Filing Income Tax Returns - Oh! Not So Complicated

The government has extended the deadline for filing income tax return, for individuals and certain non-corporate assessees, to Aug. 31 for financial year 2018-19 (assessment year 2019-20). The deadline was extended as taxpayers faced several difficulties such as extension of due date of issuance of Form 16, additional reporting requirements of the income tax return form, ITR utility amendments etc.

The Central Board of Direct Taxes (CBDT) extends the ‘due date' for filing of Income Tax Returns from 31st July, 2019 to 31st August, 2019 in respect of certain categories of taxpayers who were liable to file their Returns by 31.07.2019.

So, if you are panicking that you missed the deadline, well, relax for a while.

However, if you had any tax payable, you should have paid it before July 31, 2019, to avoid additional one month interest liability if the tax payable exceeds Rs 10,000.

1. The Cost Of Late Filing

If you miss the Aug. 31 deadline as well, then you can file later but this convenience comes with several penal implications.

• Returns filed after July 31 (Aug. 31 for this financial year) but before Dec. 31, will face a penalty of Rs 5,000.
• If returns are filed between Dec. 31 - March 31, the penalty goes up to Rs 10,000.
• The current income tax law does not permit one to file the income tax return after March 31.

Apart from penalty, there are other implications in such cases.

To put the third point in context, the Income Tax Act allows you to carry forward any losses—except loss from sale of house property—computed for a financial year if you file your return by the due date. If you file a late return, the carried forward option goes away and you lose the benefit of setting off the carried forward loss in subsequent years against your tax liabilities.

Also, in case you claim for refund, the interest for the same will be computed by the tax department from the actual filing date and not from the first day of the assessment year (April 1).

This means that even a day's delay in filing a return will result in loss of interest on refund for at least five months - April, May, June, July and August.

2. What Form Should You Use?

In case you are filing returns on your own, the first step is to identify which ITR form is applicable for you. Filing an incorrect ITR form makes the tax return invalid. Different ITR forms - ITR1, ITR2, ITR3 and ITR4 - have been notified by the tax authorities. And which form is applicable to whom depends on several factors that include the category of taxpayer, the nature and level of income, the tax residential status of the individual. From time to time, the tax department issues new forms and notifies instructions for filling them. So, be aware of any such changes.

Except for super-senior citizens, currently all taxpayers need to fill their ITR electronically.

3. Pay Attention To Form 26AS

Form 26AS is an online record of all your tax payments, which includes tax deducted at source, advance tax and self-assessment tax, and it can be accessed with your e-filing credentials. It is an excellent tool to track your tax details.

However, the accuracy of Form 26AS depends on how correctly it has been filed by the payer organisation - that is employer for TDS on salary and financial institutions for TDS on bank interest.

Therefore, you should maintain and reconcile the details of both income and taxes in Form 26AS with documents including Form 16 and Form 16A. If you do not have these documents ready before filing your returns, contact the payer organisation (employer, bank, etc.) to obtain them.

Any mismatch in income or TDS in the filed return and Form 26AS can lead to questions being asked by the tax authorities and a consequent demand for the differential tax amount.

4. Disclose Exempt Income

Although people are particular about reporting their taxable income, they are often unaware that they are supposed to disclose their ‘exempt income' too. Nowadays, the tax department obtains information from various sources. With the use of online forms, exception reports are often generated by the department and notices are issued if exempt income is not properly reported in the ITR. Such income includes dividends from mutual funds, and interest from NRE bank account (essentially bank accounts meant for the NRIs) and PPF account. The new ITRs even ask for a mention of the section in the Act under which such income is exempt. Hence, you must pay attention to these details.

Mandatory Disclosures in ITR

• Schedule FA, which requires disclosure of foreign assets held during the year. This includes depository accounts, custodian accounts, foreign cash value insurance and annuities held
• Schedule AL, which requires disclosure of various assets and liabilities (viz. immovable property, jewellery, bullion, vehicles, banks, shares/securities, insurance policies, loans, etc.)
• Details of overseas tax residency including Tax Identification Number
• Details of directorships in companies including the DIN and PAN of the companies
• Details of unlisted equity shares held in a company, including the PAN of the company
• Agricultural income exceeding Rs 5 lakh, which needs to be reported separately

The examples given above are merely illustrative. You should read the form carefully before filling it. Do not keep the section blank or provide incorrect information. You may be asked to produce relevant documents later.

Capital gains tax has become very complex over the years, largely due to a plethora of provisions relating to various asset classes and different tax rates applicable. Therefore, it is imperative that you keep proper records of the dates and values of purchases, sales, redemptions, dividend payout, dividend reinvestments, etc. of all assets that are to be considered for capital gains tax.

Inaccurate data can lead to misreporting of income and capital gains, which could expose you to penal implications. Hence, do ensure that you have considered the various entries in your bank accounts, portfolio statements, etc. for this purpose.

The Income Tax Act provides for clubbing of income, i.e. in certain circumstances, apart from income earned, you may also be taxed on income not directly earned by you.

Clubbing can apply if you have invested your money or transferred your asset to your spouse, minor children, or daughter-in-law without any adequate consideration for it, and such person earns income from such investment or asset.

As per the law, you are supposed to mention such income in your ITR and pay taxes accordingly.

5. The Final Confirmation

The filing process is considered complete after the ITR is verified. This can be done manually by submitting the physically signed acknowledgement of the filed return (ITR V) to the tax department (CPC, Bangalore) by speed post within 120 days from the date of filing; or electronically, through prescribed modes such as Aadhaar linkage or through registered bank accounts. If you don't receive a confirmation SMS or email from the tax department, you can alternatively log in to your e-filing account to check its status.

Postscript

If you are confused between ‘FY' and ‘AY', then AY is the financial year succeeding the FY for which the tax payment is being made. For example, AY2019-20 should be mentioned on the tax challan for paying tax for FY2018-19. Quoting the incorrect AY can result in credit not being given for tax paid and thus giving rise to an unnecessary tax demand.

We've discussed a few practical tips. If in any doubt, please do consult with an expert.

Ishita Sengupta is Partner - Personal Tax, and Manavi Gupta is Associate Director - Personal Tax at PWC India.

The views expressed here are those of the authors and do not necessarily represent the views of BloombergQuint or its editorial team.

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