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Manner of furnishing of income tax return

Backdrop

As per the Income-tax Rules, 1962 (Rules), a return of income which is required to be filed electronically can be filed either under a digital signature or by transmitting the data in the return electronically and thereafter submitting the signed verification in Form ITR-V. ?

Notification

The Central Board of Direct Taxes has amended Rule 12(3) of the Rules relating to furnishing of the return of income for (a) companies and (b) Individuals or Hindu Undivided Families (HUF) which are liable for Tax Audit under section 44AB of the Income-Tax Act, 1961 (ITA). ? The manner of filing the return of income under the amended rule, is summarized...more...

- New tax rates: More money for the salaried

Salary earners with an annual income between Rs 3 lakh and Rs 8 lakh will have more money in their pockets with the new income tax rates coming into effect from April 1, 2010.

Annual earnings of salaried people in the range of Rs 3 lakh to Rs 8 lakh will now attract 10.3 per cent to 20.6 per cent income tax, against 20.60 to 30.90 per cent in the fiscal ended March 31, 2010. These rates are inclusive of 3 per cent education cess. Check out our Tax special

Finance minister Pranab Mukherjee had announced the new income tax rates in his budget. While the Finance Bill 2010 is yet to approved by Parliament, the changes in the direct taxes will remain effective from April 1.

- Start early...from tomorrow itself

After two months of running around, the tax filing process is finally over.

While there is relief that things are over for one more financial year, it's important that mistakes made this year are not repeated next year. The reasons are many. For one, last-minute decisions can lead to mistakes like buying an investment product that you do not need or is too expensive.

Should overseas deals be taxed?

Importantly, it is an astronomical financial stress if the entire investment process has to be completed within a couple of months. Let's understand this with a few numbers:

# Relief under Section 80C - 1 lakh
# Relief under Section 80CCF (for infrastructure bonds) - Rs 20,000
# Relief for medical insurance (self) - Rs 15,000 (premium)
# Relief for dependent (parents) - Rs 20,000 (premium)

There are a host of other tax benefits that one can take advantage of, but only after proper planning. If one starts making all these investments at the end of the year, the number will shoot up to over Rs 2 lakh.

In case you haven't filed your tax return...

So tomorrow, April 1, should be the day to begin investment planning. Kartik Jhaveri, director, Transcend India, said, "Make a fresh beginning by simply creating a proper calendar of investments to be made during the year."

This is a big help because the salaried will soon have to submit details of proposed investments to their organisations. Having a clear plan will help you give the correct details. This will lead to right adjustments in salary.

You can claim HRA and home loan tax benefits

For instance, under Section 80C, if you plan to invest Rs 50,000 in Public Provident Fund (PPF) or Employee Provident Fund (EPF), Rs 36,000 in equity-linked saving schemes (ELSS) and another Rs 14,000 in life insurance premiums or five-year fixed deposits, prepare a proper chart and follow it.

That is, select an ELSS with a good 10-year track record and start investing Rs 3,000 per month through a systematic investment plan. This will ensure that the target of Rs 36,000 is achieved over the year through small instalments.

Also, starting early helps get better returns. If you want to earn the maximum interest on your PPF money, invest the entire Rs 50,000 before April 5. This will allow you to earn the entire 8 per cent for 12 months on the invested amount as well the existing corpus.

In some instruments like National Savings Certificates, the interest is compounded half-yearly. This allows investors to earn slightly more than the existing rate of 8 per cent (8.16 per cent).

Purchase a medical insurance family floater at the beginning of the financial year that gives your family cover for the entire year. Renewals should also take place at the beginning of every year, ensuring that the process is smooth.

The additional limit of Rs 20,000 under Section 80CCF (for infrastructure bonds) is a good option. Though, in the past, these bonds have offered returns of as little as 5-5.5 per cent, adding the tax benefit translates into 8-8.5 per cent returns - quite comparable with other 80C instruments.

Gaurav Mashruwala, certified financial planner, proposes a different approach, "One should forget whatever happened last year and start setting goals. Tax benefits will follow." For example, there are benefits for children's education under Section 80C. So, when you are paying the school fees in May-June, keep an account of the expense. Similarly, if you take a loan for educating children, interest payments are tax-free under Section 80E.

Further, if you have disabled or critical dependents, there are exemptions under Section 80DD and 80DDB. The limit: Rs 40,000-Rs 60,000 under Section 80 DDB and Rs 50,000-75,000 under Section DDB.

Besides investment, start some new things that will help you save money. Jhaveri advises doing simple things like filing bank statements properly. For the self-employed, maintaining details of expenses is important. "Create a system of getting regular reminders for payments to be made. This will help save a lot of money on extra charges and penalties that one keeps forking out because of sheer laziness or forgetfulness," said Jhaveri.

- You can claim HRA and home loan tax benefits

Ajit, currently employed with Company A, is staying in a rented apartment in Mumbai and has bought himself a property in Chennai for which he has taken a home loan. He finds himself in a dilemma while filing tax returns - "Can I claim both HRA and home loan benefits?" This seems to be a confusing factor for most tax payers. When Ajit pays rent, under the Income tax act, he is definitely allowed to claim both HRA and home loan benefits (interest payment and principal repayment).

Financial planning in your 50s

Let us evaluate various possible situations an individual can find himself in and understand what the income tax act permits him to do.

Tax special

a: You live in your own house

You have taken a home loan and residing in the house purchased with it. Since you are residing in your own house, you will not be able to claim HRA. However, you will be able to claim tax benefits on both, the principal and interest repaid on the home loan.

b: You own a house in another city

This situation was the one faced by Ajit. He resided in Mumbai but had bought an apartment in Chennai taking a home loan. Ajit will be entitled to HRA exemption and tax benefits on both, the principal and interest repaid on the home loan.

c: Your house cannot be occupied at this point (e.g. under construction)

You have bought a house in Mumbai taking a home loan and you're currently living in Mumbai in a rented apartment because the house is under construction. In such a case, you are eligible to claim HRA.

Get your tax facts right!

In the case of tax breaks on the home loan, you can claim tax benefits only for your principal before the completion of your house. Once your house is completed, you can claim tax benefits on the total interest paid upto the date of completion in five equal installments in five years beginning from the year of completion.

d: You have a house which is ready for occupation but you cannot reside in it

You have bought a house in Delhi taking a home loan and now you aren't residing in it but are living in a rented apartment in Delhi itself for genuine reasons e.g. the house that you have bought is far away from your office. In such cases, the Income tax act permits the individual to claim HRA and home loan benefits which includes both principal and interest repaid on the home loan.

Also, please note that if your house remains vacant, then you will still need to pay tax on a notional rent income.

e: You have rented your own house and currently residing in a rented house

You took a home loan and your house is now ready for occupation. You have rented the same out while you reside in a rented house. The Income tax act allows you to claim both HRA and home loan benefits. However, in such a case, since you are the recipient of rent because you have let out your own house, that income is taxable at your hands and will be accounted for under "income from other sources".

EPF versus PPF: Which one gives higher returns?

The Income Tax Act treats HRA and home loan deductions under separate sections independently. The two are not interconnected to each other. HRA is dealt with in section 10(13A) Rule 2A while home loans are entitled for tax benefits under section 80C (tax benefit on principal repayment) and Section 24 (tax benefit on interest payment) of the Income Tax Act. Hence, feel free to avail both tax benefits accordingly.

Now, that we have dealt with all possible situations with regard to availing HRA and home loan tax benefits, let's take Ajit's situation as an example to help you figure out how to avail them.

Claiming tax benefits on a home loan:

Ajit had purchased an apartment in Chennai for Rs. 38 lakh three years ago. He took a home loan of Rs 32 lakh to fund this house purchase. So far, this year he has repaid an interest of Rs 3.3 lakh and a principal amount of Rs. 60,000.

Key tax changes you must know!

Section 80C offers tax rebate on home loans upto a limit of Rs 1 lakh and Section 24 on interest upto a limit of Rs 1.5 lakh. So, Ajit can utilise upto Rs.1.5 lakh on his interest paid and avail the tax benefits in full for the amount paid towards principal.

Calculating tax benefits on HRA :

Ajit earns a basic salary of Rs 40,000 per month and has rented an apartment in Mumbai for Rs 20,000 per month (he is eligible for 50% of the basic pay for HRA exemption, as he resides in a metro). The actual HRA he receives is Rs 25,000.

These values are considered to find out his HRA tax exemption:

* Actual HRA allowance from the employer, i.e. Rs 25,000,
* 50% of the basic salary as he resides in a metro (else 40%), i.e. Rs 20,000, and
* The actual rent he pays for the house from which 10% of his basic pay is deducted, i.e. Rs 20,000 - Rs 4,000 = Rs 16,000

Tax special

The value considered for his actual HRA exemption will be the least value of the above figures. Hence, the taxable HRA amount for Ajit per month will be Rs. 25,000 - 16,000 (available HRA deduction) = Rs. 9,000.

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- IT dept to check tax evaders with cyber forensics

To outsmart tax evaders who resort to delete their financial data or hide it in password-protected devices during search operations, the I-T department has started including portable forensic labs and experts in its team.

Income Tax special

The department has unearthed links to more than Rs 1,000 crore money in the last few searches with the help of cyber forensics, according to sources.

The search teams now visit premises of assesses equipped with pre-wiped disks for imaging and cloning hard drives, portable labs for previewing computer hard disks, evidence bags and tags to pack, label and transport the imaged and cloned data to its lab s.

Realtors to meet fm on service tax issue

Taxpayers and evaders have increasingly started using high-end softwares like ?logic bomb?, which deletes all files as soon as investigators try to source information from the hardware.

Password protected CDs, DVDs, pen drives, MP3 players, ipods and SIM cards are used to store and conceal the voluminous records of transactions and payments to evade taxes, the sources said.

The department clones hard drives and other hardware in the presence of the assessee and prepares a ?panchnama? with the help of forensic experts drawn from the department or hired from outside. An on-the-spot seizure of the electronic data is necessary after instances of ?zero storage? happened when the seized hardware was re-opened in department?s forensic labs, they said.

Can you claim deductions from both HRA and home loan?

The IT authorities, in a recent search conducted on a prominent food and spices manufacturer of the country, was faced with a unique problem when the assessee provided a limited number of account books to the department admitting a lower tax liability.

The cyber forensic team then went through the companies numerous hard drives and ferreted out the hidden account books resulting in disclosure of transactions to the tune of Rs 15 crore, the sources said.

Income Tax special

The department also recovered Rs 74 crore of concealed income from an on-spot analysis of servers when searches were conducted on a popular apparel brand.

- Income for a lifetime

In the absence of a regular income and meagre pension, senior citizens may find themselves in a tight cash position. In the absence of a regular income, bank and financial institutions are also not willing to lend.

Can you claim deductions from both HRA and home loan?

In such circumstances, senior citizens who own some property can look at reverse mortgage (RM). This product was launched first by Dewan Housing in August 2006. Since then, many others such as Punjab National Bank, Union Bank of India and State Bank of India have introduced this product.

Recently, National Housing Bank, in association with Central Bank of India and Star Union Dai-ichi Life, introduced a product ? Cent Swabhiman Plus ? with two options. Under the first option, the purchase price will not be returned, and in the second, it will be returned.

The product is quite an improvement over other products, because it is backed by an insurance company. A reverse mortgage loan-enabled annuity (RMLeA) is a plain vanilla reverse mortgage loan linked to a life insurance scheme. The customer gets income for a lifetime on a monthly, quarterly and half-yearly basis.

Forget PAN, here comes DIN!

RV Verma, executive director, National Housing Bank, said, "The bank passes on around 50-60 per cent of the property value to the insurance company as a lumpsum. And the insurer makes regular payments to the beneficiary through the bank."

According to a National Housing Bank note, citizens aged between 60 and 70 will get up to 60 per cent of the property value. Those between 70 and 80 years will get up to 70 per cent and those above 80 will get up to 75 per cent of the value.

The plain vanilla reverse mortgage loans pays the borrower a fixed sum every month for a fixed period ? 20 years or till the demise of the borrower, whichever is earlier.

Also, the income or annuity received through this product will be higher than the income from a regular product. "The insurance company invests the money and optimises the benefits for the borrower, so the monthly annuity is around 25-30 per cent more," said Verma.

The rate of interest for RMLeA is fixed at 9.50 per cent. "The rate of interest charged varies from bank-to-bank. It is slightly higher for this product, around 0.5-1 per cent," said Verma.

Changing variations of the monthly income plan

However, if one opts for the return of purchase price, annuities are significantly lower. For instance, if a 65-year-old mortgages a property of Rs 10 lakh, the monthly income will be Rs 3,737 (for no return of purchase price). If the person wants to be returned the purchase price, the income falls to Rs 2,267. In comparison, a property of Rs 10 lakh will fetch a monthly income of 2,250 for 15 years from SBI.

Under this product, the income being annuity-based is taxable. The regular reverse mortgage loan is tax-free. "For the regular product, the income is treated as a loan and, hence, is tax-free. But, for the new product, the annuity is treated as salary and is taxable," said Verma.

Have a rent income? Sold your property? Know your taxes!

Financial planners said though it was quite an improved version of the regular reverse mortgage plans offered by other banks, the product needed to evolve further to make it a prime choice for senior citizens.

I-T Dept to reopen MAT assessments

"One rate for goods is unlikely. (The empowered committee of state finance ministers had proposed two rates for goods, besides special rates for precious metals). In that case, there should be a positive list for goods? India is mature enough to have a negative list for services. Perhaps the government thinks that in a negative list, tax will be applied to all unintended services," Madhavan explained.

The government began with taxing four services in 1998 and has got 115 services in the tax net today, including eight added in the recent Budget.

The government is planning to implement GST from April 1, 2011. The deadline was deferred from April 2010 because of differences between the Centre and states over crucial areas in the proposed indirect tax regime. Finance Minister Pranab Mukherjee will sit with the states in April to take forward the discussion on GST.

- Income Tax dept warns against fake e-mails

The Income Tax Department has warned people to be wary of a fraudulent email using its official logo asking for sensitive details like PAN card and credit card numbers.

The department has put up a warning on its website saying: "It is clarified that the Income Tax Department does not send e-mails regarding refunds and does not seek any information regarding credit cards of taxpayers. Taxpayers are, therefore, cautioned that they should not respond to such mails and if they do so it would be at their risk and responsibility."

The fake mails from unidentified cyber criminals have come at a time when most tax payers file for refunds.

The attackers are successfully using the name and the logo of the Income Tax Department to lure people into a trap, Rajat Khare, CEO and director, Appin Technologies, an IT security management firm said.

10% service tax on rail freight deferred till July 1

The cyber criminals usually send e-mails with the logo of the Income Tax department to tax payers asking them to share their PAN number and other details such as credit card numbers.

Once, they get the details, they use the information to commit financial frauds. When contacted, an IT official confirmed that they are aware of such incidents.

Should overseas deals be taxed?

The hackers have also been using the PAN card details for filing income tax return on behalf of the victim, Khare said.

In the past few days, thousands of individuals and companies have received emails from the Income Tax Department with a form to be downloaded and filled for TDS refund.

"This is the usual trend, every year hackers target the IT dept website during this time of the year," he added.