Tax filing: Six degrees of preparation

We take you through the basics of income tax to help you fill a flawless return.

Print Edition: July 9, 2009

If your income exceeds the basic exemption limit, you need to file your tax return. But what if the income is exempt from tax? Also, do you know which form to use to file the return? These are not the only issues that confuse taxpayers. We take you through the basics of income tax to help you fill a flawless return.

1. Who should file income-tax returns?
All individuals whose total income exceeds the exemption limit before allowing for deductions under various sections of Chapter VI-A are required to file their income-tax returns.

The exemption limits on total income are as follows:
Males (below 65 years): Rs 1,50,000
Females (below 65 years): Rs 1,80,000
Sr. citizens (above 65 years)*: Rs 2,25,000
* Should have turned 65 on or before March 31, 2009

2. When is the last date forfiling tax returns?
Salaried persons and professionals: 31 July 2009
Persons whose income needs auditing: 30 Sep 2009

Note: There’s no need to panic if you are not able to file by the due date. If all your taxes are paid, you can file by 31 March 2010 without any penal action. However, you will not be allowed to carry forward your capital losses if you don’t file by the due date.

The due date for paying tax on the income for 2008-9 was 31 March 2009. An interest of 1% will be charged on the outstanding amount for every month of delay.

A penalty of up to Rs 5,000 may be slapped if you file your return after 31 March 2010.

3. Which form is to be used?
ITR-1: If you have income from salary, pension and interest.
ITR-2: If, besides the above, you have income in the form of rent from house property, capital gains, dividend and royalty.
ITR-3: If you are a partner in a firm.
ITR-4: If you have income from business, consultancy, selfemployment and professional activity.
ITR-V: This is to be used by all taxpayers for acknowledgement.

4. What is the tax rate?
The basic exemption limit differs for the three categories of taxpayers. Find out your income-tax liability using the table given below:

Sr. Citizen
Tax Rate
Up to Rs 1.5 lakhUp to Rs 1.8 lakhUp to Rs 2.25 lakhNil
Rs 1.5 lakh to Rs 3 lakhRs 1.8 lakh to Rs 3 lakhRs 2.25 lakh to Rs 3 lakh10%
Rs 3 lakh to Rs 5 lakhRs 3 lakh to Rs 5 lakhRs 3 lakh to Rs 5 lakh20%
Above Rs 5 lakhAbove Rs 5 lakhAbove Rs 5 lakh30%
There is also a 3% education cess on the tax payable and a 10% surcharge on the total tax if the annual income exceeds Rs 10 lakh.

5. What constitutes income?
Any income that has accrued in the financial year has to be reported in the tax return form. Include the income even if it is tax-free or will be paid on maturity of a bond or security. The following incomes should be included:

  1. Salary: This includes wages, commission, bonus, incentives and value of perks.
  2. Pension: This includes annuity received from a mutual fund or an insurance company.
  3. Interest: From fixed deposits, recurring deposits, savings accounts, NSCs, Kisan Vikas Patras.
  4. Income from house property: Rental income after 30% standard deduction.
  5. Capital gains: Profit from sale of property, stocks, mutual funds, gold and other assets.
  6. Income from business or profession: Profit earned from business activity.
  7. Other sources: Dividends, gifts, lottery winnings.

6. How can income-tax returns be filed?
There are three different ways in which the tax returns can be filed. These are:

Physical: The traditional way of going about it. Fill up the relevant form along with the acknowledgement and submit to the tax office of your area. Nearly 85% of the returns are filed in this manner.
Cost: Nil to Rs 500, paid to the tax preparer or a chartered accountant.

Online + physical: Use a tax portal to fill up the relevant form and submit it online. Take a printout of the acknowledgement and mail it to the collection office in Bengaluru. 10% of returns are filed in this fashion.
Cost: Rs 250-500, depending on the form that is used.

Online: You fill up the relevant form online, make an xml file and submit it along with a digital signature. The acknowledgement generated thus is proof that you have submitted the form.
Cost: Rs 500-1,000, depending on the portal and form.

Common tax deductions:

Section 80C investments: Rs 1 lakh invested in PF, PPF, NSCs, five-year FDs, ELSS mutual funds, Ulips, pension plans, life insurance, school fees for two kids, home loan principal repayment.

House rent allowance (least of the following):
a. Actual rent paid minus 10% of basic.
b. HRA received.
c. 50% of basic pay (40% for non-metros).

Medical insurance: Up to Rs 15,000 paid as premium for self, spouse and children in a year. Additional Rs 15,000 deduction for parents (Rs 5,000 more if used for senior citizen).

Home loan interest: Up to Rs 1.5 lakh interest paid is fully deductible if the house is self-occupied. If it is rented out, there is no limit on the deduction of interest that can be claimed in a year.

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