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In this article we shall try to understand about Income Tax return? What it is? Why is it needed? How does Income Tax Department track the various transactions?
Income
Income Tax return is on income earned. But what is income? Usually Income is associated with salary. But as per Income tax Department Income has a broader meaning. It is broadly defined as the increase in the amount of wealth associated with a person, family, company, trust etc during a fixed period of time. So the regular income from salary or income from business is considered as income. But also income from sale of house, rented house, interest from investment in Fixed Deposits or Mutual Funds (Debt, Equity) or Stocks is also considered as income. Income is classified into various categories such as: 1. Income from Salary 2. Income from House Property
3. Income from Profits and Gains of Business or Profession 4. Income from Capital Gains 5. Income from other Sources
If more Tax has been deducted for ex: TDS deducted for Fixed Deposit but person is not eligible to pay income tax. In such a case one can file income tax return and ask for Refund. If TDS is cut you still may have tax liability: General presumption is that, if TDS has been recovered, then there is no further tax liability that needs to be paid. Take case of Ramesh,Ajay, Vijay, Suresh , all men below 60 years of age. They have made fixed deposit for the same amount and earn Rs 25,000 as interest income. Bank deducts TDS at the rate of 10% if interest on Fixed Deposit in year is more than Rs 10,000 unless told not to do so by filling form 15H . In our example lets say Bank deducted TDS at 10% which turns out to be 2500. Heads Salary Bank FD interest TDS deducted by Bank(at 10%) TDS applicable Tax due Ramesh 1,20,000 25,000 2,500 0 -2500 Ajay 4,20,000 25,000 2,500 10% i.e 2500 0 Vijay 7,20,000 25,000 2,500 20% 5000 2500 Suresh 12,50,000 25,000 2,500 30% 7500 5000
Ramesh, Ajay & Vijay, Suresh fall in different tax slabs and tax on interest from Fixed Deposit is at normal rate based on income slabs, hence tax liability of each is different. As bank has deducted at uniform rate of 10% Vijay and Suresh still have to pay tax. While Ramesh has paid more tax and he needs to claim it back by filing in income tax return. But how does the income tax department know your income, tax deducted? Its not because Uske jasso chaoorn taraf phele hain (its spies are everywhere). Its because of a 10 digit alphanumeric number, issued in the form of a laminated card by the Income Tax Department of India called as PAN.
PAN Number
The Permanent account number or PAN has grown in importance and is today a vital part of any financial transaction. The tax department allots the PAN to an individual,HUF, company, etc. for the purpose of identification and links and tracks various documents and information regarding taxes and financial transactions, such as loans, investments, buying and selling real estate and other business activities of taxpayers. PAN, as the name suggests, is a permanent number and does notchange. Obtaining/possessing more than one PAN is against the law and may attract a penalty upto Rs.10,000. PAN is similar to the Social Security Number issued in the United States. Any tax-payer who receives any sum or income or amount from which tax has been deducted must provide the PAN to the person/organisation that has deducted tax at source as per Section 139(5A). Taxguru:PAN Meaning, Significance, who can apply & Procedure covers PAN in detail.
These income tax range, exemption limit keeps on changing from year to year. For example in Financial year 2002-03 or Assessment Year 2003-04 Basic exemption for men, women and senior citizen was 50,000 only. Tax rates for Resident Indian based on gender and range of income one earns For Financial year 2011-12 or Assessment Year 2012-13 are given below. For income tax rates of earlier years checkout our Income Tax rates Since AY 1992-1993 TAX MEN WOMEN SENIOR CITIZEN(60 80 yrs) Very Senior Citizens(Above 80 years) Basic Exemption 180000 190000 250000 500000 10% tax 180001 to 500000 190001 to 500000 250001 to 500000 20% tax 500001 to 800000 500001 to 800000 500001 to 800000 500001 to 800000 30% tax above 800000 above 800000 above 800000 above 800000 Why file Income Tax Return? Income tax is a tax paid to the central government on personal income. The Income Tax Act, 1961 under Section 139 makes it obligatory upon any person to file return if the persons total income during the year exceeded the amount which is not chargeable to income-tax(also called as the exemption limit). When one files ones tax returns every year, one manages to create a financialrecord with the tax department. This financial / tax history is viewed and used by agencies , such as when one avails any kind of loan (home, personal, vehicle loan etc), when one applies for VISA etc.
If a person who is legally bound to file his return does not file it then Penalty of Rs. 5000 is imposed for nonfiling of return within the assessment year. Interest is also chargeable for non-filing or late filing, under section 234A,BC as explained in article Quoting from incometaxreturnindia:Income_Tax_Queries You can also be prosecuted if the tax payable (net of advance tax and TDS) is above Rs 3,000. You can also be imprisoned for three months to three years, besides being fine. Income Tax Return Forms Different forms are prescribed for filing of returns for different type of taxpayers and nature of income. The forms keep changing because of changes in income tax rules , ex: exemption limit changed. Every year income tax department releases Income Tax Return (ITR) form. Different forms are for different kind of tax payers ex:individual or firm, based on kind of income earned ex:from salary or business or profession. Details of forms for individuals and Hindu Undivided Family (HUF) are as follows: Form Category Details ITR-1 SAHAJ Individual 1. Income from salary/pension: or 2. Income from one house property(excluding where loss brought forward from previous year): or 3. Income from other sources( excluding winnings from lottery and income from races horses) ITR-2 Individual/HUF Those who can not file Sahaj above as the total income also includes Income from Capital Gains. So sources of income become:1. Income from
salary/pension: or 2. Income from one house property(excluding where loss brought forward from previous year): orTweet 1 1 Like 0 3. Income from other sources( excluding winnings from lottery and income from races horses) 4.Income from Capital Gains. They should not have Income from Business or Profession. ITR-3 Individual/HUF Being partners in firms and not carrying out business or profession under any proprietorship. ITR-4S SUGAM Individual/HUF It is applicable for small businessmen and professionals covered under presumptive taxation. They derive business income which is computed in accordance with special provisions referred to in section 44AD and section 44AE of the Act. ITR-4 Individual/HUF Carry out any business or professional activity in addition to having sources of income applicable to ITR-3 i.e Not covered in ITR 1 to 4S mentioned above and deriving income from a proprietory business or profession Forms for the year 2012-13 can be downloaded from Income tax website:NEW RETURN FORMS FOR ASSESSMENT YEAR 2012-13. Filing Income Tax Return Based on kind of tax-payer (ex:Individual or Hindu Undivided Family), kind of income earned(salary or from
business) one needs to fill the appropriate income tax form. One needs to compute the income tax, check if tax /refund is due, pay due tax and file the return. Income tax returned can be filed online or through filling physicalform and submitting it. Income tax overview explains process in detail. This article explained Income Tax return. What it is? Why is it needed? How does Income Tax Department track the various transactions? What are Different kinds of income, taxes? How can one save tax? Why different kinds of ITR? How to file ITR?