If you are giving yourself reasons to procrastinate the work on your income-tax returns (ITR), here is why you should banish that thought. The new notified ITR forms require a whole lot of additional disclosures to be made, the groundwork for which needs ample investment of time.
Here we highlight all you need to know while filing your returns this year.
Big story Podcast| Terms you need to know before filing the IT returnsIn this Portfolio Podcast series, we explain important concepts relating to taxes.
Who should file?
Earlier, only those taxpayers, whose total income in any year exceeded the basic exemption limit, were required to file the ITR. However, for FY20, taxpayers who have entered into certain specified transactions, are also required to file their income-tax returns, even if their income does not exceed the basic exemption limit. The specified transactions referred to are deposits exceeding ₹1 crore (singly or in aggregate) in one or more current accounts, and expenditure of ₹2 lakh on foreign travel or over ₹1 lakh on electricity bills in a year.
In the forms (ITR-1, ITR-2, ITR-3 and ITR-4) notified for this year, such persons are required to clearly specify the amounts incurred in each of the transactions mentioned above.
What form to file?
Individual taxpayers are mostly required to choose from ITR 1 to ITR 4. Those who have income chargeable under the head Profits and Gains from Business or Profession (PGBP) are required to file ITR 3. However, if you have opted for presumptive taxation, your returns will have to be filed in ITR 4. Presumptive taxation is a scheme allowed by the Income-Tax (I-T) Act for businesses having a total turnover of less than ₹2 crore and eligible professionals with gross receipts of less than ₹50 lakh in a financial year. Taxpayers covered under this scheme are required to pay tax on a flat rate (of 6 to 8 per cent), on the turnover of such business or profession.
For those (individual taxpayers) who do not have income under the head PGBP, you will have to file ITR 1 if your total income does not exceed ₹50 lakh. However, irrespective of the total income earned, directors of a company or those who have invested in unlisted equity shares cannot file ITR 1.
Besides, individuals whose total income includes lottery income, agricultural income exceeding ₹5,000 or income from more than one house property, or from any source outside India, also cannot file ITR 1. Even if one possesses an asset outside India, he/she cannot file ITR 1. Similarly, even those who have brought forward losses from previous years cannot file ITR 1. All those taxpayers, who cannot file ITR 1, will have to file their returns in ITR 2 (see accompanying table).
Now, let us understand the important changes made in the new notified ITR forms.
The new notified forms allow taxpayers to select multiple bank accounts for the purposes of income-tax refunds. This was amended to avoid the occurrence of tax refund failures owing to technical glitches such as a mismatch or incorrect details of the bank account selected for the purposes of refund.
Besides, the new forms this year also allow interchangeability of Aadhaar with PAN, in various schedules. In some cases, the forms require the PAN of another party, such as a tenant or an auditor, etc. Now, in all such cases, you can provide the Aadhaar number of the said party, in lieu of PAN.
For those of you filing the ITR in response to a notice, the forms now require you to quote the Document Identification Number (DIN) of the notice received from the department.
For those who have investments in unlisted shares of a company, details of the company– name and type of company etc. will now have to be provided while filing ITR 2 or 3. The same applies for an individual taxpayer who is also a director of a company.
The returns for this year have also been tweaked to give effect to the announcements made in Budget 2019. For instance, one can claim additional deduction of interest on housing loans and interest on loan taken for buying electric vehicle from total income (under sections 80EEA and 80EEB). The Schedule of Deductions under Chapter VI-A has been tweaked in all ITRs (1 to 6) to give effect to this change.
Besides, as part of the Covid-19 relief measures, the Centre had extended the last date for making tax-saving investments to June 30, 2020 from March 31. This includes both investments made for chapter VI A deductions and for deductions in capital gains (Sections 54 to 54GB). Such tax-saving investments made during the extended periodwill now have to be disclosed separately in Schedule DI (Details of Investments). However, one must note that while the last date for making such investments has been extended, there is no change in the maximum permissible amount of deduction.
Another amendment to take note of would be the waiver of higher surcharge (of 37 per cent in cases where income of the taxpayer exceeds ₹5 crore) on short-term or long-term capital gains on sale of listed equity shares. Considering this, the ITR forms 2, 3 and 5 have been revised, where separate columns have been provided for reporting such incomes, while calculating the total surcharge payable.
Post filing your return, do remember to verify it. To do so, you can mail the acknowledgment or ITR V to the Income-Tax Department’s office. This is mandatory for all assessees, where the return of income is electronically filed without digital signature and without using electronic verification code.
ITR V can be downloaded from the I-T Department’s website. One copy of ITR-V, after being duly signed by the taxpayer, should be mailed (posted) within 120 days of filing your returns to the Income-Tax Department’s office in Bengaluru.
You can also complete the process electronically. You can e-verify your tax return using either your Net banking account/ Aadhar OTP/ or bank account number or demat account number.
For instance, those of you wishing to e-verify using your Aadhar number can do so if your Aadhar number is linked to your PAN card. You can now select the option ‘I would like to generate Aadhaar OTP to e-Verify my return’ on the income-tax website, while verifying your returns. You will get your OTP (one-time password) on your registered mobile number which should now be entered to complete the process of e-verification of your income tax returns.
Ways to file returns
Parvatha Vardhini C
There’s a month’s time before the deadline, enough to examine various options for return filing. A do-it-yourself approach, going to a Tax Return Preparer or an online intermediary are among the choices. Of course, the traditional method of using the services of your chartered accountant never loses charm.
How do you choose? The decision should be based on how comfortable you are in handling taxation matters, and what kind of services you are looking for.
If you are internet savvy and also know a bit about taxation, a month’s time is good enough to explore the Tax Department’s e-filing website — incometaxindiaefiling.gov.in — and file returns on your own. You just need to register on this portal, obtain a user ID (which is your PAN) and a password to log in and then upload your return. And the department doesn’t charge you for the process.
If you have your income details ready, filing the return is not challenging. The website is convenient to use as it provides access to all the other information you will need, at one place. A link to access your Form 26AS, which has details of the tax deducted at source (TDS) and tax collected at source (TCS) from your income and the links to e-pay self-assessment tax as well as to e-verify the returns are available. You can also view your earlier returns, their processing status, outstanding tax demand, if any, refund status and ITR V (acknowledgement) receipt status.
To make the process less time-consuming, some of the number crunching (tax calculation) is also automated. Also, partly pre-filled returns with details captured from the PAN database, e-filing profile, earlier ITRs as well as Form 26AS are available.
Over the past few years, additional features have been introduced. For instance, to increase security, a second-level authentication for your login, through a feature, called ‘e-filing vault’, is available. Once you enable this, you can choose to log into your e-filing account through options such as net banking and Aadhaar-based OTP, instead of just the user ID and password. Service requests such as requesting for reissue of refund, in case there are any problems in the process, are available, too. If you have any grievances, you can raise them and get them addressed through the e-Nivaran facility in your window.
If you’d rather have someone else file your return, you can use the services of several intermediary websites. These portals collect all required information from you, calculate your tax liability and file the return in the Income Tax Department’s portal on your behalf.
The good news is that some intermediaries offer free e-filing for simple returns. Taxsmile, for instance, offers free return filing for those with income below ₹5 lakh. ClearTax offers free filing for some assessees. If you have income from multiple heads or have foreign income, for instance, you can go for assisted filing, where experts, including CAs help you navigate your way through.
Depending on the sources of your income, various websites have different fee structures for assisted filing. TaxSpanner, for example, has assisted filing options from ₹699 to ₹7,999, based on the nature of service provided.
Many websites offer several value-added services apart from filing returns.Expert follow-up assistance to customers is available for rectification, demand notice, and so on that come up after return-filing. Most portals offer talk-time with tax experts or CAs to clarify your queries. Tax-planning services as well as online documentary vault for safekeeping your documents are also available. Usually, these value additions are provided as part of the return filing package. Some, including, Taxsmile, unbundle each value-addition and price them separately as well.
You can try government-appointed Tax Return Preparers (TRPs) as well. You can locate the TRP closest to you under the ‘Taxpayer Services’ tab at www.incometaxindia.gov.in, and register with them for filing your return.
TRPs receive a remuneration of 3 per cent of the tax paid on the returns prepared and filed in the first year, 2 per cent in the second year and 1 per cent in the third year (subject to a maximum of ₹1,000). But if such remuneration does not exceed ₹250 for any year, they are free to charge the difference between the actual remuneration and Rs 250 from the assessee.Choosing this option, though, means that you may not have year-round advice or access like the tax portals which offer value-added services.
Don’t miss the deadline
From end-July to end-November and then again to end-December. The Centre has been good to extend the tax return filing due dates for the financial year 2019-20 (assessment year 2020-21) due to the Covid crisis this year. Just about a month to go now, it’s time to get this key job done and dusted. Here are some reasons to get cracking.
One, an eleventh hour dash could result in mistakes while filing returns. Two, missing the deadline could mean interest cost, penalties and delayed refunds. Until some years ago, the taxman had the discretion to levy a penalty on late filing of returns. Now, he is obliged by law to do so. Under Section 234F of the Income-Tax Act, there is a penalty of ₹10,000 for filing the return beyond December 31. The penalty for late filing will be up to ₹1,000 if the taxable income is ₹5 lakh or less.
Next, there is an interest cost under Section 234A if you have pending tax dues and don’t file your return by the due date. While filing the return after the due date, along with the tax dues, you will also have to pay interest on the dues at 1 per cent for each month of delay (part of a month is considered a full month for calculation). So, if you have dues of ₹50,000 for the year ended March 2020, and you file your return in March 2021 (instead of by December 31, 2020), you will have to pay ₹50,000 plus ₹1,500 as interest — at 1 per cent for three months (December to March).
Note that the benefit of extended due date (December 31, 2020) to calculate interest is only for those whose pending tax dues are up to ₹1 lakh. If your pending tax dues exceed ₹1 lakh, then the interest meter has already started ticking after the original due date, that is July 31, 2020. Such persons too can cut their losses the sooner they file their tax returns .
Then, if you are entitled to refund, a delayed return will not just delay the refund, but will also fetch you interest for a shorter period. In case of a belated return, interest on your refund is calculated at 0.5 per cent for each month from the month in which the return is filed. But if a return is filed by the due date, the interest is calculated from the beginning of the assessment year (that is, from April 2020).
Also, if the return is delayed beyond the due date, you will lose the benefit of carry forward of losses (except loss from house property) and their set-off against incomes for up to eight years.
Besides, a filed tax return is often asked for when you apply for a loan or for a visa to travel to foreign countries. Good to keep it handy.
Finally, even if you miss the extended deadline of December 31, make sure to file your return until the end of the assessment year (March 2021 for the financial year 2019-20).
Failure to meet this upper time limit could mean a sharp escalation in penalty and also possible prosecution.