Category Archive Tax Law Guides

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What to do when you get an income tax notice

Every year the Income tax department sends thousands of notices to the taxpayers. They are not limited to people who have wads of cash stuffed under their bed or with investments in benami properties, but also include many innocent defaulters, who may not even know they are supposed to do so. So if you have received a notice by income tax authority, do not get perplexed and understand why you have been sent a notice and what you must do about it.

Why you get an income-tax notice

Not filing your tax returns – A lot of taxpayers have received notice for not filing their tax returns. According to income tax law, if your gross income is above the exempted limit of Rs 2.5 lakh in case of individuals, Rs 3 lakh for senior citizens (60-80 years of age) and Rs 5 lakh for super seniors (above 80 years of age), you are liable to file a tax return.
Not filing returns is not so serious offence if all your taxes are paid. The tax laws allow the tax payer to file delayed returns even after the due date has passed. But if you have unpaid taxes, there will be a penalty of Rs 5000 with interest.

TDS error – If there is any discrepancy in TDS deposited by your employer and the income tax return filed by you, you may get an income tax notice. Check your Form 26AS to verify if all the tax deducted on your behalf has been credited to you. If a wrong TDS has been credited to your account or it has been credited to a wrong PAN, despite it being deducted from your salary, you may come under scrutiny.

Not reporting interest income – Income from fixed deposits, recurring deposits, tax saving bank deposits and infrastructure bonds is fully taxable. The tax exemption of Rs 10,000 a year under Section 80TTA applies only to the interest earned on the balance in the saving account.
You must reveal the interest income in your tax return and then avail the deductions if any. Not doing so can result in tax notice.

Concealment of your income – If your income, expenditures and investments differ from the one declared in your return, you will get an income tax notice. You may be asked to provide clarifications or relevant documents for re- calculation of your income. Tax authorities can also send notices pertaining to number of years gone by.
Banks, mutual funds, credit-card companies etc. are supposed to report certain high- value transactions to the tax authorities. They have your PAN and other details so you can’t escape past them.

Defective income tax return – If the income tax authority finds any error in your income tax return, they can issue notice under Section under 139 (9) and direct you to file a revised return on income after correcting the error.

Not reporting income from old job – When an individual switches his job, the new employer doesn’t take into account the income earned from the previous job and offers tax exemptions and deductions to the employee all over again. However, this discrepancy may put you in odds with income tax department. If some tax has been deducted on the income from the first employer, it will be reflected in your form 26AS and if you don’t report that income, discrepancy will be easily picked up and you will receive a tax notice.

Not reporting foreign assets – Not reporting overseas assets could get you prosecuted under Black Money Act and penalty can be as high as Rs 10 lakh. Taxpayers cannot afford to be unsure of their foreign income and asset. Not just limited to salaries or perks, revenue generated out of freelance activities conducted overseas need to be reported under foreign assets. This also includes gifts. Also all foreign bank accounts, whether it is operational or not and even where you are merely a signing authority should be reported.

Concealing tax-free income – Tax free income include interest earned on PPF, tax-free bonds, life insurance properties, capital gains from stocks and gift from specified relatives. Even if you are not liable to pay any tax on them, all your interest income and saving bank interests has to be reported in the ITR.

How to handle a situation when you get an income tax notice

You should not get worried if you receive any notice from income tax authority. Many notices are simply tax demands that can be dealt without any fuss. You should collect all your necessary documents relating to assessment proceedings including Form 16, Form 16A, details of your income and expenses, bank statements, credit card statements, details of gift, loans, investments etc. On the basis of above mentioned documents, a proper reply to the notice should be prepared. If the issue is related to common cases such as TDS claims, not filling of tax return etc., the issue will be resolved within a day’s time and more complex issues will be examined in detail and handled personally.

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How to calculate income from your house property

Property Tax is a tax levied by the local government on all tangible real estate under the ownership of an individual and it includes houses, office buildings, factory building, flats and shops. The Annual rental value (ARV) forms the basis of calculation of the tax. The tax can be paid either to the local government or municipal corporation, depending on government policies. However, the rate, tax collect procedure and valuation method is determined by the governing authority.

The property that is occupied by the owner or do not generate any rent is assessed on cost and the figure then obtained is converted into annual rental value (ARV) with the application of a percentage of cost. A vacant land is generally exempted from the tax. The tax is usually accompanied by a number of service taxes like, water tax, sanitation tax, lighting tax, all using the same tax base.

Calculation of income from House Property

The Property tax calculation is calculation is based on annual value of your property. There may be different annual values for Self-occupied properties and let out properties.
Self-occupied properties – The annual value is considered as zero, provided the property is used for stay by the owner or it is vacant. However, If the property is let on rent for few months or year, the annual value will be calculated respectively.
Let out properties – The annual value will be equal to maximum of municipal calculation, rent received and fair rent as determined by the Income tax department.

Gross Annual Value

Gross Annual Value (GAV) of property will be required to determine the annual value, which is higher of:

  1. The sum for which the property might reasonably be expected to let from year to year. In case where standard rent has been set, such sum cannot exceed this value. However, in case of property which was vacant for whole or part of the previous year and rent received is less than expected rent, then rent actually received is taken as GAV.
  2. Where property is actually let out and the rent received or receivable is more than amount determined in (a), the annual value will be actual rent received.

Exclusions while determining GAV

  1. The Amount of municipal tax realized from a tenant
  2. Notional interest on the amount received towards ‘rent/security deposit’ from the tenant
  3. Repairs carried out by tenant

When Annual value is Nil?

The annual value of your property shall be considered ‘nil’ in following cases: –

  1. Self-occupied properties
  2. If the owner of only one residential house is unable to occupy it on account of his employment, business or profession in any other place and he is residing in a property not owned by him.

Net Annual Value

The Net Annual Value is arrived after deducting the municipal taxes and the unrealized rent (subject to certain conditions). The receipt of any unrealized rent shall be chargeable to tax in the year of receipt.

Deductions under Section 28 of Income Tax Act 1961

Following deductions are allowed under Section 28 –

  1. Standard deduction – Standard deduction is 30% of the Net annual value. This 30% is allowed even when your actual expenditure on the property is higher or lower. Therefore, the deduction is irrespective of the actual you may have incurred on insurance, repairs, electricity, water supply etc.
  2. Deduction of interest on Home loans for property – In case you take a home loan for construction, repair, purchase or reconstruction of your house property, the interest is allowed as a deduction from Net Annual Value. Deduction for interest on money borrowed is allowed on accrual basis. So keep claiming your interest deductions on each year basis interest that is due. Deduction is allowed on whichever is lesser between, Rs 1,50,000 or the actual interest amount (in case the construction was completed within 3 years of taking the loan on or after 1-April-1999). In other case it is between Rs 30,000 and the accrual interest, whichever is less.

How to save tax on Income from House Property?

  1. Any empty house that you own, will still be taxed based on the fair rental value, so you should let any or all vacant properties out. This will ensure income and no loss because of taxation.
  2. If you own multiple properties, then only one can be registered as your residence and will fall under Self- occupied property.
  3. Taxation on income from house property can be divided between co-owners and hence lessen the burden.
  4. If you are planning on buying a second house, and you wish to avoid paying tax on the second house, register the second property on your spouse/relative’s name to avoid excess taxation.
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Wealth tax and why it was abolished

A Wealth Tax also known as ‘Taxing one’s riches’ was a popular direct tax which was levied on individuals, HUFs and companies whose net wealth exceeded Rs 30 lakhs on the valuation day. For the purpose of its calculation, only specified assets were taken into account. Such as:

  • Jewellery, ornaments made of precious metals, precious or semi-precious stones;
  • Second owned property which is not rented for more than 300 days in a year;
  • Farm house within the ambit of 25 kms from local municipality limits
  • Urban land having area exceeding 500 Sq. Mts.
  • Commercial establishment.
  • Owned car, boat, yacht or any aircraft
  • Cash exceeding Rs.50, 000/-

Abolishment of Wealth Tax

Finance Minister Arun Jaitley while announcing Budget 2015, abolished the tax now has been completely removed from financial year 2015-16 onwards. The loss of revenue will be now compensated by the levy of additional surcharge on the higher income earning assesses.

Reasons for it’s abolishment

  • The assets owned by assesses had to be valued by a registered valuer in order which    was an arduous job imposing unnecessary burden of expenses on assesses.
  • Assets like, jewellery, cash, cars were not easy to be tracked
  • Lack of awareness about the wealth tax among assesses
  • Did not form a significant part of the total collection of Direct taxes in India.

Current Scenario

The Wealth tax has been swapped with a higher tax on the super rich in India. An additional surcharge of 2% is now levied on the income exceeding ?1 crore of:

  • -Individual, HUF, AOP, BOI, whether incorporated or not;
  • -Cooperative societies
  • -Firms or local authorities 

The strategy will help the government to achieve its objective of bringing more persons under tax net as people who file returns under normal income tax act are much higher  than those who file under the wealth tax and to remove any scope of taking undue advantage of the loopholes of wealth tax.

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Income tax exemption for salaried employees

If you are a salaried employee, it is likely that you cringe every time a part of your salary goes into tax payment. While this may not be a happy thought, there are certain tax exemptions on your salary that you can claim.
 A salaried employee would be required to inform the employer that he/she is claiming these income tax exemptions, the employer would calculate tax on the balance income and as per the Income tax slab and deduct TDS on salary accordingly.

Here are some tax exemptions for salaried employees: –


House Rent Allowance

If you are staying at a rented house, you can claim a tax exemption in lieu of Section 10 (13A) of the Income Tax Act. Many employers give House Rent Allowance (HRA) to their employees for them to reside at good place. However, there are certain conditions –

  1. An employee must pay rent for the house which he occupies.
  2. The rented house must not be owned by him and.
  3. He must submit a proof of rent being paid through rent receipt.

House Rent allowance will be available up to the minimum of following three options –

  1. Actual House Rent Allowance received from your employer.
  2. Actual house rent paid by you, minus the 10% your basic salary.
  3. 50% of your basic salary if you live in metro and 40% of basic your salary If you live in any other place.

Is HRA accounted for self-employed professional also?
Self-employed professionals cannot be considered for HRA, but they can claim benefit for house rent expenses incurred under Section 80GG, which is similar to Section 10 (13A) but with certain conditions.

Can I pay rent to my parents of spouse to avail the benefit of HRA?
You can pay rent to your parents or spouse to avail the benefit of HRA. However, they need to pay tax on same or account the same in calculating their taxable income.


Leave Travel Allowance

Many company also give allowances to their employees to go on a holiday with their respective families. Government employees can avail the benefit of leave travel concession (LTC), which can be used for travelling anywhere in India.
Income tax exemption on Leave Travel Allowance is given under Section 10 (5) from an amount received by employee from his employer. However, this exemption is only available if the amount is received in relation to –

  1. Leave to any place within India.
  2. Any place in India after retirement from service or after the termination of the service.

Some important considerations for Leave Travel Allowance –

  1. No LTA is cashed without performing the journey.
  2. Employee can claim exemption in respect of any 2 journey in a block of 4 years.
  3. Family for this purpose mean spouse and 2 children. It also includes parents, brothers and sisters of the employee or are wholly or mainly dependent upon him.
  4. LTA is only available in respect of fare.


Encashment of Leaves

Most employees give all their employee a certain number of leaves which can be claimed as leaves. In case the employee does not wish to claim these leaves, they have the option of encashing these leaves. This amount received as leave encashment is allowed an exemption up to a certain limit.


Pension Income

Pensions are paid on the retirement of the Employee. Pension is of two types. Commuted pension, in which whole amount of pension is received in lump sum and Uncommuted pension, the amount Is paid in instalments at regular interval of time.
The pension received shall be taxable under Head Salary. However, as per Section 57 (ii)(a), if uncommuted pension is being paid after the death of the employee, it shall be taxable under income from other sources. In such case, 1/3rd of the pension or Rs 15,000, whichever is less shall be exempt.
If any commuted pension is being paid to the family members, no tax would be levied on commuted pension.

Gratuity

Gratuity is a gift by the employer to his employee for the past services rendered by him. For the purpose of tax exemption on gratuity under Section 10 (10), employees are divided into three categories –
Any death cum retirement gratuity received by Central and State Govt employees, Defence employees and employees in Local authority shall be exempt.
Gratuity received by person covered under the Payment of Gratuity Act, 1972shall be exempt subject to following limits: –

  1. For every completed year of service, gratuity shall be paid at the rate of fifteen days’ wages based on the rate of wages last drawn by the concerned employee.
  2. The amount of gratuity as calculated above shall not exceed Rs. 10,00,000/-

For other employees, gratuity received hall be exempted, subject to following conditions:

  1. It will be limited to half month salary for each completed year of service or Rs. 10 Lakhs whichever is less.
  2. Where the gratuity was received in any one or more earlier previous years also, then the exemption to be allowed during the year gets reduced to the extent of exemption already allowed, the overall limit being Rs. 10 Lakhs.


Voluntary retirement from the service

Many employees opt for Voluntary retirement from the services i.e. retiring before the actual age of retirement (60 years). In such case employers give some money to the employee on his voluntary retirement. Section 10 (10) allows exemption to the extent of Rupees 5 lakhs.

Perquisites

Many employees are entitled to perquisites or perks. Such as car, rent free accommodation, medical facilities etc. there are tax exemptions on such facilities up to a certain limit. Such as:
Medical facility and reimbursement – Medical facility and reimbursement of medical expenses to the extent of Rs. 15000 per year as per the Act.
Loans – Interest free / concessional loan of an amount not exceeding Rs. 20,000 provided by the employer to his employees is not a taxable.
Transportation – If an employer is a business of transport, provides transport facilities to its employees and his family members either free of cost or at concessional rate then it would not be a taxable perquisite.

Various other exemptions

There are other allowances such as transport allowance, Children Education Allowance, Helper allowance etc., allowed to salaried employees but up to certain limit.

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Understanding the GST – Goods and Service Tax

What is GST? How does it work?

GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Which taxes at the Centre and State level are being subsumed into GST?

At the Central level, the following taxes are being subsumed:

  • Central Excise Duty,
  • Additional Excise Duty,
  • Service Tax,
  • Additional Customs Duty commonly known as Countervailing
  • Duty, and
  • Special Additional Duty of Customs.

At the State level, the following taxes are being subsumed:

  • Subsuming of State Value Added Tax/Sales Tax,
  • Entertainment Tax (other than the tax levied by the local bodies),
  • Central Sales Tax (levied by the Centre and collected by the
  • States),
  • Octroi and Entry tax,
  • Purchase Tax,


How would GST be administered in India?

Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.

How would a particular transaction and services be taxed simultaneously under Central GST (CGST) and State GST (SGST)?

The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except on exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of Central Excise.

Will cross utilization of credits between goods and services be allowed under GST regime?

Cross utilization of credit of CGST between goods and services would be allowed. Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross utilization of CGST and SGST would not be allowed except in the case of inter-State supply of goods and services under the IGST model .

How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?

In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure seamless Dual GST within State.

How will IT be used for the implementation of GST?

For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide shared IT infrastructure and services to Central and State Governments, tax payers and other stakeholders. The key objectives of GSTN are to provide a standard and uniform interface to the taxpayers, and shared infrastructure and services to Central and State/UT governments.

GSTN is working on developing a state-of-the-art comprehensive IT infrastructure including the common GST portal providing frontend services of registration, returns and payments to all taxpayers, as well as the backend IT modules for certain States that include processing of returns, registrations, audits, assessments, appeals, etc. All States, accounting authorities, RBI and banks, are also preparing their IT infrastructure for the administration of GST. There would no manual filing of returns. All taxes can also be paid online. All mis-matched returns would be auto generated, and there would be no need for manual interventions. Most returns would be self-assessed.

 How will imports be taxed under GST?

The Additional Duty of Excise or CVD and the Special Additional Duty or SAD presently being levied on imports will be subsumed under GST. As per explanation to clause (1) of article 269A of the Constitution, IGST will be levied on all imports into the territory of India. Unlike in the present regime, the States where imported goods are consumed will now gain their share from this IGST paid on imported goods.

What are the major features of the Constitution (122nd Amendment) Bill, 2014?

The salient features of the Bill are as follows:

  • Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax
  • Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs
  • Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling
  • Dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
  • Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
  • GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council
  • Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years;
  • Creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.

What are the major features of the proposed registration procedures under GST?

The major features of the proposed registration procedures under GST are as follows:

  • Existing dealers: Existing VAT/Central excise/Service Tax payers will not have to apply afresh for registration under GST.
  • New dealers: Single application to be filed online for registration under GST.
  • The registration number will be PAN based and will serve the purpose for Centre and State.
  • Unified application to both tax authorities.
  • Each dealer to be given unique ID GSTIN.
  • Deemed approval within three days.
  • Post registration verification in risk based cases only.

What are the major features of the proposed returns filing procedures under GST?

The major features of the proposed returns filing procedures under GST are as follows:

  • Common return would serve the purpose of both Centre and State Government.
  • There are eight forms provided for in the GST business processes for filing for returns. Most of the average tax payers would be using only four forms for filing their returns. These are return for supplies, return for purchases, monthly returns and annual return.
  • Small taxpayers: Small taxpayers who have opted composition scheme shall have to file return on quarterly basis.
  • Filing of returns shall be completely online. All taxes can also be paid online.

What are the benefits of GST?

The benefits of GST can be summarized as under:

For business and industry

Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent.

Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.

Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.

Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.

Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.


For Central and State Governments
Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.

Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an inbuilt mechanism in the design of GST that would incentivize tax compliance by traders.

Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.

 For the consumer

Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.

Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit.

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A complete guide on filing income tax IT returns in India

Once again it is that time of the year where masses go mad over taxes. You must comply with these deadlines. Compliance with deadlines is essential to avoid any an unnecessary cough up of additional taxes. Before we go into details lets first understand what is Income Tax Return. 
 

What is Income Tax Return (ITR)?

Income tax return is a proof that you have an income for which you have paid tax. According to the Income Tax Act, 1961, the term ‘return of income’ means proof of income earned by an individual or a business entity. Filing of income tax returns (ITR) is a voluntary but mandatory obligation where you report your income, capitals gain, and other allowances and reliefs claimed for a particular year. It is mandatory for every person to file his ITR as per the taxation rates imposed by the government if his income exceeds the exempted tax bracket.
 

Who is required to file Income Tax Return (ITR)?

Individuals
All those individuals whose annual income exceeds the basic exemption tab have to file ITR, you have to file your returns if you fall under any of the following categories.

  1. Individuals (men and women both) with taxable income exceeding Rs 250,000 p.a.
  2. Senior Citizens with taxable income exceeding Rs 300,000 p.a.
  3. Senior citizens aged more than 80 years with taxable income exceeding Rs. 500,000 p.a.

Businesses
Companies, Partnerships, and Proprietorship: Income tax is calculated at a rate of 25% if the gross turnover is upto 50 crore in the previous year and 30% for companies with turnover exceeding 50,000 crore. 
 

When your employer is deducting the tax- 

If your employer is taking care of your taxes by deducting it from your salary then you need not worry. You only have to take care of any additional income that you may be receiving from other sources. If this additional income after reducing TDS is 10,000 or more, you would be liable to pay your advance tax in 4 installments. The last installment would have been due on 15th March. If you have missed on paying taxes then you must do so before 31st March to avoid paying interest. 
 

Know about tax instruments-

To lower your tax outgo you should make tax investments in tax saving instruments under Section 80C, 80D etc. These include contribution towards ELSS, PPF account, National Pension Scheme, medical premium, premium towards life insurance cover. You will get a deduction of Rs.1.5 lakh for investments in Public Provident Fund, life insurance premium, national savings certificate, 5-year bank or post office deposits, equity-linked savings scheme, principal repayment for housing loan etc. You are eligible for a deduction under Section 80D if you are paying medical insurance premium for yourself, spouse or children upto 25,000.  Tax exemption is allowed for up to Rs 50,000 in a year under Section 80CCD, which is over and above the benefit available on Rs 1.5 lakh under Section 80C.Investment can also be made under 80C and 80D at the time of filing tax returns or before 31st March.
 

File your belated returns-

In case if you have missed filing returns for financial year 2015-16 or 2016-17 on or before 31st March 2018. You can also revise your returns, if it requires any corrections. This will be called a belated return. You can get a notice for “Income escaping assessment” if you fail to comply with the deadlines. 
 

Why to file your Income Tax Return (ITR)?

  • Banks and High commissions of various countries, certain credit card companies insist on proof of tax return before extending you credit and issuing a card. The same goes for financial institutions, which may rely on ITRs of past few years before undertaking business transactions with you.
  • A good record of ITR can reflect strongly on your image as an individual and as a business when it comes to winning contracts and procuring high-profile projects. Sometimes, tender applications for large-scale infrastructure and other government projects are scrutinized based on the ITRs of past 5–7 years along with other factors.
  • In case of accidental death of an insured individual due to road accident, insurance claims are empowered by providing a clean record of ITR. Any missing returns can weaken the claim in case the insurance policy hits a disputed path. The Life insurance companies also ask for ITR documents against high-value policies.
  • ITRs are taken as a trusted yardstick by angel and seed investors and venture capitalists. Gaining visibility on your cash flows can become easy with a healthy tax record.
  • Short- or long-term capital losses, or losses of any other type incurred by an individual or a business can be recovered if they are accounted for in the tax return filed in that financial year. 
     

How to file your Income tax return online?

  1. Register yourself on the Income Tax Department’s website using your personal details. Your permanent account number (PAN) will be your user ID. 
  2. There are two ways of e-filing your income tax return. First, you can go to the download section and select the requisite form, save it on your desktop and fill all the details. Click on ‘generate XML’. Then go to the website again and click on the ‘upload XML’ button. You will have to first log into to upload the XML file saved on your desktop and click on submit. 
  3. You can go to the quick e-file section of the website. Log in and select the form and the assessment year for which you are filing return and fill in all the details. 
  4. Select the forms on the basis of the source of your income. In case of an individual with salary, pension income, income from one house property or income from other sources excluding lottery, you have to select Form ITR-1, also known as ‘SAHAJ’. If you have capital gains, you will have to file Form ITR-2. 
  5. Keep a few documents such as your PAN number, Form 16, your interest statement, tax deducted at source (TDS) details and investments proves handy while e-filing your income tax return. 
  6.  An additional column called “AL” has been added, in which you will have to disclose the value of your assets and liabilities at the end of the year, in case your income for the year is more than Rs 50 lakh. 
  7. You can also download your Form 26AS, which is your consolidated tax statement summarizing tax paid against your PAN. You can validate your tax return with Form 26AS to check you tax liability. 
  8. Once you are submitting the form, an acknowledgement number is generated in case the return is submitted using digital signature. If the return is submitted without a digital signature, an ITR-V is generated and is sent to your registered email ID. ITR-V is an acknowledgement that your return has been submitted. 
  9. You can also e-verify your return through electronic verification by using the e-verify return option on the website. You can also use the net banking, Aadhaar-based one-time password to e-verify it.
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Penalties for income tax evasion | MUST READ

Income Tax Evasion | Penalty | Law House | www.lawhousekolkata.com
What is the punishment for Tax Evasion?

Tax evasion is defined as the illegal non-payment or under payment of tax by an individual.

The Oxford dictionary defines tax as: ‘A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.’


There are various penalties that the income tax department can impose on anyone who is found guilty of evading or avoiding taxes. These penalties can also apply to companies that either fail to report and pay their own taxes or fail to deduct taxes at source when they are supposed to.

Following are the different Tax Evasion Punsihments/Penalties:

  1. Not Filing Income Tax Returns
    If a taxpayer is required to file income tax returns before the due date as required under 139, subsection (1) of Income Tax Act and fails to do so, the assessing officer can impose a penalty of INR 5,000 or more.
  2. Failure to Pay Tax as Self-Assessment
    As per Section 140 A (1) of the Income Tax Act, if a taxpayer fails to pay wholly or partly—self-assessment tax or interest and fee or both, the taxpayer is declared as a defaulter. The assessing officer can as per Section 221(1) declare the taxpayer as a defaulter and impose a fine that does not exceed the tax in arrears. However, if the taxpayer is able to provide sufficient proof for default, the assessing officer can exempt the taxpayer from paying the penalty.
  3. Failure to Comply with Demand Notice
    If a taxpayer receives a demand notice asking for tax payment, the taxpayer has to pay the requisite amount in 30 days to the name and department mentioned in the notice. Failure to do so will result in further penal provisions and the taxpayer will be treated as a defaulter.
  4. Failure to Get Accounts AuditedIf a taxpayer receives a demand notice asking for tax payment, the taxpayer has to pay the requisite amount in 30 days to the name and department mentioned in the notice. Failure to do so will result in further penal provisions and the taxpayer will be treated as a defaulter.Section 92(E) requires the taxpayer to furnish a report from the taxpayer. Failure to do so will incur a penalty of INR 1lakh or more. If any document is not furnished or attached, a penalty of 2% of the transaction’s value (international or domestic) is levied, this is under Section 92(D)3.
  5. Concealment of Income
    Income concealment to not pay tax is a disease that needs eradication before its effect throws the economy into a downward spiral. Under section 271(C) of Income Tax Act, there is a 100% to 300% penalty of the tax evaded if someone is caught concealing tax. The tax evasion penalty varies under certain conditions.
  • If the taxpayer admits to the concealed tax, he or she will have to pay 10% of the previous year’s undisclosed income along with interest.
  • If the taxpayer does not disclose the undisclosed amount but does so in the return of income furnished in the previous year, 20% penalty of the undisclosed amount along with an interest is levied.
  • If the previous year’s amount is undisclosed, the minimum penalty that can be levied is 30% and the maximum is 90%.
  • If an individual fails to file tax statements within the time allotted then a penalty of Rs. 200 per day may be charged for every day that the statements are not filed.
  • In case someone has concealed details of their income or any fringe benefits that are taxable, the penalty can range from 100% to 300% of the tax amount due.
  • In case a person or a company fails to maintain their accounts properly as directed by section 44AA, a penalty of Rs. 25,000 may be levied.
  • If a report from an accountant is not provided as directed then a fine of Rs. 1 lakh may be levied.

Failure to comply with Income Tax notice


When the Income Tax department issues a tax notice, the recipient taxpayer has to comply. Failure to comply enables the assessing officer to send a notice under Section 142(1) or 143(2) asking the taxpayer to:

  • File the return of income.
  • Furnish in writing all details of assets and liabilities.

Point to Note:

In case of large cash deposits of more than Rs10 lakh that are not explained by the income declared in the income tax returns, it will be treated as tax evasion and the tax amount plus a penalty of 200% of the tax payable would be levied.

Income Tax Evasion | Penalty | Law House | www.lawhousekolkata.com
What is the punishment for Tax Evasion?
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Procedure and duration for claiming a tax refund

Taxation laws allow the assesse to claim refunds for excess tax paid to the government during a financial year. A tax refund applicable to employees falls under the following:

Tax Deduction at Source at a rate higher than the actual tax payable.

The companies ask their employees to submit a proof of their tax returns & savings investment so that such savings and investment can be set off against the tax that is deducted.

Section 237 and 245 of Income Tax Act, 1961 deals with provisions relating to refund of taxes and any such refunds arise on an assesse satisfying to the assessing officer that the amount of tax paid by the assesse for any year exceeds the amount of tax payable by him.

What is the procedure to Claim Refund?

  1. For any assesse to claim a refund under the IT Act, he/she shall do so by filing form 30.
  2. Under the ordinary course, a tax refund may be claimed during/while filing the Income tax returns.
  3. There is no tax applicable for refunds as the same is receipt of excess tax paid and not income earned.
  4. It takes 4 to 6 months from the date of filing the Income Tax returns to receive the refund.
  5. The claim of a refund shall be made within one year from the last date of the assessment year.
  6. In case of any delay due to any reason, an application for condonation shall be filed before the tax authorities provided the same is extended beyond six years.
  7. Eligibility for Interest on the refund is calculated at the rate of 0.5% per month and 6% per annum from the first day of assessment year until the date when the refund is paid to the assesse.
  8. A rejection on tax refund may happen in the event of incorrect calculation of tax payable by the assesse.

What is the procedure for claiming TDS refund?

There are no specific forms to be filled for claiming tax deduction as the same can be done while filing the income tax returns.
A TDS refund should be claimed in 4-6 months and any refund to be received shall have an interest coverage of 6% per annum if the refund payable is more than 10% of the total payable for that year.

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How to deposit cash above Rs. 2.5 Lacs without tax and penalty

With demonetisation, many citizens are concerned if the cash in hand with them will be treated as black money, and will be penalised taxed on the same if it is deposited in the bank.

During the period 9 November to 30 December, the government ha defined a maximum limit of Rs 2.5 lakh on cash deposit, which will not be under scrutiny by the income tax department. If the cash deposits exceed this limit, the bank or post office will automatically report it to the tax department. For current accounts, the threshold limit for cash deposits between 9 November and 30 December will be Rs 2.5 lakh.

But if one has more cash than the said limit, they may deposit it in their bank, but will be suject to scrutiny.

There are people who believe that the magical number – 2.5 lakh deposit, would attract a lot of attention from the tax department whereas anything below that amount would be safe and would not attract any attention. This is just a rumour and completely false. This is not an arbitrary number. It is the maximum exemption limit for income tax for individuals. But you would still have to justify any extra income that you possess via your bank statements.

If you are a salaried person or a housewife, then the savings that you accumulate over the years would still have to be accounted for by justifying it using our bank statements. The ta department would tally your withdrawals and deposits from the past, your lifestyle and the lifestyle of your spouse and then decide if the savings that you show is feasible and believable.

Advocate Anuj Aggarwal, Taxation Lawyer explains how you can deposit more cash than the limit and repond to possible enquiries from the income tax department.

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Here is what you should do if you receive a notice under Section 143(2)

Getting an income tax notice may be baffling for some and can be a huge reason of anguish. The receiver of the notice may be worried about all the questions that will be posed to him by the department.

A notice received under Section 143(2) is known as scrutiny notice. If you receive a notice under section 143(2) this simply implies that detail scrutiny will be done of your return. So you need not panic and adhere with department’s instructions. With a cool head, you must comply with assessing officer directions. First and foremost you must never ignore it and reply within the due time.

The assessing officer can serve this notice up to six months after completion of the assessment year to which it pertains. For carrying out the detailed assessment, the assessing officer might ask you to provide books of accounts of your trading activity like your trading statements, profit and loss accounts, balance sheet, bank statements. You must cooperate with the tax department and provide all the information as required by the assessing officer.

Further, the taxpayer should get in touch with their assessing officer and submit the evidence that has been sought. In case if you fail to do this, you might get another notice from the tax department. In case you are a salaried employee, you must keep your Form 16 ready which is issued by your employer.

Hence, you must carefully submit all the details and evidence requested by the tax department.

If you fail to comply with this notice-

  • It may lead to “best assessment judgment” under Section 144 of the Act.
  • A penalty upto Rs. 10,000 may be imposed under Section 271(1)(b) for each failure.
  • You may also be prosecuted under 276D which may extend to upto 1 year with or without fine.