While the deadline for individual taxpayers is 31 July which does seem far, one needs to start well ahead of time to avoid last minute misses and errors
A new fiscal year commences with a lot of financial planning, but many seem to procrastinate when it comes to tax planning. It is of paramount importance to start preparing for your tax return filing for 2020-21 well ahead of time to avoid any last-minute errors and omissions. Always remember, a penny saved is a penny earned.
The deadline for individual taxpayers has been extended from 31 July to 30 September 2021 given the pandemic. However, in cases where the tax payable on the return i.e. self-assessment tax exceeds Rs 1 lakh, the deadline for tax payment remains should be paid by 31 July 2021 failing which interest will be triggered for late filing of the return.
Here are a few tips on how to get things right the first time itself and to avoid any errors that may result in revisions:
Register on Tax Portal: First time taxpayers need to register on the portal using their Permanent Account Numbers (PAN). The tax portal provides important information on the status of return processing, demands and refunds, and pending actions for each taxpayer. It is also the repository of all returns filed. Additionally, it is necessary to link the Aadhaar number with the PAN to ensure that the PAN remains valid. This is mandated for all taxpayers.
It may be noted that the tax department would be soon launching a new e-filing portal and hence one would need to see if there is a change in the tax filing process.
Keep All Documents Ready: The taxpayer needs to collate all documents that will help assess the income for the year. The most common documents for individual taxpayers are Form 16 from the employer (which should be available in July, the due date for issuing the form having been extended from 15 June to 15 July 2021 due to the pandemic), bank statements updated till March 2021, statements of capital gains from brokers, any donation receipts eligible for deduction under section 80G, and any investment proofs.
Review Form 26AS: A review of Form 26AS which can be downloaded from the tax portal is a must to ensure that all incomes on which taxes have been withheld like accrued FD interest, salary income are not missed in the tax return. This Form will also have the details of advance taxes paid by the taxpayer.
Ideally, the Form is downloaded after June 2021 to ensure that all transactions are reported in the 26AS through the fourth quarter tax withholding returns filed by the tax deductor.
It is however cautioned that Form 26AS reports incomes on which taxes are withheld and other incomes like savings bank interest, house property income, capital gains on which no tax is deducted, though not reported in 26AS, are also required to be considered.
Review Other Documents: One must also diligently review the bank statements to check for any income credits which may be one-time items, such as savings bank income, house property income, any income from minors or spouse which needs to be included in the income.
Taxpayers having more than two properties need to offer deemed rental on the additional house properties even if the same are not let out. Many taxpayers offer an unreasonably low rental to tax for such deemed let-out house property. While the law requires taxpayers to offer deemed rental to tax on the third house property, many people offer only a nominal rent which is far below the rent receivable in the area. In such a case, if the lower rent cannot be substantiated during assessments, it results in penal consequences.
One needs to keep past tax returns handy to ensure that carry-forward losses are considered in the return.
People whose income exceeds Rs 50 lakh would need to report their assets like immovable property, cash or bank balances, jewellery, and investments in India. Thus, a listing of assets with the costs or balances needs to be kept ready. It may be noted that residents need to also provide details of their foreign assets. These may be overseas investments, stocks gained through employee stock option schemes, bank accounts.
One needs to be cognizant that exempt income like income from PPF, agricultural income, gifts from relatives, is to be judiciously reported in the tax return. While there is no tax implication of not reporting the exempt income, it does help to establish the correlation between earnings and taxes and avoid the requirement to provide lengthy explanations in case of a tax query.
Choose Right Tax Return Form: Choosing the right tax return form is equally important. The ITR 1 Form is available for a resident individual whose total income is less than Rs 50 lakh and has one house property and no income from capital gains. Thus, such taxpayers can use ITR 1 which is a simpler Form. However, if one has capital gains income then using ITR 2 for tax filing is necessary though the Form is complex and requires far more details.
Calculate Tax Payments: Once all the sources of income are collated, one needs to do a tax calculation and consider credit for taxes already paid. At times, it is possible that the taxes deducted and paid may fall short of the required amount of taxes. In such cases, it is necessary to pay taxes with an interest levy through self-assessment mode before filing the tax return. If taxes have been paid in a foreign country, credit can be claimed for the foreign taxes for which a separate Form (Form 67) along with proofs needs to be e-filed giving details of the income taxed overseas and the tax paid.
File Tax Return: The taxpayer can download the required tax return from the tax portal. The tax portal also provides an option to download a pre-filled return for the current year which makes the process a lot simpler. Thus, the taxpayer would need to only verify the details and fill in the remaining details.
If the taxpayer discovers an error in the tax return filed by him, he is allowed to file a revised return of income. The due date for filing of the revised return of income which was 31 December 2021 has now been extended to 31 January 2022.
Attention is also invited to the fact that due to the pandemic the government has extended some timelines for 2019-20 filing due dates as well. The due date for linking PAN and Aadhaar has been extended from March 31, 2021, to June 30, 2021. Further, the due date of the belated return or revised return for 2019-20 has also been extended to May 31, 2021. Taxpayers who need to revise their tax returns should avail themselves of these extended timelines.
Aarti Raote is a Partner, Deloitte India