The last date for individuals to file income tax is 31st August now. Less than a month remaining and there is a spurt in people paying or readying for taxes. And yet we will see a lot of people file on the last date. This results in a lot of haste & miscalculations and sub optimal returns are filed.
Below are some guidelines / steps to follow to ensure that you have a trouble-free tax filing.
• FY & AY tax slabs:
For beginners, a key confusion is the confusion around Assessment Year (AY) and Financial Year (FY). Assessment year is the year in which you are filing your tax returns to be evaluated by Government / Income Tax Dept. Remember returns are for income earned last year or last financial year. This is also called previous year. Hence, we are discussing about Assessment Year AY 2018 -19 for income tax officials to evaluate all our incomes for FY 2017-18.
So you need to collate all your taxable and tax exempt income documents and proofs of FY 2017 -18.
• Required documents:
It’s imperative you get your Form 16 from your employer, Form 16A from your banks. This helps you arrive at your true taxable income and make filing a breeze. If you are filing with as a professional or business person, then following are a few things to keep handy:
- Bills / proofs of investments, expenditures that are eligible for deduction under various chapters of Sec. 80
- Income from investments - Interest earned on fixed deposits, bonds, NSCs, KVPs, recurring deposits etc are fully taxable and needs to be reported. Savings bank interest upto Rs. 10,000 is tax free, any interest received above this amount is taxable and added to your taxable income.
- Capital Gains – It is important to report and pay applicable tax for any short term and long term capital gains made from sale of physical gold, property, gold funds, equity funds, debt funds and hybrid funds.
- In addition to the above, have the following at hand.
- Last year's tax returns
- Bank statements
- TDS (Tax Deducted at Source) certificates
- Profit and Loss (P&L) Account Statement, Balance Sheet and Audit Reports, if applicable
• Filing Returns:
Online – tax site, with help, offline. Most corporates have tie ups with Certified Tax Returns Preparers. They come to worksites and help employees file their returns. Many online websites have good services for minimal charges. They have dedicated relationship managers who will help you collate all necessary information, fill up your form and help you pay any additional tax etc. It’s very personalized and takes the pain out of filing ITR.
The advanced Individual can also file taxes directly with the income tax site. This site too is self-explanatory but not too user friendly for filing taxes. Given your comfort and knowledge level choose wisely
• Verification and tracking:
If you have linked your Aadhar to ITR then OPT based verification makes it instantaneous. Most errors occur if one waits to sign and send the physical copies. Remember physical copies can be sent only by post office and not private couriers. There is always a chance of misplacement of physical papers and therefore digital is always recommended. You can track your returns status online on https://www.incometaxindiaefiling.gov.in/. There is a comprehensive dashboard of all your returns filed along with their status and status of refunds or further demands if any.
This year there is a penalty if you don’t file taxes. Till last year there was no penalty if the tax outgo was NIL as penalties were on tax payable and not filing. But this AY onwards you will need to pay a penalty of Rs. 5,000 if the return is filed after July 31 but before December 31, 2018. However, if it is delayed further you will end up paying a penalty of Rs. 10,000. So, this year haste will set you back!
Last but not the least, this is the time of year when you will see the impact of tax planning. The gaps could be the amount you could have saved under various deductibles or the number of deductible columns you have missed out be it ELSS under 80C, Medical Insurance under 80D, enhanced NPS limits. Also, it’s time to see which of your investments are causing higher tax outgo and may be transferred to more efficient ones.
The best way to avoid so much stress during this month of the year is by proactively planning your taxes. For the next year of course! Understanding your tax liability now itself and making suitable tax saving investments can go a long way in wealth creation also. There are options like Equity Linked Savings Scheme that offers tax saving and an opportunity to grow your capital only for a 3 year lock-in.
So start planning your taxes now and take a vacation in July next year!
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.