So you’ve been filing your return of income every year for the past 12 years or so. By now, you know how to tweak your tax deductions for maximum benefit. And you know the difference between long- and short-term capital gains. You even know all about indexation and inflation.
But do you know something as fundamental as the difference between your salary income and your taxable income? In the strange world of taxation, it’s common to see assessees filling in reams of paper almost without knowing their A, B, C. With the taxman casting his net wider and deeper, you are more likely to get caught now than ever before for neglecting the obvious in your tax return. Here’s our pick of a few essential tax concepts.
A. KNOW YOUR INCOME
Income [n]: the financial gain (earned or unearned) accruing over a given period of time. That’s the classic dictionary definition of a word that far too many of us confuse with salary. There’s a lot more to income than your pay cheque, as we show you, and there are more deductions available than you possibly know of. Take a look:This is income too • Income earned by investments in a minor child’s name. In this case, the minor’s income is clubbed with the income of the parent who earns more • Income from investments (other than insurance) made from your income in your spouse’s name • Income deemed to be earned from letting out a second property even if it is lying vacant |
2. Income from house property : Rental income from letting out a house or commercial property Deductions available: Standard deduction (30% of income), house tax and interest paid on loan for buying the property.
3. Capital gains: Any profit earned from the sale of an asset (property, jewellery, shares, mutual fund units, car, machinery) is a capital gain. Deductions available: Exemptions depending on asset class and period of holding, indexation benefits, investments in specified options (see section B).
4. Income from business or profession: This is the net profit from any business or profession you might conduct (not applicable for salaried taxpayers) Deductions available: Expenditure for business or profession, losses from previous years, carrying forward of losses
5. Income from other sources: Any income other than the ones given above is classified under this head. This may include interest, dividends, pension (other than from employer), gifts and lottery winnings, etc.
B. WHAT'S EXEMPT FROM TAX
“If you do not have taxes, you do not have a democracy,” says R Prasad, chairman of the Central Board of Direct Taxes. He may well be right, but to most of us, paying tax is an evil, which, if we can manage, should be avoided. You don’t have to be illegal about it; the government has specified certain kinds of income that are exempt from tax. Some of them are:
1. Agricultural income
2. Interest earned on EPF and PPF
3. Capital gains from sale of shares and equity mutual funds after a year of purchase
4. Profits from sale of units of Ulips
5. Payments received on insurance policies
6. Dividends from mutual funds and companies
7. Commuted amount of pension
8. Any death-cum-retirement gratuity received by government or local authority employees is exempt from tax. For non-government employees, the taxability depends on whether the gratuity is covered under the Gratuity Act
9. Other compensation received under some Act
C. WHO NEEDS TO FILE RETURNS
Which form is for you ITR 1 (3 pages): The basic entry-level form is for people with only salary, pension and interest income |
In an ideal world, everyone who claims any kind of income should pay some tax. But, of course, this is not an ideal world, and there are several income-earners who slip through the tax net. According to the current income tax laws, only the following earners need to pay tax and file their returns:
1. Adult male with income of over Rs 1.1 lakh a year
2. Adult female with income of over Rs 1.45 lakh a year
3. Senior citizens (who are over 65 years at any time during the financial year in question) with income of over Rs 1.95 lakh a year. Under Section 80D, senior citizens also get a higher deduction limit of Rs 20,000 for premium paid towards medical insurance.
4. A Hindu Undivided Family (HUF) with an income of over Rs 1.1 lakh a year
Of the sections that offer you tax breaks, Section 80C tends to be most popular, since you get an exemption of up to Rs 1 lakh on contributions to a wide range of investments. Given below are the various options under the section.
| OPTION | POSITIVE FEATURE | BUT REMEMBER |
| Provident Fund, Public Provident Fund | You get an assured return of 8-8.5% per annum on your deposits, which is also exempt from tax | Money locked in for at least six years in PPF. And 8-8.5% returns pale before those from ELSS |
| NSCs and 5-year bank FDs | Assured return of 8-9%. In case of NSCs, the cumulative interest earned every year gets further tax deduction because the interest is deemed to be reinvested | Interest is fully taxable. Also, your money gets locked in for five-six years |
| Life insurance policies | You get insurance cover and tax breaks on premiums paid, plus all income received is tax free under Section 10D | Traditional policies currently give annualised return of only 4-5% |
| Ulips | Market-linked returns. Combines insurance with investment. Partial withdrawals are allowed after three years and are tax free | Ulips levy high charges of 30-40% of annual premium in initial years |
| ELSS mutual funds | Market-linked returns. No entry load on direct investments | Withdrawals are allowed after three years and are tax free |
| Pension plans | 33% of the corpus can be withdrawn tax free when the plan matures | Money locked up for long term. On maturity, at least 66% gets invested to give monthly taxable pension |
| School fees | Fees paid to a recognised school or college (playschools do not qualify) gets tax deduction | Tax benefits on fees for only two children |
| Home loan principal repayment | Especially helpful for taxpayers who don’t have investible surplus to save tax because of large home loan EMI | Tax benefit only if the house is self-occupied. Can’t claim benefit along with HRA exemption |
Where do you go in case of a tax problem? There are several tax specific websites and tax preparers who offer advice online. But though the IT department has taken to e-filing and e-payment, it does not accept or resolve complaints online.
| Filing tax online |
| Income Tax Online http://www.incometaxonline.in/ Ph: 91-161-4620426, +91-161-5051426 |
| TaxSmile http://www.taxsmile.com/ Toll Free Number 1800-220-221 |
| TaxShax http://www.taxshax.com/ Ph: 020-30226102; 020-25824917 |
| File My Returns http://www.filemyreturns.com/ Ph: 022-28787683/4 |
| Digital certification http://www.safescrypt.com/solutions _and_services/digital_certificate_services/ individual_certificates.html 1901-425-3330 or 1600-345-3330 |
| Tax filing help from TRPs Toll Free Number 1800-11-8777 |
| Tax Spanner https://www.taxspanner.com/ts/faq/#q6 |
| Yureeka Taxes http://taxes.yureeka.com/taxes/ YureekaTaxes.html |
General information
The Tax Information Network (TIN) was established by National Securities Depository (NSDL) on behalf of the IT department. The site offers information on processing, monitoring and accounting of direct taxes. It also allows you to check the status of your tax refund online.
Grievance redressal
Tax Ombudsman:
MUMBAI: Hardayal Singh, Ph: 022-22829930, 22829936
KOLKATA: Swapna Ray, 033-22136704, 22486103
KANPUR: Hriday Narain, 0512-2332771, 2332770
AHMEDABAD: D.P. Panta, 079-27546253, 27546771
HYDERABAD: R.C. Prakash, 040-23425345, 23425345
BANGALORE: S.K. Iyer, 080-25538389, 25538390
KOCHI: C. Rajendran, 0484-2378455, 2377459
DELHI: Baljeet Matiyani, 011-23379925, 23378551
Grievance Cell
Director of Grievances: Central Board of Direct Taxes, Room No. 155A, North Block, Central Secretariat, New Delhi – 110001
How to tackle taxing problems
1. Take advantage of computerisation: Use your online bank account to keep track of your income, investments, savings and use the ECS process to get your refund
2. Use TRPs: Tax return preparers are trained to compute your tax, so why take the chance of (mis)calculating on your own when you have a cheap and efficient option?
3. Right to information: The RTI Act can be used to good effect, particularly in cases where the assessing officer does not explain why you have received a notice and keeps you waiting for months on end
4. Tax ombudsman: The office of the tax ombudsman is intended to help assessees who are unable to get relief from other sources
