Documents needed while filing Income Tax Returns

Typically, as a salaried tax payer you'll need to have the following items at hand for filing your Income Tax Return. This might vary on a case by case basis.

Here’s a quick guide to the documents you will need for the Assessment Year 2012-13 that will help you prepare and file your Income Tax Return.

PAN number

Verify your PAN number online with the Income Tax Department before filing your Income Tax Return by going to this link: https://incometaxindiaefiling.gov.in/portal/knowpan.do

Form-16 issued by your employer

A Form-16 is a statement issued by your employer which has details of your Salary, the taxable salary amount after various perks and allowances, the TDS deducted by your employer, the deductions you have claimed and the overall tax due. TDS is Tax Deducted at Source. Your employer will have already deducted some portion of your salary and deposited it with the Income Tax Department.

This is a good starting point to start preparing your tax return.

Bank statements / passbook for Interest Income on bank deposits.

Note that you have to declare all Interest Income earned in the Financial Year 2011-12 in your Income Tax Return. A lot of people forget to do this, so please go through your bank statements and find out the Interest received.

Statements of Interest Income besides Bank deposits

Sometimes you may have fixed deposits which may have matured, debentures which yield interest. Take a look and make sure to declare this income on your Tax Return.

TDS certificates issued to you by your bank and others

TDS may have been deducted on your Interest Income by your bank. Check whether any TDS was deducted. You can ask the Bank to issue you a TDS statement. Declare these TDS entries in your Tax Return to reduce your tax liability.

Form 26AS

This is one of the most important documents that you should look at while preparing and filing your Income Tax Return.

Form 26AS reflects all the Income Tax received by the Income Tax Department with respect to you. This is a tax credit statement which shows TDS payments, voluntary tax payments made by you.

 Link to Indian Government site to view Form 26AS

This Form-26AS should match all your TDS certificates issued to you by your employer, your bank etc.

If there is a mismatch you may have a tough time getting your tax refund. In case there is a mismatch between your TDS certificates and Form-26AS, you should contact your employer or your bank. They might have to inform the Income Tax Department of the TDS they have deducted.

Proof of investment under Section 80C

Investments done under LIC, NSC, PPF, school fees of your children qualify for Section 80C deductions.

Payment towards the principal of your Housing Loan also qualifies for deductions under Section 80C. The maximum limit for claim under section 80C is Rs. 1 Lakh.

Charitable donation statements

Donations that can be claimed for tax deductions under Section 80G.

Typically the receipt issued by the charitable organization you donate to mentions the eligibility under Section 80G.

For making sure you can avail of your tax deduction, make sure you quote the PAN number of the charitable organization.

Interest paid on housing loan.

If you pay EMI towards housing loan for a house that you live in: The Interest paid on housing loan is eligible for tax saving. The upper limit for tax saving is Rs 1,50,000.

If you pay EMI towards housing loan for a property that you rent out to others: The Interest paid on housing loan is eligible for tax saving. There is no upper limit for Interest paid exemption on rental property.

Other (less common) documents:

Proof of investment under Section80CCF:

Investments in Infrastructure bonds upto Rs. 20,000 can be claimed as tax deduction under section 80CCF.

Proof of investment under Section 80E:

Interest Paid on Education loan is tax deductible and can be claimed under Section 80E.

Proof of investment under Section 80D:

Medical Insurance payments for your family and your parents can be claimed here.

Proof of Disabilities

If you have disabilities, you might want to check up on Section 80U. If you have dependents with disabilities then check on Section 80DD.

Stock trading statement:

If you have sold any stock in the Financial year 2011-12, then you might have had Capital Gain or Capital Loss. This has to be declared in your Income Tax Return. Take a look at your brokerage account and then declare your Capital Gain.

Capital gain on sale of property

In case you sold any property or house or land or anything of value, you may have had a Capital Gain or Capital Loss. You have to declare this in your Income Tax Return.

Overall the key take away is - Look at your Form-26AS to ensure that your records match those of the Income Tax Department.

5 ways working couples can save income tax !!

In some cases one spouse, say the wife, may be paying the life insurance premium (LIP), say of Rs 25,000, and her total income is say Rs 215,000 she may like to pay the life insurance premium herself so as to get deduction under Section 80C and bring down the total income to Rs 190,000 so that she may not be liable to pay any tax for the fiscal year 2010-2011.
It may be that in her husband's case full deduction may not be available for Rs 100,000 under Section 80C and his income may be liable to the maximum rate of tax.
Then, it would be better and worthwhile to claim the deduction in her husband's name rather than that of the wife.
This is because deduction of LIP under the higher income tax slab would lead to a higher overall tax deduction for both.


2. House ownership and HRA
Sometimes, the spouses have a possibility of saving income tax on house rent allowance within the family, particularly where one of them owns a house.
For example, A is a landlady and is staying in her house with other members of her family.
If her husband gets a house rent allowance which can be claimed exempt from income tax, then he may pay house rent to his wife and claim exemption in respect of the house rent so paid by him from house rent allowance to the extent deductible under the provisions of Rule 2A.
In the above case, the landlady Mrs. A is also employed and she gets a rent, say of Rs 30,000 per month from her husband and the husband is able to take full benefit of the amount by way of exemption of house rent allowance, then this will result into a lower rate of tax because of deductibility of 30 per cent deduction from the rent under Section 24.
Thus, even if Mrs A were to pay tax on Rs 360,000 rent she would not pay tax on the whole of it but only on Rs. 360,000, less 30 per cent thereof, i.e., Rs 360,000, minus Rs 108,000 on Rs 252,000 only.
The effective highest rate would be 21 per cent only.
Thus, a saving of 9 per cent of income tax on Rs 360,000, i.e. Rs 32,400 would be possible in the case of this couple.
Different income tax saving would be possible in different cases.


3. Plan your drawings
As far as possible, drawings should be made by the spouse having the higher income so that the taxable income from investments made by him attracts less tax than by the person having a lower income.


4. Create an HuF
Both husband and wife should, by having gifts from some older relations in the family have a separate Hindu Undivided Family so as to claim an additional  separate exemption of Rs 160,000 through proper tax planning for the FY 2010-11 (A.Y 2011-12).


5. Save tax through trusts
If a working couple has children, say, one son and one daughter, each one can form a trust for the would-be spouse of one child separately in such a manner that the initial exemption of Rs 160,000 under the provisions of Section 164 of the Income Tax Act is available.
If the couple does not have a child, then the husband can have a trust for the unborn son, and the wife a trust for the unborn child daughter to get a separate exemption of Rs 160,000 each.
Besides, if you worship some deity, you can have a private religious trust for one's chosen deity.
Such a trust would be liable to assessment as a separate taxpayer under the category of artificial juridical person and would enjoy a separate exemption of Rs 160,000.
This is how working couples can save a fair amount of income tax through proper planning.

Direct Tax Code: What does it mean to tax savers?

(Source: www.investmentyogi.com)

The Direct Tax Code (or DTC) has recently been proposed by the Government of India, to bring about a change in the whole taxation system of the country. The new tax code aims to make the system more efficient and easy for tax payers, with simplified rules and regulations. It is a step towards replacing the four decade old Income Tax Act of India.

The new DTC would impact both individuals as well as corporate with changes in taxation slabs, Public Provident Funds, insurance policies, home loans, mutual funds and shares.

Drafts of the DTC

The first draft: The Finance Minister floated the first draft of the DTC in August 2009 and kept it open for public comments. Here is a peek on a few of the proposals made in the first draft:

• Proposal to exempt tax if income is Rs 1.6 lakhs in a year. The tax slabs further would be 10 per cent from Rs 1.6 lakhs to Rs 10 lakhs, 20 per cent between Rs 10 lakhs and Rs 25 lakhs, and 30 per cent above Rs 25 lakhs
• Deduction levels for savings raised to Rs 3,00,000
• Wealth tax to be levied on wealth over Rs 50 crore
• Proposal of a uniform corporate tax rate of 25 per cent
• Securities transaction tax abolished

The revised draft of the DTC

Further to the 1,600 comments received, the second draft of the DTC was floated recently. It brought certain changes in retirement schemes, home loans and capital gains, to name a few.

DTC revised draft: What it offers investors

The second draft of the DTC is much simpler and offers investors a whole deal of exemptions, unlike the first draft. The revised draft was aimed towards promoting long term savings.

Capital gains tax

Equity: Investments in shares and equity based mutual funds would now be taxed using a new concept of 'Deduction' instead of the earlier Indexation method.

Certain deductions will be applied to long term capital gains of one year and above. This would be a percentage of the profits earned.  After the deductions are made, the balance amount would be added to the income and then taxed at applicable rates. Currently there is not much clarity on the percentage of deduction. Also, the holding period of shares, as of now, will be one year, from the end of the financial year, when the shares were bought.

For short term capital gains of less than one year, the entire amount will be included as a part of the income and taxed at applicable rates.

Debt, gold and real estate: Capital gains of less than a year, from gold, gold ETFs, debt and real estate investments would be added to the  taxable income, and normal slabs would apply. For all capital gains of more than a year old, gains will be added to the taxable income after adjusting for indexation benefit.

The base date for indexation values would however now be shifted to April 1, 2000 instead of the earlier April 1, 1981.

Life insurance policy, pension or annuity plans and provident funds

All pure life insurance policies, pension or annuity plans, PPF and EPF would come under 'EEE' and not 'EET' structure. This means that it would be completely tax free.

Understanding 'EEE' and 'EET'

EEE: Amount invested or contributed would be 'Exempt', the returns or the interest generated would be 'Exempt' and lastly the final maturity amount would also be 'Exempt' from tax.

EET: Amount invested or contributed would be 'Exempt', the returns or interest would be 'Exempt', but the final maturity amount would be 'Taxed'.

This proposal of EEE status for all retirement products would prove beneficial to pensioners and senior citizens. The first draft of the DTC included such schemes under 'EET' Status.

ULIP's and endowment plans

The DTC includes ULIPs and endowment plans under EET. The money received on maturity from such plans would now be taxed.

Tax on rental income: Tax would be applicable only on the actual rent received for the house. So, if there is no rental income earned, no tax is to be paid.

Earlier, it was proposed that tax was to be paid even if your house was not rented, by considering a notional rental amount.

Home loans: The interest on home loans would be exempt up to Rs 1.5 lakhs. However, the principal portion would now not be covered under section 80C. The first draft had proposed to remove all tax benefits on home loans, both on the principal and the interest. This has now been changed, bringing a relief for all home loan borrowers.

The crux of the DTC is to introduce moderate levels of taxation, expand the tax base and check tax evasion. There is however some areas which still require clarity.

The actual bill is still to be introduced in the parliament, and by this time we may probably see further amendments. It is expected to come into being by April 2011.

The benefits of filing income tax return ...

Source (investmentyogi.com)
We have heard many a times that every individual whose total income exceeds the maximum exemption limit is obligated to furnish his/her Income Tax Return or ITR.

But what is the benefit of filing ITR -- especially for those below 30 years of age or those not in the higher tax bracket? Why should any person voluntarily go and submit his income details to the tax authority? Isn't it more logical not to disclose income details and avoid paying tax altogether?

Standard Income Proof: ITR is considered a customary income proof not only in India but also globally. If you are looking for higher education or employment abroad, ITR is the largely accepted income proof.

Speeds your loan application process: Apart from a good credit history (or past repayment track), the fact that you are filing your ITR regularly gives you speedier access to credit and at better terms -- although not necessarily a larger line of credit, but surely a better rate.

It also provides the impression to the financier that you are a law abiding citizen and will repay the loan within time.

Power of PAN: Permanent Account Number or PAN issued by the IT authority is not only a prerequisite for filing ITR but is also now mandatory for all financial transactions -- from opening a bank account, or purchasing mutual funds to real estate for investment. So it makes sense to get yourself one even if you don't have much income to boast of.

Claim your tax refund: Filing ITR is not always about paying tax. It can be used as a means to reduce your tax liability! Yes, you heard us right. Take for instance, salaried employees for whom TDS has been cut during the financial year can claim refund if the tax outgo has been more than the actual tax payable.

Important note:

Every person with taxable income (over and above the tax exemption limit) should file an income return, even if her/his tax liabilities have been taken care of by the employer through tax deducted at source (TDS); persons whose salaries have been subjected to TDS are also required to file return because they may have earned from sources other than salary (house property income, capital gains, etc.).

The entire tax payable on your income has to be paid before filing the return of income either by way of tax-deducted at source (TDS), advance tax or self-assessment tax. Ensure that it is done before the ITR is filed.

Not only for refund, you also need to file your income return if you are claiming carry forward of loss (say, from long term capital asset or from any other source of income). In such cases, filing returns within the due date is a must.

Avoid wilful tax evasion: In certain cases, you may even be liable for prosecution for intentional avoidance of tax payments. 'Better late than never' is the best policy when it comes to income tax payment.

Popular FAQs of income tax return filing:

What is financial year, previous year and assessment year?

Answer: For the purpose of calculating income tax, financial year (FY) is the period during which the income has been earned. The income earned in a FY is assessed to tax in the following year, that is, the assessment year (AY).

For example, income earned in FY 2009-10 (April 1, 2009 to March 31, 2010) will be assessed for tax in the year 2010-11. FY and previous year are the same; they are used interchangeably.

Tax gets deducted from my salary every month (by way of TDS). Do I still need to file ITR?

Answer: Yes. Filing of tax is compulsory for every person whose gross total income, that is, the income under the five heads (salary, house property, capital gains, business income, and other sources) before allowing for any deductions (under chapter VI A of Income Tax Act, 1961), exceeds the basic income tax exemption limit (IT Rate slab given at the end of the article).

What if I miss the deadline of July 31st?

Taxyogi: If there are no balance taxes to be paid, no interest or penalty will be levied if you file your return in less than 1 year from the end of the relevant assessment year (AY). However, there is a penalty of Rs 5,000 if you fail to file by that date. In case there are tax arrears, a penalty of 1 pr cent per month will be charged as interest on such taxes due.

TDS is NIL on my income. Do I have to file return?

Answer: It is not mandatory to file your IT return if your taxable income is below the maximum exempted limit. However, if your gross total income exceeds the basic exemption limit, then you have to file a tax return even if no tax was deducted at source.

I don't have a PAN card. Can I file my income return?

Answer: The Permanent Account Number (PAN) is a compulsory for filing your ITR. If you have not obtained a PAN card till now, you should immediately apply for one.

What is advance tax? How is it different from ITR filing? Is there a penalty if I don't pay this tax?

Answer: Advance tax means 'payment of tax in advance'. Payment of advance tax is compulsory on the income earned during the financial year for every person liable to pay tax in India. Non-payment or short payment of advance tax will attract penal interest.

However, there is no need to pay advance tax if:

i) The total tax liability for the financial year is less than Rs 5,000; or

ii) If the employer has deducted TDS from the salary.

Where do I file my return?

Answer: Filing of ITR can be done in 2 ways:   

i) Offline/Traditional paper filing: Traditional filing involves hiring a CA or a tax consultant to file tax returns, or personal submission of forms by visiting the nearest Income Tax Office (ITO).

ii) Online filing: Online or E-filing was enabled by the Income Tax Department a couple of years back. It is an improved and hassle-free method of tax filing; here, filing is done through the Internet. E-filing of IT Returns can be done with or without a digital signature. Logon to www.TaxYogi.com for filing your tax returns online.

Income Tax slabs/Basic Exemption limits for individuals for FY 2009-10 (AY 2010-11):

(a) Male Assessees (< 65 years of age):

(b) Female Assessees (< 65 years of age):

(c) Senior Citizens (> 65 years of age):

Should you invest in Infrastructure Bonds?

One of the fresh tax reliefs in the Budget 2010 is the deduction allowed for investing up to Rs 20,000 in infrastructure bonds.

We will try to look the pros and cons of investing in infrastructure bonds for the sake of tax-saving. The analysis will be from the perspective of the different 'tax groups' post Budget 2010.

• Tax group 1: Taxable income Rs 1.6 lakh to Rs 5 lakh.
• Tax group 2: Taxable income Rs 5 lakh to Rs 8 lakh.
• Tax group 3: Taxable income above Rs 8 lakh.

To understand the pros and cons of any tax-saving investment, we need to look at four major parameters:

• Actual tax-saving (let's take the highest saving possible);
• Returns from the investment (during the lock-in period at the least);
• Opportunity cost (what if the same money had been invested in some other investment?); and
• Effect of Inflation on the returns on investment (what would the worth of your investment be when it comes to redeem/encash it?).

Assumptions

For the sake of parameter 2, we will have to make an assumption on the lock-in period (as nothing has so far been announced by the finance minister). As is generally the case with most tax-saving instruments we can assume two scenarios -- a 3-year lock-in and a 5-year lock-in.

Let's assume the rate of return on infrastructure bonds = 5.5% per annum.

Let's consider the overall rate of inflation at 8%.

For people in the Rs 1.6-5 lakh taxable income group, income will be taxed at the rate of 10%.

Parameter 1: Actual tax-saving: 10% of Rs 20,000 = Rs 2,000 (if you invest Rs 20,000 in the instrument you get to reduce your taxable income by Rs 20,000 thus giving a 10 per cent benefit).

Parameter 2: What will be the returns at the end of the lock-in period? For a lock-in period of 3 years an investment of Rs 20,000 would fetch an income of Rs 3,484. When added to the tax saved we get an effective return of Rs 25,485 (Rs 20,000 + Rs 3,484 + Rs 2,000) on our investment.

Parameter 3: If this same amount were to be invested in a market instrument that fetched a return of 15% (which is very reasonable considering that the benchmark Sensex and many mutual funds have given comparatively higher returns over a long period), the investment would fetch an effective return of Rs 27,376 (Rs 20,000 - Rs 2000 = Rs 18,000 invested @15% per annum for 3 years).

Parameter 4: What would be the minimum amount required to counter inflation at 8%? The amount would be Rs 25,194.

Thus we see that for a person in the Rs 1.6-5 lakh slab, the benefit from investing in an infrastructure bond as a tax-saving instrument will be only Rs 291 (Rs 25,485 - Rs 25,194) whereas the benefit from paying tax and investing the balance in any decent instrument would be Rs 2,182.

Similarly, we can calculate the benefits for each segment as well as for a scenario where the lock-in period is 5 years as given in the table below.

Rate of tax	Investments in Infrastructure Bonds			Tax paid in lieu of investing in Infrastructure Bonds
Slab	Tax-savings	Effective Returns		Investment Returns from Market after Tax
		3 years	5 years	3 years	5 years
30%	6,000	29,485	32,139	21,292	28,159
20%	4,000	27,485	30,139	24,334	32,182
10%	2,000	25,485	28,139	27,376	36,204
Required Returns to Counter Inflation Effect		25,194	29,387

The bottomline

As seen from the table above, it makes sense for people in the over Rs 8 lakh taxable income slab to use the infrastructure bonds as a tax-saving instrument.

For the people in the Rs 5-8 lakh bracket, it would be advisable to invest in infrastructure bonds if the period of investment is 3 years, but not for five years and for those in the Rs 1.6-5 lakh bracket, it would be an absolute no-no to invest in Infrastructure Bonds for tax-saving purpose.