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):

Investment planning tips for 2010

 Keep the following investment planning tips in mind for 2010.

1. Get yourself a financial plan

As an individual it is very important to have a financial plan which will guide you with investments as per your goals and needs. It serves a very important purpose of bringing discipline to your investing habits.

An ideal plan gives you a complete picture of your current investments and liabilities, your net worth, cash flow, goals and a specific plan to achieve those goals. The goal can be buying a car, house, going for a vacation, children's education or building a retirement corpus. When you are young you tend to live for the moment and do things as they come but it's very important to secure your financial future. It does not have to be at the cost of a good lifestyle.

2. Start SIP (Systematic investment plan)

SIP is a proven instrument for long term investments for steady returns. Timing the market is rarely possible for anybody and you can end up spending a lot of your productive time and energy trying to do that. Even after doing that the chances of getting it right remains very low. Better alternative is to do SIP in some equity funds with a good track record of performance.

 Keep the following investment planning tips in mind for 2010.

1. Get yourself a financial plan

As an individual it is very important to have a financial plan which will guide you with investments as per your goals and needs. It serves a very important purpose of bringing discipline to your investing habits.

An ideal plan gives you a complete picture of your current investments and liabilities, your net worth, cash flow, goals and a specific plan to achieve those goals. The goal can be buying a car, house, going for a vacation, children's education or building a retirement corpus. When you are young you tend to live for the moment and do things as they come but it's very important to secure your financial future. It does not have to be at the cost of a good lifestyle.

2. Start SIP (Systematic investment plan)

SIP is a proven instrument for long term investments for steady returns. Timing the market is rarely possible for anybody and you can end up spending a lot of your productive time and energy trying to do that. Even after doing that the chances of getting it right remains very low. Better alternative is to do SIP in some equity funds with a good track record of performance.

3. Create a budget and track your expenses

A budget helps you break down your spending and compare on a month to month basis. Thus it helps you identify areas where expenditures can be cut and money diverted to meet your goals like buying a car or house. When you look at your budget and see anomalies, it becomes possible to take remedial action. Do not procrastinate on this

4. Make your PPF and other fixed income investments at the beginning of the financial year

If you invest in the latter half of the year, you miss out on a good amount of interest income. Investing early in the year will tie-up your money which will also help you control certain discretionary expenses.

5. Invest in insurance policies

You can get life cover, child education cover, health cover and save for retirement when you invest in the right insurance policies. Besides this, you get tax exemptions to reduce your current tax payout. This exercise should be done in the beginning of the financial year so that your tax planning can be taken care of. Remember that choosing the right insurance policy can be a tricky exercise and you might need to take assistance from a qualified financial planner.

6. Buy a house

• A house is one of the best investments you can make and it offers many advantages:
• You save on the rent
• Your interest payments are tax deductible
• It usually appreciates in value
• In times of need it serves as great collateral
• Peace of mind and many other intangible benefit

7. Determine your asset allocation and diversify

This involves matching your investment vehicles with your investment goals. Your investment choices should always be based on your age, portfolio, personal situation and level for risk tolerance. Diversification is the key to minimizing risk. You should not put all your eggs in one basket. Real diversification means spreading your money across multiple asset categories including stocks, bonds, real estate and commodities etc.

8. Rupee cost averaging

If you invest directly in stocks then rupee cost averaging is one technique you should look at adopting. It is similar to SIP for Mutual Funds. You fix certain amount of money for a stock and buy at regular intervals regardless of the price. In this way when the prices are low you get more units and vice versa. The key here is to select quality stock for the rupee cost averaging.

9. Don't be obsessed with tracking your portfolio

Stay invested for the long term and don't allow every downward market move to rattle you. It's far too easy to panic when you're watching daily, weekly or monthly results. Too many trading tips, recommendations etc only confuse you. Investment is like a test match and not a T20 match.

10. Don't wait. Start now!

One of the mistakes we do is waiting for the right time as well as a lump sum amount to start investing. Being slow and steady wins in this case. Start small but start now. All you need is self discipline to stay on course!

Which IT form is right for U ??

We are all aware that filing of tax returns is our moral duty. Whether you are an individual, hindu undivided family or a company, filing tax returns is a must. However, with the plethora of tax return forms available with the income tax, the question that arises is which form is meant for whom? Remember, different forms have different purposes and meant for different categories of tax payers. Here are the income tax forms meant for the respective taxpayers. Let us divide the tax payers into two categories: corporate and individuals as well as HUFs.

Individuals and HUFs

This category has four different types of forms.

ITR 1: If you are an individual whose main source of income is salary, then this is the form for you. There are two versions of the form available on the income tax site, the first one having 2 pages and second one with 3 pages. Don't worry, there is no difference between the two except for the size of the font. But don't use this form if you have income from other sources like rental income, capital gains, business income, dividends received from investment in shares of overseas companies, lottery or any other prizes.

ITR 2: This form is meant for people and HUFs whose income sources don't include business and profession. Besides salary, if your income sources include rent from property, capital gains and other earnings excluding those from business and profession, you should fill this form. This form is 12 pages long, of which 6 pages are simply explanatory notes.

ITR 3: Persons and HUFs who are partners in a partnership companies will have to submit this form. It is 14 pages long, of which 7 are simply explanatory notes.

ITR 4: Persons and HUFs who are in business or profession should fill out this form. It is 30 pages long, of which 10 pages comprise of explanatory notes.

For companies

ITR 5: This form contains 22 pages and 30 schedules where you must give details about your income, tax details and fringe benefit tax. It is meant for companies, association of persons and body of individuals. There are 10 pages containing explanatory notes.

ITR 6: Meant for companies, this form has 24 pages, and 34 schedules. It is used in lieu of older Form 1. It contains 9 pages of explanatory notes. Here also you must include your fringe benefit tax.

For charitable trusts and political organizations

ITR 7: Designed for the charitable trusts and political organizations, this form has 17 pages and 17 schedules. There are 8 pages of explanatory notes and you must also list fringe benefit tax information.

ITR 8: For those who must file returns for fringe benefit tax but not income tax, this form is a must. It has 4 pages with 3 extra pages listing explanatory notes.

When filing your tax returns, it is important to submit the correct form. Use the proper form listed above to save yourself of the trouble later on.