Are you ready to file your Tax Returns?

Income Tax Filing for Financial Year 2014-15

We are in the last fortnight for filing the Income Tax returns for the previous financial year, 2014-15.  The Income Tax department has become more diligent in collecting details about our incomes from various sources and they look forward to your annual Income Tax returns to corroborate what they have with them.  Filing of Income Tax returns are mandatory for anybody who is earning more than the basic exemption limit, that is, Rs2.50 lakhs per annum (subject to certain well defined exceptions).  Form 26AS is a wonderful tool to understand a broad snapshot of your various incomes you have received and the tax deducted against them.

Kindly start preparing the necessary documents to ensure that you are filing it properly. To give a brief summary of the requirements you need to keep handy are as follows:

1. Form 16 from the employer, if you are employed

2. Interest Certificate on housing loan, if applicable

3. Interest from Bank fixed deposits, if any

4. Interest from Savings Bank account, if any

5. Details of Capital Gains or business income, from purchase and sale of shares/mutual funds, if applicable

6. Investments which are eligible for deductions u/s 80C (if not considered as part of Form 16)

7. Rental Income of house properties, if applicable

8. Details of donations made, if any

9. Details of Health Insurance premiums paid (if not considered as part of Form16)

How to file the returns?

1. Electronically filing of income tax return is mandatory for the taxpayer except for super senior citizen (Age above 80 years) if the total income is more than Rs. 5 lakh or if there is a claim of refund

2. Details regarding how to file the income tax return is available at http://www.incometaxindiaefiling.gov.in -> Help tab -> ‘How to e-file’ and for any other queries on e-filing -> Please go to -> Help tab -> FAQ.

3. New functionality of electronic verification code (EVC) of the Income Tax return has been introduced vide Notification No. 2/2015, dated 13/07/2015. You can use this facility as an alternative for submission of ITR-V to CPC- Bangalore.

To know further details on EVC, please visit http://www.incometaxindiaefiling.gov.in -> Help tab -> EVC user manual.

How to ensure speedy processing of your returns?

1. Please ensure all the information like PAN/ Name/ Date of birth etc. are filled correctly in the Income Tax Return.

2.  Use the appropriate form type relevant to your different sources of income while filing the income tax return.

3. Properly update the Address/ Email Address/ Mobile number by logging into the e-filing website (www.incometaxindiaefiling.gov.in) with your user id and password under profile tab. This is essential as CPC uses these details for sending all the communications.

4.  Make sure that you are taking due credits for the tax remitted on your behalf by your employer.  Kindly check the Form 26AS which gives you complete details of all incomes received by you as well as Tax deducted on them.  To check the details of tax credits visit http://www.incometaxindiaefiling.gov.in -> Form 26AS.

4. Refund:  If you are looking to get refunds, please make sure that you are giving the correct bank account details along with the correct IFSC code .  Refunds are processed through ECS.

5. Outstanding demand: Timely action should be taken for all outstanding demand as reflected in the e-filing website. To know the outstanding demand and to furnish your response to each demand, login http://www.incometaxindiaefiling.gov.in -> e-file tab -> Response to outstanding tax demand.

6. Correctness and Completeness of Income Tax Return: Non filling of the relevant schedules or incomplete data in the return is the most common reason for difference in the Income/ Tax computation by the department. To know further details, login http://www.incometaxindiaefiling.gov.in -> Help tab -> e-filing check points.

7. Removal of defects: Any defects flagged in course of the preparation of the e-return (by using the e-return utility available from department) or while uploading the XML at e-filing website should be corrected so that your return will be processed accurately.

Source: Income Tax mailer to Tax Payers

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Personal taxation related expectations from the Budget

Every year we look forward to the budget if not for anything but for the changes in the budget on the personal taxation front.  This year, there is an increased expectation and following areas may be considered by the Finance Minister:
1.  Increase in the basic exemption limit – the limit is expected to be raised to Rs3 lakhs.  So, anybody earning less than Rs3 lakhs would not be liable to pay any income tax.
2.  Increase in the medical reimbursement limit – the tax free medical reimbursement currently stands at Rs15,000 per annum and it is expected to be raised to Rs50,000.
3.  Increase in the tax saving investment limit under section 80 C – the 80C limit of Rs150,000 was recently raised in the last budget.  But there has been increased demand from the various financial products manufacturers like Mutual Funds and Insurance companies to create a separate sub-limit focussed towards retirement.  Therefore, the Finance Minister my increase the limit by another Rs50,000 with a specific deduction available if invested in Retirement oriented products.  For example, the Unit Linked Pension Plans, contribution to NPS or retirement linked mutual fund schemes.
4.  Increase in the deduction for health insurance under section 80D – the limit of Rs15,000 per annum for an individual remains constant for many years now.  With rising health insurance premium levels, there is a need to raise the deduction allowed by another Rs5,000 per annum.
5.  Increase in cess or re-introduction of surcharge – to fund the Swaach Bharat Abhiyan program, there is a possibility of increase in the amount of cess from 3% to 6% or reintroduction of surcharge at a lower rate of 5% on Income Tax payable.  It can’t be one-way traffic from Government and they need funds for the development programs.
6.  Widening of tax base – may again be a focus area for the Government.  Out of a country of 1200 million, less than 10% of the population pays any kind of income tax.  Its grossly inadequate to fund the development and there is a crying need to expand the tax base by bringing in new tax payers.  So, I am expecting a mechanism by which more tax payers would be brought within the tax fold.
Let’s wait and watch what out of the above gets looked in to by the Finance Minister.

Time to take stock of your Tax Savings Investments

Come December, you are asked by your Accounts/Finance department to submit the proof for the various income tax deductions you have claimed.  You are requested to provide the photocopies of various investments which you have claimed when you submitted the investment declaration form at the beginning of the year.

The two most popular deductions which are utilized by the salary earners in India are Section 80C and 80D.

Understanding deductions u/s 80C:

The most important point to note here is that the maximum amount deduction allowed under this section has been increased to Rs150, 000 from the financial year 2014-15.  Earlier it was limited to Rs100, 000.

So, you get to invest additional amount of Rs50, 000 per annum to invest for the purpose of tax deduction. 

Section 80C eligible investments are:

  1. Provident Fund (PF) contribution deducted directly from your salary by your employer
  2. Voluntary provident Fund (VPF), if any, opted by you over and above the statutory PF limits
  3. Public Provident Fund (PPF) contributions made during the financial year
  4. Principal repayment of housing loans
  5. Life Insurance Premiums paid during the year
  6. National Savings Certificate
  7. Equity Linked Savings Scheme through Mutual Funds
  8. Premiums paid towards Unit Linked Insurance Plans (ULIPs)
  9. Contribution towards Pension Schemes of Life Insurance Companies
  10. Fixed deposits with Banks and Post Office

So, total your contributions made under the above heads and if it is less than the maximum limit of Rs150, 000, then you can invest the balance in any of the above mentioned products till 31st March 2015. 

My recommended choice is to invest in Equity Linked Savings Scheme as it provides an opportunity to participate in the growth of the equity markets and also which has the least of the lock in periods, 3 years.   There are excellent ELSS funds `which has returned more than 20% over the last 10 years.

Understanding deduction u/s 80 D:

The deduction u/s 80 D is specifically provided to encourage people to opt for health insurance schemes.  The Income Tax Act allows you to set off the insurance premium payable under the health insurance under two categories.

Category 1: For the health insurance premium paid by you for your family (excluding your parents) – Maximum amount of deduction allowed is Rs15,000 per annum

Category 2:  For health insurance premium paid for coverage of parents – Maximum amount of deduction allowed is Rs20,000 for both the parents put together per annum.

The total deduction allowable under section 80D can go up to Rs35,000 per annum (Rs15,000 for self + Rs20, 000 for parents).  Please note that the additional deduction of Rs20,000 is available only in respect of parents and not for your in-laws.  So, it requires a bit of tax planning availing the tax break.

So, take some time off and check if you have utilized the full limit under section 80 C and 80 D.   You still have time till 31st March 2015 to complete the investments and claim the tax benefits.

Please reach out to us if you require any help in planning your taxes, identifying the suitable investment and insurance options.