Income tax return (ITR) filing deadline (December 31, 2020) for FY 2019-20 is fast approaching and we see a lot of checklists and to do lists making its rounds in the social media. But a generic checklist maybe abstract and one might get lost amidst the quantum of information. At times, one even forgets the “intended search topic”. This article is an attempt to be more precise and it is intended to address “what actually is relevant” for individuals who are employed.
Key Pointers:
- Tips to help you through the process of filing your income tax returns
- Answers to most of the frequently asked questions on filing tax returns
- Few strategies that could save you thousands !
By now you must have received FORM16. If you have not received it, check with your employer ASAP. Form16 is the TDS certificate issued by the employer and it contains all details required for filing of ITR by an individual, whose main source of income is from his employment. But, there are a few unchartered areas, which could be missed, if one considers Form16 as the “complete document” to file an ITR. Our Taxation-service can help you identify such unchartered areas, some of which are explained below.
MORE THAN ONE FORM16?
An individual who might have switched jobs in the previous year will get Form16 from both employers. While providing information to the current employer for tax deduction, one should remember to share the details of salary received from the previous employer so that tax is deducted correctly. While most of the regular ITR filers are aware of this “keystone” step, and can sigh a breath of relief while filing the ITR, this could be a slippery area for first time filers.
For FY 2019-20, if such information was not shared correctly, TDS deduction would be incorrect. In such a case, one should carefully prepare and file his ITR ensuring that salaries received and deductions claimed are given appropriate effect.
HRA COMPUTATION
House rent allowance is part of most of the regular salary structures. But amidst the “haze of work pressure”, one might miss to submit the relevant documents like rent receipt, PAN of landlord (when total rent in a year crosses Rs. 1 Lakh) etc. Claiming this deduction is vital to reduce the tax liability.
If the details were not submitted to the employer on time, it will not be captured in FORM16. In such a case, one must compute the HRA exemption as per the provisions of the Income Tax Act and claim deduction while preparing the ITR.
TAX SAVING INVESTMENTS
Sec 80C bucket: The Income Tax Act allows certain investments and expenditure to be claimed as deduction. These are colloquially referred to as “Chapter VI A” deductions. Most tax payers are aware of Sec 80C and the limit (Rs. 1.5 Lakhs). For taxpayers with housing loans, EPF contribution and housing loan principal generally covers the entire 1.5 Lakh limit. But a person who does not have a housing loan, needs to explore Sec 80C in detail. Investments in LIC plan, eligible mutual fund, tuition fee for children, investment in PPF and NSC are a few common spends.
While EPF details, housing loan provisional interest certificates and SIPs maybe the common documents that could be submitted to the employer on time for considering in FORM16, expenditure like tuition fee for children might not be available or might be missed out. Actual spends “missed to be included” in FORM16 can be considered while preparing the ITR.
TAX SAVING INVESTMENTS – BEYOND 80C
Chapter VI A has a lot more sections in store beyond 80C. Sec 80D also generally finds its place in FORM16, as health insurance for employee (along with dependent children and parents) are taken by the employer (MNCs and the like) with voluntary contribution from the employee. Individuals employed with smaller concerns might not enjoy this benefit and might take out policies separately as per need. In such cases, one must consider the nuances carefully while preparing the ITR.
Other sections that might be missed out in FORM16 could be donations to eligible organizations u/s Sec 80G, educational loan u/s 80E, interest up to Rs. 10K u/s 80TTA, expenses incurred to care for a special child u/s 80U etc. All these can be given effect to while preparing ITR. This could go a long way in saving your taxes.
IMPACT OF REVISED FORM 26AS
From this year onwards, high value transactions (SFT) will also be reflected in FORM26AS along with TDS deducted, TCS collected, Self-Assessment tax paid, Advance Tax paid and Refund received from the Income Tax department.
For instance, cash deposits in excess of Rs. 10 Lakhs in an SB account during a financial year would reflect in FORM26AS. The Income Tax department will use this information for processing the ITR. Hence while preparing the ITR, one should keep these points in mind and declare sources of income as appropriate.
INCOME NOT CONSIDERED IN FORM16
Declaring details of other sources of income to the employer is an option, if exercised makes life easy while preparing the ITR. Some might miss out in a haze and not submit the details on time. But even for the “organised person” who keeps all his paper work in place, there are some source of income that cannot be practically covered in FORM16. Examples of such sources of income could be capital gains earned on sale of property or shares or units of equity mutual funds, income from fixed deposits and savings account with Banks, rental income from house property (vacant for part of the year) etc as the flow of income may not be uniform throughout the year.
Such income and relevant deductions applicable for them should be computed as per the provisions of the Income Tax Act while preparing the ITR.
TCS ON PURCHASE OF CAR
Purchase of a “luxury car” (value more than 10 Lakhs) attracts a TCS @ 1%. If a luxury car was purchased during the previous year, this TCS will reflect in FORM26AS.
TCS, similar to TDS is tax paid in advance to the Government and can be considered while preparing ITR. Considering this in the ITR could give a tax refund.
CARRY FORWARD OF LOSSES
While the commonly used ITR is ITR-1, one must read the instructions given on the ITR carefully before choosing it. For instance, a person who has a carry forward of loss from a previous year cannot use ITR-1.
If one attempts to complete the ITR filing process as a mere compliance activity, an opportunity to carry forward losses for set off against income in the coming years would be lost. This could have a sizeable impact in case of loss from sale of shares or units of equity mutual funds, capital loss from sale of house property etc. Hence this activity of choosing the correct ITR must be done religiously to ensure that one does not “miss the bus’.
COVID-19 TAX IMPACT
Government of India, as part of the relief measure for taxpayers, extended the last date for making “tax-saving” investments up to Jul 31, 2020. Such investments made for claiming deduction in the ITR prepared for FY 2019-20 would not have been captured in the FORM16 as the time to submit details to the employer might have lapsed. These must be considered while preparing the ITR for FY 19-20 to reduce the tax liability.
How can we help you?
Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.
Call us at +91 73050 56628 or drop a mail to frontoffice@onesourcevault.com
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