Now that FY 10-11 is done and dusted, we should turn our attention to filing of the tax return for the same. Essentially, we have four whole months – up to July 31st to file the tax return. Yet, many of us will wait till the last minute and then perhaps hope for an extension of the date. Basically, this is to do with the human tendency of procrastination. However, this year could be different – why not get over and done with your return filing early – perhaps by the end of April itself? Plus, having time on your side means that any inadvertent errors or oversights that creep in when things are done in a hurry can well be avoided.

Towards, this end, this week’s article discusses how simple the tax return preparation process really is. First of all, a taxpayer need not file a tax return unless his or her income is above Rs. 1,60,000. For ladies this limit is Rs. 1,90,000 and for senior citizens (65 years and above), the limit is Rs. 2,40,000. In other words, if your total income is below this basic exemption, there is no legal requirement to go through the entire return filing process. Earlier, even if your income was below this threshold, if you were covered under the ambit of what was called the 1 by 6 scheme, the tax return had to be filed. The 1 by 6 scheme essentially meant that if you satisfied any one of various conditions such as owning a telephone connection, a house property, having an electricity bill of over Rs. 50,000 a year etc. amongst other things, then regardless of the income level, it was obligatory to file a tax return. None of this is applicable now and as far as the current year’s tax return is concerned, you are required to file only if you have a taxable income above the basic exemption limit.

What is taxable income?
Which brings us to the next question --- what is exactly meant by taxable income? Taxable income implies the gross amount of income that you earn before claiming any deductions. For example, say Mr. Joshi, a senior citizen, earns an income of Rs. 3,00,000. During the year, he invests Rs. 70,000 in PPF thereby bringing his income down to Rs. 2,30,000. Now, even if Rs. 2,30,000 is below the basic exemption of Rs. 2,40,000, Mr. Joshi will have to file his tax return since his gross income of Rs. 3,00,000 was above the threshold limit.

Sources of Income
There are basically five heads of income that any person can earn income from. These five heads are exhaustive --- which means that there is no other source apart from these five from which you can earn any income. These are ---
1.    Income from Salary
2.    Income From House Property
3.    Income From Business and Profession
4.    Income from Capital Gains
5.    Income from Other Sources

So basically, the tax return filing process can be reduced to filling in the details of income at the appropriate space in the tax return. For persons earning a salary, the employer provides a form known as Form 16 that gives full details and break-up of the salary income. The same can be used to fill in the details in the form. Income from house property implies the rental income that a landlord may derive from his or her property. As far as Business or Professional income is concerned, the net income remaining after deducting expenses incurred for running the business is subject to tax. Capital gain is earned when you sell mutual fund units, shares or property etc. Currently, long-term capital gains from equity shares and units of equity mutual funds are exempt from tax whereas the short-term gains are taxed at 15%. The long-term rate on other assets such as property etc. is 20% after indexing cost. Short-term gains if any, would be added to the other general income. The last head is the residuary head which basically includes interest income that you earn such as Bank FD interest, interest from RBI bonds etc. It must be noted that apart from interest on PPF, all other interest from whichever source is fully taxable.

An aggregation of all the above incomes should be above the basic exemption limit for you to be liable pay taxes or to file a tax return. The rate of tax depends upon your level of income as per the applicable slab.

Return Filing Process
Now we come to the return filing process. On a basic level, it comes down to entering the figures as applicable to your income source in the space provided for the same. Earlier, the two page SARAL which was prima facie a simple form, actually used to turn out to be quite complicated. For example, say you earned Rs. 75,000 by way of capital gains. The tax authorities were not satisfied with the mere mention of the figure; they needed to know the computations leading to the above figure. This had to be provided by way of a separate annexure. The same principle was applicable to all other streams of income, leading to the fact that at the end of the day, the tax return on account of the annexures became quite bulky and complicated. Also, each person used to attach his or her own version of the annexures leading to inconsistencies in the tax return even in respect of similar income heads. Tax officers used to spend time and resource in calling for documents and information that needed to be submitted along with the return in the first place.

Also, SARAL was a one size fits all kind of a solution. This meant that whether you were an employee or a businessman, a senior citizen or a stock market operator, a self employed professional or a part time worker, the same SARAL form had to be used. This was sub-optimal. Now, in the new regime, taxpayers are categorised into types of assesses, based on their nature of income.

Form No.    Meant for
ITR-1    Individuals having only salary, pension or interest income
ITR-2    Individuals, HUFs having no business income
ITR-3    Individuals, HUFs being partners not having proprietary business or profession
ITR-4    Individuals, HUFs having proprietary business or profession
ITR -5    Firms, AOPs, BOIs
ITR-6    Companies
ITR-7    Charitable trusts, political parties

You will notice that for most senior citizens, the first form ITR-1 will be required. The forms come with clear cut instructions as to how to fill them and in most cases, you would not even require professional help. It is literally as simple as filling in the blanks. The forms are put up on the Income Tax website (www.incometaxindia.gov.in). You are advised to download and go through the form in order to familiarize yourself with the same.

As mentioned earlier, these new forms do not require taxpayers to provide any additional information by way of annexures. In fact, no documents of any sort, even the Form 16, need be attached. The ITR form has to be submitted simply as it is, only with the information appropriately filled up.

However as a means of keeping checks and balances, individuals have to fill in the space provided in this regard an account of their transaction in any of the following seven items in a year:

1) Cash deposits of Rs 10 lakh or more in a savings account 2) Credit card payments exceeding Rs 2 lakh; 3) Purchase of mutual funds of Rs. 2 lakh or more; 4) Purchase of bonds or debentures of Rs 5 lakh or more, 5) Purchase of shares (public or rights) for Rs 1 lakh or more; 6) Purchase or sale of immovable property for Rs 30 lakh or more and lastly 7) Purchase of RBI Bonds of Rs 5 lakh or more. Note that the limits are applicable for the entire year and not per transaction.

To sum
As you can see, the process of filing the tax return is really straightforward and totally hassle free. The key thing is to ensure that you start early and have time on your side. So start today!

(The writer is Director, Wonderland Consultants, a tax and financial planning firm. He may be contacted at sandeep.shanbhag@gmail.com)

Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

e-mail: Sandeep Shanbhag

Suggest a story idea! Write to us!