculation of interest or are not updated with latest method being followed by financial institutions.
Older method: Earlier banks offered interest on the minimum balance available in the account in a month. For example, if you maintained a balance of over Rs. 1 lakh during the whole month barring one day when your balance fell down to Rs. 10,000. Then, the bank will pay you interest calculated on Rs.10, 000 only. However, now this has changed.
New method: Banks now offer interest which is calculated on a daily basis on the money lying in your account at the end of the day. As a result, customers are getting better benefits due to higher interest calculated on their deposits.
Interest earned from fixed deposits is liable to be taxed on accrual basis at the slab rate applicable. Interest on Fixed is fully taxable at Income tax slab rates applicable to the person. There is no separate deduction of Rs. 10,000/- as available in the Savings account interest. “As per Income Tax Act, 1961 u/s 194A (1) (3) (i) where the amount or aggregate of the amounts of interest credited or likely to be credited or paid during the financial year exceeds Rs.10, 000, TDS is applicable from the first interest flow”. Minors who hold deposits are also subject to TDS; the person in whose hands the minor’s income is included can claim the credit for the TDS.
TDS Rates on Fixed Deposits:
3.Tax on Mutual Funds:
The taxation of returns depends on the kind of funds you are investing. That is whether you are investing in debt or equity schemes. Also, the duration of your investments would depend whether you would qualify for short-term or long-term capital gains tax.
1. If you hold your debt investments for less than three years, returns are treated as short-term capital gains for taxation purpose. Short-term capital gains are added to the income and taxed according to the income tax slab applicable to the individual.
2. If you hold your debt investments for more than three years, returns would be considered as long-term capital gains and taxed at 20 per cent with indexation benefit.
Equity schemes (if the scheme invests more than 65 per cent of its corpus in equity, it would be treated as equity schemes for the purpose of taxation. Arbitrage funds are treated as equity schemes for the purpose of taxation. International funds, though they invest in stocks abroad, are treated as debt schemes for the purpose of taxation. Fund of funds is also treated as debt schemes for taxation purpose.)
If you sell your equity investments before a year, returns would be treated as short-term capital gains and taxed at 15 per cent.
If you sell your equity investments after a year, returns would be treated as long-term capital gains. Long-term capital gains of over Rs 1 lakh is taxed at 10 per cent without the indexation benefit.
4.Tax on Notional Income:
Of all taxable incomes, perhaps tax on rental income is most complicated as this is the only income that the Income Tax Act (ITA) taxes on a notional basis. In other words, the incidence of tax is based not only on the income earned from the property but also where no income is being earned, on the inherent potential of the property to earn income. Also, the exemptions and deductions differ as per the number of properties a person owns. Going by the number of emails we receive in the form of queries on this topic, this week we thought we should re-examine the subject in greater detail.
Basically, tax is applicable where there is income and essentially there can be only two kinds of incomes related to property – rental income and of course capital gains when property is sold.
The basis of calculating income from house property is the rental value. This is the inherent capacity of the property to earn income. As mentioned earlier, property income is perhaps the only income that is charged to tax on a notional basis. This charge is not because of the receipt of any income per se, but is on the inherent potential of the house property to generate income.
Minors can earn an income from bank accounts, fixed deposits or other investments made in their name by the parents. Any Income that accrues or is paid to a minor is clubbed with the Income of the parent under section 64(1A). ‘Clubbing’ means such Income gets added to the parent’s income and is taxed just like it is the Parent’s own income. So in case you are hoping to save tax by investing in the name of your children – such income will be added to your Income and taxed accordingly.
If both spouses are earning –The Income of the minor shall be clubbed with the income of the parent, whose total income (before inclusion of the minor’s income) is greater.
In case the marriage does not exist, the income of a minor shall be clubbed with the parent who maintains the child.
If both the parents are not alive the income of the minor child is not clubbed with the guardian, a separate income tax return is filed for the minor.
Exceptions – In the following cases the income of a minor child is not clubbed.
India is a country of close knitted families and having lot of reasons to celebrate owing to its diversified culture, customs and religion. Numerous occasions arise where gifts are exchanged. In fact gifting each other is a symbol of love and affection and can also be a symbol of social status. However, many a times gifts can also be a part of tax planning / tax evasion. While tax planning done within the framework of law is permissible, tax evasion is prohibited and can be penalised.
The Government introduced gift tax in April 1958 regulated by Gift Tax Act, 1958 (The GTA) with an objective to impose taxes on giving and receiving gifts under certain specific circumstances. Gifts in the form of cash, demand draft, bank cheques or anything having a value were covered. However, the GTA was abolished in October 1998 and made all gifts tax free. But, Gift Tax was reintroduced in a new form and included in the Income tax provisions.
Income tax return for the assessment year 2018-19 can be revised by 31 March 2019.
The income tax department has notified seven ITR forms for filing of return for FY 2017-18. ITR filing process starts from choosing the correct form, which depends on the nature of income and the status of the taxpayers.
Taxpayers must fill the correct personal details such as name, phone/mobile number, date of birth, address, email ID. One should check that the details match with PAN (Permanent Account Number).
The following are the common mistake to avoid while filing ITR:
1. Choosing the wrong tax return form
The Income Tax Department has issued 7 types of income tax return (ITR) forms, and selection of an ITR form for filling tax return depends upon the type of income and status of the tax payer. ‘The disclosure requirements are different in all the forms and, therefore, it is important to choose the correct form while furnishing your income tax return, failing which your return can be treated as defective.
2. Gross total income exceeding basic exemption limit
You are required to file your income tax return if aggregate of all your income before deduction under various sections of chapter VIA like 80 C, 80 CCC, 80 CCD, 80 D, 80E, 80G, 80 GGA, 80 TTA exceeds the basic exemption limit. These sections deal with deductions available for various investments or payments made by you like PPF, NPS, ELSS, NSC, repayment of your home loan principal, school fee, life insurance premiums, mediclaim premiums, donations, interest on education loan, rent paid by self-employed etc.
3. Non-Disclosure of losses being carried forward
In order to carry forward certain losses incurred during the year for set off against income in future years, it is mandatory to file one’s income tax return on or before the due date. If the income tax return claiming carry forward of the current year’s losses is filed after the due date, such losses will not be allowed to be carried forward.
4. Non-Verification of e-filed ITR
Most of the tax payers are required to file their income tax return electronically. However, only furnishing the return electronically is not enough and you are also required to verify the return so that your identity is authenticated. “You can either e-verify the return by Aadhaar OTP, linking your login with Demat A/c, Net Banking or send the signed copy of ITR acknowledgment to CPC, Bangalore within 120 days. Failure to verify your return within the specified time can result in you being considered as a non-filer by the tax department,”
5. Assets or signing authority outside India by resident taxpayers
You are also required to file your income tax return in case you are resident in India for tax purposes and own any asset outside India in your own name as beneficial owner or have interest in any asset outside India or even when you are an authorized signatory for any account located outside India.
6. Non-Disclosure of Foreign Assets and Income
It is mandatory for all ordinary resident taxpayers to disclose correct details of their foreign assets and income outside India in their income tax returns. Under the Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act, 2015, tax officers can levy a penalty of Rs 10 lakh if the taxpayer fails to furnish any information or furnishes inaccurate information in the return with respect to foreign income and assets. Still, lots of taxpayers do not disclose correct details of their foreign assets and income outside India.
7. Excluding FD interest from taxable income
While interest income up to Rs 10,000 from savings accounts is exempt, one is requited to pay tax on interest income earned from fixed deposits. However, taxpayers who are not aware about this rule, exclude fixed deposit interest from their taxable income, which should never be done.
The following are other few mistakes to avoid:
Checklist before submitting ITR
A taxpayer should regularly check the status of his income tax return to ensure that the ITR has been accepted and processed as it is. If some discrepancies are found or some changes are proposed by the CPC, Bengaluru, the taxpayer can timely provide a suitable reply to the Dept. The following are few terms which you need to understand to know the status of the income tax return.
Taxable income is calculated by taking your adjusted gross income and subtracting your total exemptions and itemized deductions. It determines your tax liability before tax credits.
Whether you’re single and ready to mingle or joined in matrimony, your relationship status determines how you file and what, if any, tax breaks you’re entitled to such as the amount of your standard deduction.
The most common filing status options are “Single,” “Married Filing Jointly” and “Head of Household,” and the IRS offers a handy cheat sheet to help you determine the appropriate filing status for you. They also make it easy to choose the correct filing status when you use IRS e-file, which also happens to be one of the fastest ways to get your refund.
Deductions are items or expenses subtracted from your income to reduce the amount of income that is subject to being taxed. Whether or not a tax-deductible expense ultimately reduces the income tax you owe depends on several factors. The biggest differentiator in tax deductions is whether a taxpayer decides to take the standard deduction or to itemize their deductions.
Taxpayers who choose not to itemize deductions on their tax return can take a standard deduction. The amount of the deduction is based on your filing status, age, and whether or not you’re claimed as a dependent on someone else’s tax return.
Money paid to an individual for services, as shown in Form 16 by an employer, has to be included in the total income for the year.
If you own property and have rented it out, the income you earn from this property has to be included in your total income for the year. Interest paid on a housing loan is tax deductible to a large extent.
When you sell assets like property, shares, bonds, mutual funds, there is a difference in the purchasing price and the selling price. If the sale price is more than the purchase price we call it Capital gains. This income has to be included in the total income if it is gained in the financial year. If you sell an asset at a loss, you can set this loss off against other gains and income as per income tax laws.
Income earned while running a Business or while rendering professional services come under this head. Profits or Losses while running a business or a service have to be declared under this head.
A capital gain is one type of earning that counts toward your gross income. You earn capital gains when the sale price of an asset is higher than the initial purchase price and as noted above, it’s considered a form of income. Before you go spending all that profit, be aware you’ll have to pay taxes on it.
If the status of income tax return is ‘Outstanding tax demand’, it means tax liability is pending for payment. Here you need to access the intimation issued by the Dept. under Section 143(1) to know the reasons as to why the tax demand has been raised.
The reasons for outstanding tax demand can be various, inter-alia, self-assessment tax was not paid at the time of filing of return, additional deductions claimed in ITR, mismatch in tax credits, so on and so forth.
A return is deemed to be defective return if it hasn’t been filed in accordance with the provisions of the law. If your return is found defective, then you will receive a notice of defective return under section 139(9), asking you to rectify the defect within 15 days from the date of receiving notice. If you don’t respond to defective return, then ITR shall be treated as invalid. A few reasons for defective return are mentioned below:
If you see this status, you need to login to your e-filing portal. Go to e-file > Response to notice u/s 139(9). You need to select whether you agree with this defect or disagree. If you agree with the defect, file the income tax return in response to notice u/s 139(9) correcting such defect. If you don’t agree with the defect, then submit the reasons for such disagreement.
No, this isn’t about your significant other’s emotions. Withholding is the portion of your paycheck that your employer sends directly to the government each pay period as partial payment of your income tax. The withholding amount is determined by the number of allowances you claim on your W-4.
If you claim too many allowances, you may owe money at tax time, and if you significantly underpay your taxes during the year, you may get hit with a penalty when you file your tax return.
Adjusted gross income, or AGI, is all the income you receive over the course of the year, including wages, interest, dividends and capital gains, minus things such as contributions to a qualified IRA, some business expenses, moving costs and alimony payments. AGI is the first step in calculating your final federal income tax bill.
From maggot farmers to chimney sweepers, there are plenty of disgusting jobs out there that we’ll never want to do. Fortunately, that has nothing to do with gross income.
Gross Income is your total income before accounting for deductions and taxes. Sources of gross income include salary, wages, tips, capital gains, interests, and dividends.
‘Refund unpaid/failed’ means that the Income Tax Department has sent the income tax refund, but it could not be credited into your bank account because the details of bank account number provided in ITR was not correct or in case of a paper refund the address provided by you is wrong. In this case, you need to visit the e-filing portal and raise a refund re-issue request.
Login to your e-filing account and then go to My Account > Service Request > New Request > Refund Reissue. You can submit a request for the refund reissue.
An individual / company have to calculate one’s tax liability at the end of the financial year, on the earnings during that year.
The taxpayer self-assesses to find one’s tax liability after accounting for TDS and advance tax. This is called the self-assessment tax.
A charitable contribution is a type of itemized deduction. When it comes to charitable giving, unfortunately acting as your best friend’s wingman isn’t going to save you any money at tax time.
Charitable contributions can earn you an itemized tax deduction when you donate to a qualifying non-profit organization, charity, or private foundation. These gifts are commonly made in the form of cash, but can also include real estate, clothing, appreciated securities or other assets.
If any income tax refund is due to the taxpayer, it can be claimed only by filing of the income tax return. The tax refund is paid only when the return is processed and refund is determined by the Income Tax Dept. If the status of ITR is ‘Refund not determined’, then it would mean that the ITR isn’t yet processed by the CPC.
The income tax return is required to be processed within 1 year from the end of the financial year in which the return is filed. Hence if you have filed ITR on 31-07-2018, processing of ITR will be done by 31-03-2020. However, generally, it is processed within a couple of weeks after its verification.
Tax exemptions are specific amounts that reduce how much of your taxable income is taxable. Generally, you can claim one exemption for yourself and one for your spouse assuming you’re married. You can also claim one exemption for each dependent. Be aware, while you may think differently, your spouse is never considered your dependent.
According to income tax rules, if the tax liability of a taxpayer is more than Rs 10,000 in a financial year and one knows that in advance, one has to pay:
This is to avoid certain charges levied by the department in case of non-payment of these taxes as per the dates above. The penalty /charges would be levied when you make your return after the end of the financial year, if the advance tax is not paid..
July 31 is round the corner and the deadline to file income tax returns is here. While there are options to file the income tax returns after the stipulated date, there are several concessions that an individual assessee has to forego.
If you are in the taxable bracket, you must file income tax returns. The Income Tax Department has been reminding taxpayers to file income tax returns for assessment year 2018-19. In order to avoid last minute rush, it is best if you file income tax returns well before July 31. In case you miss this deadline, you can still file your income tax returns but in that case, it may invite a penalty of up to Rs. 10,000. Besides this, a delay in filing of income tax returns also makes you liable to pay interest.
Further, income tax department put obligation to file return online for those person, whose Income
However, income tax department has given relaxation to tax payer of age of 80 years or more from online filing subject to certain conditions
After filing return of income online (without digital signature), you have to verify your return using any of the option mentioned below:-
Here are few things that will happen if you do not file income tax returns on time
A three-tier fee system has been introduced for not filing income tax return within due date. If return is filed beyond due date but before December 31, then fees payable will be Rs. 5,000 whereas in other cases it will be Rs. 10,000. However, in case of taxpayers whose total income does not exceed Rs. 5, 00,000, the fees payable shall be restricted to Rs. 1,000.
An unpaid debt is just like an unpaid debt to anyone else, and it will appear on your credit report. People don’t realize that your credit report reflects your tax liens as much as any other outstanding debt. We won’t even pretend that it could be considered good debt.
It makes sense when you think about it. If you owe the tax money, the agency is not going to hand over any until you pay.
It won’t necessarily be you who is asked to meet with the agency: A third party with information relevant to your case, such as a record keeper from a financial institution, could be summoned instead. It is simply gathering info, you’ll be informed of the third-party summons, but if it’s in reference to money it’s already clear you owe, you might not even find out.
You won’t be able to carry forward your losses and set them off against income next year. The only exception is house property.
People who might declare bankruptcy are the people who couldn’t pay their taxes because they couldn’t afford to pay their mortgage or expenses and get caught in a bit of a bind.
Remember that bankruptcy isn’t magic: While in certain cases, a tax debt can be discharged, if it has turned into a tax lien, it might not be erased.
In case you fail to file your return of income, the department can presume your income and proceed with computation of your tax liability in the manner as deem fit by the department. But, a notice for the same will be served upon you
When income tax return is not filed within the due date, interest at the rate of 1 per cent per month or part of the month is levied up to the date of filing the same. The said interest is payable on tax payable after deducting the TDS, TCS, advance tax and other reliefs/ tax credits available under the law.
The other problems which you might face for not filing your income tax return may out-rise from situations where your filed ITR becomes a documentary need for the process. Like for obtaining loan or any credit facility from financial institutions, for getting your visa done or for claiming refund on excess taxes paid you need to first file the income tax return.
If you don’t file the return by the due date (July 31) then it is treated as a belated return. But there is a deadline even for filing a belated return. According to the Income Tax Act, for returns pertaining to any financial year the last date for late return would be the end of the relevant assessment year.
“Let’s say you are filing your ITR and you end up making a mistake. Under the changed rules, you only have time till March 2019 to make the change. Earlier, taxpayers had a 2-year long window to revise and resubmit an erroneous ITR, which has now been decreased to one year from the end of the financial year. “Therefore, the earlier you file, the longer would be the window available with you for revising your returns to rectify errors if any.
If you have any unpaid tax liability, filing your return after the due date would result in levy of penal interest @ 1% per month from the due date of filing the return till the actual date of filing. This would be a heavy and avoidable payout. What is more, tax authorities can initiate prosecution if the return is delayed beyond the relevant assessment year and the amount of unpaid tax exceeds Rs. 3,000.
Once the return is filed and verification of the same is duly completed, the Central Processing Centre, Bangalore, of the Income Tax Department processes the income tax return. It is only then that the tax liability or refund of taxpayer is determined. Thus, in case the taxpayer is claiming a refund, delayed filing of income tax return will result into a delayed receipt of the tax refund.
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