The Hindu Business Line : How prepared are you this tax-filing season?

July 31 is the due date for filing income-tax returns by assessees whose accounts are not required to be audited under the Income-Tax Act. This "due date" is applicable to persons having income under the heads `salary', `house property', `capital gains' and `other sources'.

Also, persons doing business with aggregate turnover of less than Rs 40 lakh and professionals with receipts below Rs 10 lakh for the year ended March 31, 2006, have to file their income-tax return by the due date, that is, on or before July 31, 2006.

Salary income

In the case of assessees having salary income and not covered by bulk filing of returns through the employer under Section 139(1A), the return of income must be accompanied by tax deduction certificate in Form No. 16 issued by the employer. If the salary income is more than Rs 1.50 lakh a statement in Form No. 12 BA issued by the employer must also be furnished along with the return of income.

Where the salary income is less than Rs 1.50 lakh and the assessee has no income under the head `profits and gains of business or profession', `capital gains' or `agricultural income', the employer must issue tax deduction certificate in Form No. 16AA and not in Form No. 16.

Employees have the option of filing return along with Form No. 16 AA or simply sign the declaration (forming part of the form) for submission through the employer.

Before filing the return of income, any other income of the employee not reported to the employer earlier for tax deduction under Section 192 and payments made by the employee which are eligible for deduction under Chapter VI-A — such as insurance premium, mutual fund investments, children tuition fees, medi-claim policy payment and any donations to approved charitable institutions — could be reduced and, hence, the proof of such payments/expenditures have to be enclosed along with the return of income.

Property income

Persons earning salary income need not pay tax on certain perquisites such as motorcar, club facilities, telephone, including mobile phone facility provided by the employer, as the fringe benefit tax would cover those perquisites and the tax thereon would be borne by the employer.

In the case of assessees having income from property and where a loan taken for construction/acquisition of residential buildings, if self-occupied, a certificate from the lending institution is to be obtained and enclosed with the return of income for the allowance of deduction. This is applicable in cases only where the loan is taken after April 1, 1999.

In the case of let-out property, such loan interest certificate is not required to be enclosed along with the return of income.

Where the assessee has income under the head capital gains, the time limit for investment under Section 54-EC is to be considered before filing the return of income.

The CBDT order dated June 30, 2006, has extended time limit up to September 30, 2006, for investment in capital gain bonds in the case of assessees who have transferred long-term capital asset between September 29, 2005, and December 31, 2005 (both dates inclusive).

Where the long-term capital is transferred between January 1, 2006 and June 30, 2006 (both dates inclusive), the time limit for investment in capital gain bond is up to December 31, 2006.

Therefore assessees, who decide to invest their long-term capital gain in Section 54 EC bonds, may subscribe to the bonds first and file the return of income later.

Without investing in the bonds deduction under Section 54 EC cannot be claimed and if the return is furnished and investment is made later, a revised return has to be filed for claiming the deduction, which is an avoidable exercise.

Form for filing

The assessees (other than those who have income from business) may opt to file a return in Form No. 2F which has been subject matter of widespread criticism lately.

A conservative approach however would be to file the return of income in Form 2D or 2E, as the case may be, and take into account the information available with the Department by means of AIR (Annual Information Return).

As the Finance Ministry has indicated that Form 2F would be modified for assessment year 2007-08, taking into account the inputs received, taxpayers should try filling up the Form to know the extent of missing information or the difficulty in furnishing the required information.

This would enable them keep all the information needed for filing their return of income when the improvised form similar to Form 2F for assessment year 2007-08 is introduced.

Assessees (other than individuals and HUFs) having income from business have to file FBT return before July 31.

Fringe benefit tax was introduced by the Finance Act, 2005 in respect of certain expenditures incurred from April 1, 2005. Even after 15 months after the introduction of FBT, the form in which the FBT return is to be furnished has not been notified. Hence, assessees liable to pay FBT cannot file the said return unless the form is notified at least by the last week of July.

Taxpayers can expect extended time for filing FBT returns in the event of the forms not being notified well before the due date.

Impact of AIR

A recent advertisement of the Department says that certain key information is already available with it for serious follow-up — the details are given in the Table. Taxpayers are advised to keep in mind the information already available with the Department and accordingly match their income with the information to avoid further tax, interest and penalty.

On the flip side, those intending to evade tax can now transact within the monetary ceiling prescribed for AIR under Section 285 BA of the Act. For example, credit card expenditure exceeding Rs 2 lakh has been reported in AIR.

An assessee may shrewdly transact less than Rs 2 lakh and still be out of the tax net. AIR monetary ceilings for other publicised transactions might only encourage the taxpayers or tax-evaders to transact within the declared monetary limits and thereby avoid tax and taxmen.

The recent news report that the Department employees union would be staging a walk out on July 31 must also sufficiently caution assessees to file the return before the due date so that the last minute disappointment is avoided.

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