Income Tax Returns: Necessities and Benefits of Filling them - July 31, 2016

The July 31 st deadline for income tax returns in knocking the door and let the
cloud of doubt surrounding it cleared. Income tax is what you pay the
government when you earn income above a threshold level. It is what you shell
out for all the services you avail from the government. Whereas Income tax
return is the procedure through which the citizens declare all their income,
expenditures and reductions to the government through prescribed formats.
It is a necessity that every person earning above the exemption limit and paying
taxes should file ITR. The exemption limit is at present INR 2.5 lakhs for the
current financial year for a citizen below the age of 60, INR 3 lakhs per annum for
citizens in the age group of 60 to 80 and INR 5 lakhs for citizens above the age of 80.
While a person working in a job is considered as an income earner there are other
sources of money too considered as income:

 Interest earned over fixed deposits.

 Property rent.

 Capital gains over shares.

 Capital gains over equity shares.

 Money earned by Freelancing.

 Business and companies.

So we know these categories of people earn money and should file returns. In
certain cases there is a necessity that even people who do not pay taxes need to
file ITR. Here are those exceptions:

Foreign assets:
A resident individual who owns an asset or has a financial interest in an entity
located outside India and holds account in foreign banks has to file ITR. This is
mandatory even if the person has no taxable income. Failing to report will lead to
penalties. However this is not applicable to non resident Indians (NRI).

Non resident Indians (NRI)
A NRI holding savings bank account or fixed deposits and earning interest over
them and letting out properties for rental purpose in India has to file ITR as this is
also a source of income. If the income through any of these avenues crosses INR 2
lakh then ITR should be filled.

Company or firms
All companies (private limited, limited or one person) have to file ITR and
maintain accounts in compliance with the companies’ act, 2013, even when they
are under loss.
While we have seen who have to file ITRs, let us have a look at what are the
benefits of doing so:

Income proof
ITR serves as income proof it is the valid documented proof accepted when you
apply for a visa, bank loan, foreign education or employment abroad. It is
accepted globally. It helps you in securing bank loans faster as you have stated a
clean credit history and law abiding citizen.

If you have paid income tax for the financial year or tax is deducted at source and
the amount paid is higher than what you are supposed to then you can claim for a
refund through income tax returns. No claim is possible without filing returns.

Loss carryover:
Companies under loss can carry over them to up to 8 years and then adjust it with
future profits and reduce the tax they pay. The carry over is possible only if ITR is
filed. This applies even to people investing in shares.

Exempt income earners
There are certain sources of income exempt from tax like agriculture, commuted
pension, tax free gratuity and long term capital gains. Though these income
earners need not pay tax to file returns it is beneficial that they file returns. When
they make investments in companies or make huge expenditure it will monitored
through personalized account number (PAN) and raises tax men’s suspicion so in
case of any questioning ITR serves as documented proof.

How to fill ITR forms
There are around 9 forms prescribed by the central board of direct taxes (CBDT)
depending on the tax payer’s income.

Latest updates regarding the filing of returns:
There are new forms added apart from the previous financial year forms. The
finance ministry earlier included provisions to disclose foreign trips and dormant
accounts which were dropped after controversies. Therefore one does not need
disclose details of foreign trips but provide the passport number with appropriate

The number of pages in ITR forms has been reduced to taxpayers comfort.
Students or business people in India who acquire foreign assets during their stay
need not file returns if they do not have any income here.
Here are the forms and details of who should fill them:

ITR 1: this is for salaried people with one house. An others earning additional
income through horse races or lottery or won more than one house should not fill
this form. Agricultural income earners of more than INR 5,000 are also not eligible
to fill this.

ITR 2A: This form is for salaried class people with more than one property and no
capital gains. And those who invested in long term capital gains and sources
which are exempted from tax can fill this. If they have income through capital
gains they will not be eligible to file this. Non resident Indians can also fill this if
they have income in India from non taxable source. However citizens with foreign
assets or accounts cannot file this form.

ITR 2: Those who have capital gains or interest money should file this form,
agricultural income earners of above INR 5000 and citizens with accounts in
foreign banks or foreign assets. Losses in horse races and lottery from this year
can also be stated, to be carried forward.

ITR3: This form is applicable when a citizen is partner in a firm but does not carry
business as an owner but only through means of interest salary bonus and shares.

ITR 4: This is for citizens who receive income through business. There is no
minimum amount of income to file this form. All the income sources such as
interests, lottery house property of a business person can be included.

ITR 4S: This form is a new one introduced for the sake of freelancers, consultants
and resident partnership firms. If the gross receipt of these citizens does not
exceed INR 50 lakhs they can file this form for “presumptive taxation”. One can
declare their gross receipts and 20 percent of it as expenditure without any
further details and pay taxes for the 50 percent of gross receipts as income. This
was introduced to ease the burden on consultants and freelancers who cannot
spend or maintain account books as they are time consuming.

ITR 5: this is for firms with limited liability partnerships, Body of individuals and
associations of persons

ITR 6: the form is for companies who do not make claim under section 11.

ITR 7: This form is applicable for charitable trusts and religious entities.

ITR 8: For those filing FBT returns.
It is better that citizen’s fill out the forms well before the date of deadline to avoid
confusions and improper disclosure of information. As a citizen of this nation it is
part of our duty to pay taxes and file them. Failing to pay taxes will lead to
penalties and legal action from the government.

Author Bio:
Anand Rajendran is a freelance writer living in Chennai, India. His interest in personal finance and budgeting began when he was earning an MFA in theater, living in one of the most expensive cities in the country (Chennai, TN) on a students budget. Today, he writes for a number of websites and keeps up his own Tax Consultancy Services named Uptra Consultancy Services


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