Don’t fall prey to these tax myths

Many investors seem to be under the impression that having a permanent account number (PAN) makes it mandatory to file the tax return. The issue has especially come up ever since PAN was made compulsory for investing in mutual funds. There are many who feel that now that they have been allotted a PAN, return filing would also be a must, no matter that they don’t have any taxable income.

On the other hand, there are those, especially the salaried class, who feel that as long as their monthly take home salary has been subject to TDS, they have no further obligation as far as the taxman is concerned. In other words, they feel that since their income is already subjected to tax, there is no further action needed on their part.

Both are misconceptions. Though a taxpayer needs to have a PAN to file the tax return, the reverse is not true. And similarly, even though TDS has been deducted on one’s income, filing a tax return could be obligatory.

Basically, the rule is that if one earns an income above the basic exemption limit, it is obligatory on such a person to file his or her tax return.

For FY 09-10, the basic exemption limits are Rs 1.60 lakh, Rs 1.90 lakh and Rs 2.40 lakh for men, ladies and senior citizens, respectively. So, if your income is lower, irrespective of whether you have been allotted a PAN or not, you need not file a tax return. And if your income is higher, then irrespective of the tax deducted at source, you have to file your tax return. Note that income in this context is your gross income i.e. before claiming any deduction.

Belated return
As we all know, the last date for filing the tax return is July 31. So what happens, if for any reason, you are unable to file your return in time? Even then, there is no cause to worry as such — the law allows you to file a belated return at any time before the end of one year from the end of the relevant assessment year. In other words, if you file a return after July 31, it will be termed as a belated return and the same can be submitted anytime up to March 31, 2012.

In terms of repercussions, an interest of 1% per month will be levied on any tax due. Also, the tax official has the option of imposing a penalty of Rs 5,000 on account of the late submission. So say you are a salaried employee who has not filed his or her return in time, however, the tax due from you has already been deducted at source in the usual course. In this case, the maximum downside even for a late filing would be the Rs 5,000 penalty amount. Since the tax due from you has already been paid (by way of the TDS), there would be no liability on account of interest. Remember, interest is levied only if you owe any tax to the government.

However, there is yet another drawback of not filing the tax return in time. If you have any business loss or capital loss (short-term or long-term), the same cannot be carried forward for set-off against future income, if the tax return is not filed in time.

So all in all, it is always advisable to submit your tax return in time — however, if you cannot do so due to unavoidable circumstances, then the consequences are as detailed above.

Revised return
There is yet another concept known as ‘revised return’. As the name suggests, if you were to discover any omission or wrong treatment of any income or deduction or a wrong statement in your originally filed return, then within one year from the end of the relevant assessment year, you may file a revised return.

Therefore, just like in the case of a belated return, you have time till March 31, 2012 for filing the revised return.

In terms of a real life example, DU Desai (name changed upon request) had originally filed his return for FY 08-09 well within the time limit of July 31, 2009. However, later on, somewhere around December 2009, while making his advance tax calculations, he realised that he had erroneously claimed an amount of Rs 2 lakh as tax exempt. What he thought was the maturity amount from an equity mutual fund was in fact, interest income from an old bond investment. After paying the requisite amount of tax with interest due thereon, Desai went on to file a revised return correcting the error in the previously filed return.

Again, note that a revised return can be filed if and only if the original return has been submitted in time.

To sum
Whether you pay in time or belated, if you owe it to the government, you have to pay the tax. There is no escaping this law. Ironical, especially when you consider the fact that a fine is a tax you pay for doing something wrong whereas a tax is a fine you pay for doing something right.

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