8 things you need to know before filing your income tax returns

Every year around July 31, if you listen carefully, you will be able to hear taxpayers running pillar to post to file their returns. Confusion remains rife, as they get caught in the complex web of laws which were actually put in place to make things easier.

This time, we'll hold your hand till the end and make tax filing an less daunting experience.

Watch out for our series of articles on tax filing.

First, let's understand few important parameters and address a few questions before you go about filing your tax returns

What does filing tax returns mean?

A 'return of income' or tax filing is the process where a person reports or declares to the government, the details of their income and the taxes paid by them.

It is like the 'No Objection Certificate' you have to get from the college library, before you leave college even if you never visited the library. It is to establish the fact that don't have any outstanding obligation, or if there are any dues, they have been cleared.

Who needs to file income tax returns?

Any individual whose taxable income exceeds Rs 2.50 lakh, the basic exemption limit prescribed by the government, in a particular financial year is required to file tax returns. This has to be done within the due date announced by the government.

I have a Permanent Account Number (PAN). Do I still need to file I-T returns?

A. Having a PAN card doesn't exempt you from filing taxes. As stated earlier, if your taxable income exceeds the exemption limit, you're liable to file taxes. However, on the flip-side, to file returns, you do need a PAN card.

What are the benefits of filling income tax returns (ITR)?

A. Filing returns or not has never been a choice. It is a legal obligation which should be fulfilled by everyone who falls under the prescribed category. However, if you still needs more reasons to file your returns, here are a few:

a) To avail home or personal loans.

b) For visa and immigration processing.

c) It is an income proof or a net worth certificate.

d) For claiming excess tax paid via refund

e) Applying for a higher insurance cover

And last and most important is your peace of mind!

My tax is already deducted at source by my employer and paid to the government, then why do I need to file income tax return?

A. Although tax has been deducted and there is no further liability to pay tax, you have to compulsorily file your income tax return if your income exceeds the basic exemption limit.

I have not submitted my investment details like life insurance premium, to my employer and excess tax has been deducted from my salary. Can I declare my investments and claim the benefit?

A Yes, you can claim a refund while filing income tax returns.

What are the different sources of income?

A Before you start your tax filing, you need to first determine the sources of your total income. Does your income comprise of only salary and interest on savings bank account or you also earn rental income, capital gains, or income from any other source?

Let’s see different heads and “Sources of Income” as per Income Tax Act as follows:-

1. Salary

2. Rental income from house property

3. Profit & gains from business or profession

4. Capital gains on sale of shares or mutual funds or capital assets

5. Other sources like bank interests, etc.

You will need to add your income earned under each “Head” and then compute your taxes. If you have a minor child, don't forget to add the income received by him/ her. This will include income due to interest on fixed deposits in the name of your minor kid. For them, you're not expected to file separate returns; they can be clubbed with the parents' income.

What are the documents required before filing income tax return?

Form No.16: Issued by your employer summarizing your income from salary and tax deducted at source.

Form no 16A: Issued by all the payers who have deducted tax while making payment to you during the year. For example, banks where you have fixed deposits.

Property details: If you have bought any property or put up existing property on rent, then the details for the rent received and receipts of municipal taxes paid during the year, will be needed. If you've bought property by taking a loan, then you'll need to submit copies of loan certificates for the interest and principal.

Contract Notes: For sale and purchase of shares during the year for calculating capital gains.

Tax challans: You'll need to submit the details of the tax payments made by you, if you've paid any advance tax or self-assessment payments.

Bank account statements: You will need bank account statements of all your operating accounts during the year for arriving at interest income earned during the year.

Others: Any other documents for a financial transaction involving tax implications for computing your taxes.

Note: You don’t need to submit any of these copies to the I-T department during the process of filing income tax returns, and even originals are also not required to be given to your CA, if you are taking professional help. These documents are only required to help you prepare your tax computation and you should keep these copies handy, in case the I-T department asks you to furnish them.

Happy filing!

Next in the series on income tax filing -- How to file your returns and the latest changes in the tax forms/rules and processes. 

The author is a Chartered Accountant and the Chief Gardener & Founder Director of Money Plant Consulting, a leading Tax & Investment Planning Advisory Service Provider. He also runs a personal finance blog called “Mango Investor” aka AAM Niveshak at www.mangoinvestor.com. Readers are invited to send their feedback to rishabhparakh@moneyplantconsulting.net.