When filing returns, keep a tab on finer aspects

After making last-minute investments to save tax in March, it will soon be time to file income-tax returns, which is essentially furnishing details of income earned in a given year to the government.

If your income exceeds the basic tax threshold, you are legally obligated to file tax returns. The basic threshold - income below which is not taxable - for financial year 2011-12 is Rs180,000 for men, Rs190,000 for women and Rs250,000 for senior citizens (60 years of age and above). There is also a newly introduced category of very senior citizens (those 80 years of age and above) where the exemption limit is higher at Rs500,000.

Which brings us to the next question: what is exactly meant by taxable income? Taxable income implies the gross amount of income that you earn before claiming any deductions. For example, say Mr Joshi, a senior citizen, earns an income of Rs300,000. During the year, he invests Rs100,000 in public provident fund, thereby bringing his income down to Rs200,000. Now, though Rs200,000 is below the basic exemption of Rs250,000, Mr Joshi will have to file his tax return since his gross income of Rs300,000 was above the threshold.

Sources of income
A person can earn income from five broad sources. These are salary, house property, business and profession, capital gains and income from other sources.These are exhaustive, which means that there is no other source apart from these five from which you can earn any income.

So basically the tax-return filing can be reduced to filling in the details of income at the appropriate space in the tax return. The salaried would know that the employer provides a form known as Form 16 that gives full details and break-up of the salary income. The same can be used to fill in the details in the form.

Income from house property implies the rental income that a landlord may derive from his or her property. As far as business or professional income is concerned, the net income remaining after deducting expenses incurred for running the business is subject to tax.

Capital gain is earned when you sell mutual fund units, shares, property, etc. Currently, long-term capital gains from equity shares and units of equity mutual funds are exempt from tax whereas the short-term gains are taxed at 15%. The long-term rate on other assets such as property, etc is 20% after indexing cost. Short-term gains, if any, would be added to the other general income.

The last head is the residuary, which basically includes interest income that you earn such as Bank FD interest, interest from RBI bonds, etc. It must be noted that apart from interest on PPF, all other interest from whichever source is fully taxable.

An aggregation of all the above incomes should be above the basic exemption limit for you to be liable pay taxes or to file a tax return. The rate of tax depends upon your level of income as per the applicable slab.

Some additional aspects relating to the return filing process that need to be kept in mind are the following. In the case of the salaried who have changed jobs during the year, details of only the last employer need to be furnished.

Care needs to be taken that the basic exemption hasn’t been accounted for twice (once by each employer) in the Form 16. If for any reason, one finds that the income has not been computed correctly in Form 16, the taxpayer is expected to make the correct computation and furnish the same in the return.

Coming to house property - if the taxpayer owns property jointly say with spouse or with any other person, information relating to the percentage of share of the taxpayer in the co-owned property is mandatory. The name(s) of the co-owner(s), PAN and percentage of share of the other co-owner(s) in the property also needs to be mentioned. If there are two or more than two house properties, the details of remaining properties have to be filled in a separate sheet in the same format as the House Property Schedule and attached with the return.

In case of capital gains, note that capital loss cannot be set off against any other head of income. Further, since long-term gain from equity / equity MFs is tax exempt, any long-term loss from these sources cannot be set off against any income. Any other long-term loss may be set off against taxable long-term gain. For example, long-term loss from say an investment in a debt fund may be set off against long-term gain from sale of property. However, if the same loss was from an equity fund, then it could not have been set off at all. Short-term capital loss, however, can be set off either against short-term capital gain or taxable long-term capital gain.

Last but not the least, Budget 2012 contained a provision that filing of the tax return would be compulsory where a resident individual had any asset or bank account located outside India. In this regard, the Central Board of Direct Taxation has issued Notification No.14/2012 [F.No.142/31/2011-TPL]/S.O. 626(E), dated 28-3-2012 that makes filing the tax return electronically mandatory for a resident assessee having assets (including financial interest in any entity) located outside India or signing authority in any account located outside India.

Similarly, an individual or an HUF whose total income exceeds `10 lakh no longer has the option of filing their tax return in the physical form - they have to compulsorily file their tax return electronically.

The writer is director,
Wonderland Consultants, a tax and financial planning firm.
He can be contacted at sandeep.shanbhag@gmail.com