Tally Solutions by 3 Square Enterprise: Income Tax in India : Guide, IT Returns, E-filing Process 2018

Income Tax in India : Guide, IT Returns, E-filing Process 2018

Taxes in India can be categorized as direct and indirect taxes. Direct tax is a tax you pay on your income directly to the government. Indirect tax is a tax that somebody else collects on your behalf and pays to the government eg restaurants, theatres and e-commerce websites recover taxes from you on goods you purchase or a service you avail. This tax is, in turn, passed down to the government. Direct Taxes are broadly classified as :

Income Tax – This is taxes an individual or a Hindu Undivided Family or any taxpayer other than companies, pay on the income received. The law prescribes the rate at which such income should be taxed
Corporate Tax – This is the tax that companies pay on the profits they make from their businesses. Here again, a specific rate of tax for corporates has been prescribed by the income tax laws of India.

Indirect taxes take many forms: service tax on restaurant bills and movie tickets, value-added tax or VAT on goods such as clothes and electronics. Goods and services tax, which has recently been introduced is a unified tax that has replaced all the indirect taxes that business owners have to deal with.

31 January	31 March	31 July	Oct – Nov
Deadline to submit your investment proofs	Deadline to make investments under Section 80C	Last date to file your tax return	Time to verify your tax return

Income Tax Basics

Everyone who earns or gets an income in India is subject to income tax. (Yes, be it a resident or a non-resident of India ). Also read our article on Income Tax for NRIs. Your income could be salary, pension or could be from a savings account that’s quietly accumulating a 4% interest. Even, winners of ‘Kaun Banega Crorepati’ have to pay tax on their prize money. For simpler classification, the Income Tax Department breaks down income into five heads:

Head of Income	Nature of Income covered
Income from Salary	Income from salary and pension are covered under here
Income from Other Sources	Income from savings bank account interest, fixed deposits, winning KBC
Income from House Property	This is rental income mostly
Income from Capital Gains	Income from sale of a capital asset such as mutual funds, shares, house property
Income from Business and Profession	This is when you are self-employed, work as a freelancer or contractor, or you run a business. Life insurance agents, chartered accountants, doctors and lawyers who have their own practice, tuition teachers

Taxpayers and Income Tax Slabs

Taxpayers in India, for the purpose of income tax includes:

Individuals, Hindu Undivided Family (HUF), Association of Persons(AOP) and Body of Individuals (BOI)
Firms
Companies

Each of these taxpayers is taxed differently under the Indian income tax laws. While firms and Indian companies have a fixed rate of tax of 30% of profits, the individual,HUF, AOP and BOI taxpayers are taxed based on the income slab they fall under. People’s incomes are grouped into blocks called tax brackets or tax slabs. And each tax slab has a different tax rate. In India, we have four tax brackets each with an increasing tax rate.

Income earners of up to 2.5 lakhs
Income earners of between 2.5 lakhs and 5 lakhs
Income earners of between 5 lakhs and 10 lakhs
Those earning more than Rs 10 lakhs

Income Range	Tax rate	Tax to be paid
Up to Rs.2,50,000	0	No tax
Between Rs 2.5 lakhs and Rs 5 lakhs	5%	5% of your taxable income
Between Rs 5 lakhs and Rs 10 lakhs	20%	Rs 12,500+ 20% of income above Rs 5 lakhs
Above 10 lakhs	30%	Rs 1,12,500+ 30% of income above Rs 10 lakhs

This is the income tax slab for FY 2017-18 for taxpayers under 60 years. There are two other tax slabs for two other age groups: those who are 60 and older and those who are above 80.
A word of note: People often misunderstand that if they earn let’s say Rs.12 lakhs, they will be paying a 30% tax on Rs.12 lakhs i.e Rs.3,60,000. That’s incorrect. A person earning 12 lakhs in the progressive tax system, will pay Rs.1,12,500+ Rs.60,000 = Rs. 1,72,500.
Check out the income tax slabs for previous years and other age brackets.

Exceptions to the Tax Slab

One must bear in mind that not all income can be taxed on slab basis. Capital gains income is an exception to this rule. Capital gains are taxed depending on the asset you own and how long you’ve had it. The holding period would determine if an asset is long term or short term. The holding period to determine nature of asset also differs for different assets. A quick glance of holding periods, nature of asset and the rate of tax for each of them is given below.

Type of capital asset	Holding period	Tax rate
House Property	Holding more than 24 months – Long Term Holding less than 24 months – Short Term	20% Depends on slab rate
Debt mutual funds	Holding more than 36 months – Long Term Holding less than 36 months – Short Term	20% Depends on slab rate
Equity mutual funds	Holding more than 12 months – Long Term Holding less than 12 months – Short Term	Exempt (until 31 March 2018) Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT paid)	Holding more than 12 months – Long Term Holding less than 12 months – Short Term	Exempt (until 31 March 2018)Gains > Rs 1 lakh taxable @ 10% 15%
Shares (STT unpaid)	Holding more than 12 months – Long Term Holding less than 12 months – Short Term	20% As per Slab Rates
FMPs	Holding more than 36 months – Long Term Holding less than 36 months – Short Term	20% Depends on slab rate

Residents and non residents:

Levy of income tax in India is dependent on the residential status of a taxpayer. Individuals who qualify as a resident in India must pay tax on their global income in India i.e. income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on their Indian income. The residential status has to be determined separately for every financial year for which income and taxes are computed.

Defining Income

Income has been very widely defined in the Income-tax Act. In simple words, income includes salary, pension, rental income, profits out of any business or profession, any profit made out of the sale of any specified asset, interest income, dividends, royalty income etc. The law classifies income under 5 major heads as already mentioned above.

Salary Income
House Property income
Profits and Gains from Business or Profession
Capital Gains
Income from other Sources

The law also allows a taxpayer to claim deductions specific to each such income and hence to avail the appropriate deductions, it is important that you classify income under the right heads. Eg. A salaried taxpayer can claim a standard deduction of Rs 40,000 while a taxpayer having rental income from a flat can claim municipal taxes as a deduction.

Income Tax deductions

There are broad themes to what the government incentivizes. These are either in the form of:

Various deductions available under Section 80 of the Income Tax Act which can be claimed from the Total Income or
Deductions that are specific to each source of income.

Some of the key deductions have been discussed here:

Home ownership

Stamp duty and Registration under Section 80C
Home loan principal and interest
First time homeowner benefit of Rs.50,000 under Section 80EE

Deduction on	Maximum allowed (for self-occupied house property)	Maximum allowed (for property on rent)
Stamp duty and registration + principal	Rs.1,50,000 within the overall limit of Section 80C	Rs.1,50,000 within the overall limit of Section 80C
Deduction on home loan interest under Section 24	Rs.2,00,000	No cap (but rental income must be shown in the income tax return) Further, maximum loss from house property capped at Rs 2 lakhs
Deduction for first-time homeowners under Section 80EE *certain conditions apply	Rs.50,000	–

Home renting

House Rent Allowance or HRA (for salaried only) Given how many Indians move cities for work, this is a common allowance most salaried individuals can find in their payslips. If you are renting an apartment, be sure to claim this in your tax return.
Section 80GG (if you are renting and don’t get HRA) If you are not salaried, or you are still salaried, but don’t get HRA, then you can claim deduction for rent under Section 80GG. Learn more.

Health

Life insurance premium under Section 80C
Medical insurance under Section 80D
Preventative health checkups under Section 80D
Medical bills (for salaried only)( replaced with standard deduction of Rs 40,000 effective 1 April 2018)

Tax Deductions for health insurance under Section 80D in FY 2017-18

Person insured	Maximum deduction Below 60 years	Maximum deduction 60 years or older
You, your spouse, your children	Rs.25,000	Rs.50,000
Your parents	Rs.25,000	Rs.50,000
Preventative health checkup	Rs.5,000	Rs.5,000
Maximum deduction (includes preventative health checkup)	Rs.50,000	Rs.1,00,000

Long-term savings

Employee provident fund (for salaried only)Companies cut 12% of your basic salary and put it in a fund managed by EPFO.Public provident fundIndividuals can open a PPF account from a post office or a public sector bank like State Bank of India and ICICI Bank. All of these allow you a deduction under Section 80C upto RS 1.5 lakhs Contribution to NPS is also another tax saving avenue for claim of deduction under Section 80CCD

Other investment avenues

Investment	Risk	Interest	Guaranteed Returns	Lock-in Period
ELSS funds	Equity-related risk	12-15% expected	No	3 years
NSC	Risk-free	7.6%	Yes	5 years
5-Year FDs	Risk-free	7-9% expected	Yes	5 years

Business profits

Running a business and wondering how to go about your taxes? It is simple. Take your gross receipts from your business and reduce various business related expenses from it eg telephone, internet, salary you pay to people you have hired, depreciation on the items that you use for your business like computer etc. What you are left with are your profits that you need to offer as your Income from Business. Similar is the method of computing your taxable profits if you are carrying out a profession too. But make sure you maintain proper books of accounts recording all your business transactions as law mandates that you do do. However, if you do not want to maintain books, you may opt for Presumptive taxation scheme where you will have to offer a fixed percentage of your gross receipts as your income.

Read our detailed article on Income from Business and presumptive income and taxes

Tax Credits

Income of certain nature will suffer a Tax Deduction at source itself. Eg salary, interest, rent, commission etc. The person in charge of paying such income will have to mandatorily deduct taxes before making the payment subject to certain conditions. Similarly, one may be liable to pay advance taxes if taxes payable after reducing TDS is Rs 10,000 or more. After TDS and advance tax, if there still tax to be paid, the same would be paid in the form of Self Assessment Taxes. All of the above taxes paid i.e. TDS, Advance Tax and Self Assessment Tax would reflect in Form 26AS of the taxpayer which is a significant document one needs to rely on while filing the return of income. This Form 26AS is called the tax credit statement that contains all the tax credits lying against you PAN for any given financial year.

Income Tax Rules

While the Income Tax Act, 1961 is the law enacted by the legislature for governing and administering income taxes in India, Income Tax Rules, 1962 has been framed to help apply and enforce the law contained in the Act. Further, the Rules cannot be read independently. They must be read in conjunction with the Act only. Further, the Rules must be within the framework of the Act and cannot override the provisions of the Act. For example, the Act lays down the law with regard to taxability of perquisites given by the employer to his employees as “salary”. However, it does not discuss how the perquisites must be valued. Such valuation is in turn prescribed under Rule 3 of the Income-tax Rules.

Income Tax Calculation

Every income that your receive should form part of your income tax return. Of course, the law does provide for exemption of certain incomes eg. dividend income from an Indian company, LTCG on listed equity shares upto Rs 1 lakh in any financial year etc. Therefore, here is a quick guideline you can probably follow to compute taxes due on your income:

List down all your income – be it salary, rental income, capital gains, interest income or profits from your business or profession
Remove incomes that are exempt under law
Claim all applicable deductions available under every source of income . eg claim standard deduction of Rs 40,000 from salary income, claim municipal taxes from rental income, claim business related expenses from your business turnover etc
Claim all applicable exemptions under every head of income eg. amount reinvested in another house property can be claimed as exemption from capital gains income etc
Claim applicable deductions from your total income eg the 80 deductions like 80C, 80D, 80TTA, 80TTB etc
You will now arrive at your taxable income. Check the tax slab you fall under and accordingly arrive at your income tax payable.

The government keeps introducing and altering tax slabs, schemes and tax benefits, so it’s a good idea to keep up with the Budget.

Income Tax Calculator

Income Tax Payment

The Government collects income tax from three channels:

TDS
Advance tax
Self Assessment tax

TDS

TDS exists to help government get tax throughout the year. There’s a prescribed table on how much tax deducted under what circumstances.
Your employer cuts TDS based on the information available to him about you. So if you’ve made investments, but have not declared or if you live in a rented house, but have not shared rent receipts, your finance department will have no choice but to deduct tax based on only thing they know – your CTC.
This is why the investment proofs deadline in your office is super important. Save yourself some headache and submit your investment proofs on time.
Banks don’t know if you’re working in a company or if income from fixed deposits is what you solely rely on. So they deduct a standard 10% tax before they give away the interest. Now if you fall in the 20% or 30% bracket, it’s on you to pay the remainder of the income tax. That’s why sometimes you may find yourself paying some tax at the time of filing a tax return.
Make sure banks have your PAN number. They deduct 20% tax if they don’t have your PAN in their records.
Anyone who’s receiving an income of a specified nature say salary, interest, commission, rent, professional income etc. will have some percentage of tax withheld as prescribed by the government.

Advance Tax

Self-employed people must do the calculation themselves and pay the tax to the Government periodically every quarter. The deadlines are:

Due Date	Advance Tax Payable
On or before 15th June	15% of advance tax
On or before 15th September	45% of advance tax
On or before 15th December	75% of advance tax
On or before 15th March	100% of advance tax

To calculate your advance tax:

Add up all the invoices received and include future payments you will be receiving till March 31 to estimate your taxable income.
Deduct expenses directly related to your business, and any investments you have made under Section 80C in order to arrive at your taxable income.
Determine your tax liability for the year
Reduce the Tax already deducted at source from your tax liability as determined above
If the remaining tax payable is greater than Rs 10,000 you will have to pay advance taxes based on the rates prescribed in the above table.
Use the Income Tax Calculator to determine your tax liability

Self Assessment Tax

When you are filing a tax return and you find out that you need to pay additional tax, you’d be paying self assessment tax. Another way to think about this would be.

if you are paying tax for a financial year after the deadline has ended, you will pay self assessment tax.
if you are paying tax for a financial year during the financial year, you will pay advance tax.

Payment of TDS Advance Tax and Self Assessment Tax:

TDS is deducted by the payer himself and remitted to the government by him. Hence the taxpayer need not worry about this part of his tax liability. As regards advance tax and self assessment tax, the same can be discharged online using Challan 280. Read our detailed guide on payment of taxes online.

Income Tax Return

An Income Tax Return is a form where a taxpayer discloses details of his income, claims applicable deductions and exemptions and taxes that are payable on the taxable income. Further, details of taxes paid also reflect in the return. Any excess tax paid for a year will be claimed as a refund in the return of income.

Some taxpayers who are into any business or profession disclose details of such business or profession like turnover, expenses relating to business, profits from business etc. All the above information, put together, form part of your return and is filed with the Income Tax Department.

Income Tax Return Filing

Filing of income tax return online has been made mandatory for all classes of taxpayers barring few exceptions :

Taxpayers aged 80 and above need not filed return online
Taxpayers having an income less than Rs 5 lakhs and not claiming a refund need not file return online

For the rest, online filing is mandatory.

Do note that deadlines for filing of returns have also been prescribed. For most individual taxpayers, the due date for filing return of income is 31 July immediately following the concerned financial year. If you do not file on time, here are some disadvantage:

You will be denied carry forward of losses (except house property loss) to future years
Delay processing of refund claims if any
Difficulty on getting home loans
Levy of late filing fee upto Rs 10,000 under Section 234F
Levy of interest under 234A if there are taxes due as on 31 July

E-filing online is a more complete and better alternative to filing on the income tax website. Also it is for more than just e-filing your income tax return. ClearTax helps you claim all the deductions you’re eligible for and helps you invest.

Once you file your return online, you either e-verify the same or take a print of the ITR V and send it to CPC, bangalore for processing of your return. Read our detailed article on e-verification of return of income

Here’s a guide to e-filing your first tax return on ClearTax.

ITR Forms

ITR forms i.e. the return filing forms have been prescribed differently based on the class of taxpayers and the source of income. See below for further clarity

Documents Required for ITR Filing

Form 16, Form 26AS, Form 16A, proof of tax saving investments made, bank account details etc are some of the crucial details / documents that you need to be ready with before filing your return. Further the documents you are going to need to file your tax return are largely going to depend on your source of income. Here is our detailed article on documents you need for filing of your return of income

Income Tax Faqs

When it is mandatory to file return of income ?

It is mandatory to file return of income for a company and a firm. However, individuals, HUF, AOP, BOI are mandatorily required to file return of income if the income exceed basis exemption limit of Rs 2.5 lakhs. This limit is different for senior citizens and super senior citizens.

What are the maximum exemption limit and slab rates applicable for Assessment Year 2018-19 ?

Income Slab	Resident and non-resident individuals	Senior Citizens (Above 60 yrs but less than 80 yrs)	Super Senior Citizens (Above 80 yrs)
Upto Rs. 250,000	Nil	Nil	Nil
Rs. 250,001 – Rs. 300,000	5%	Nil	Nil
Rs. 300,001 – Rs. 500,000	5%	5%	Nil
Rs. 500,001 – Rs. 10,00,000	20%	20%	20%
Above Rs. 10,00,000	30%	30%	30%

Can i file return of income even if my income is below taxable limits ?

Yes, you can file return of income voluntarily even if your income is less than basic exemption limit

What documents are to be enclosed along the return of income?

There is no need to enclose any documents with the return of income. However, one should retain the documents to produce before any competent authority as and when required in future.

Should I disclose all my income in the return even if it is exempt?

Yes. Income from every source including exempt income must be disclosed. The same can be shown under the Schedule EI.

Income Tax Tax Glossary

Form 26AS

Form 26AS is a tax summary statement that contains all the tax payments you’ve made yourself (self-assessment tax/ advance tax) or tax someone deducted (TDS) on your behalf. You’re going to need this document when you are doing your income tax e-filing. Form 26AS can be downloaded from www.incometaxindiaefiling.com

Form 16

If you need to know whether or not your company has given you some tax allowance like your offer letter says, or want to see how much tax has been deducted throughout the year, or need to see EPF contributions, wouldn’t it be easier if you could see them all in one place? That’s your Form 16. Form 16 has:

a summary of all the tax deducted by each quarter
all the tax benefits and allowances you’ve availed as a salaried individual
Section 80C deductions you’ve claimed through your employer
and your taxable income after allowances and Section 80C deductions

This is a super important document for all salaried individuals. And having a Form 16 makes e-filing your income tax return very simple. You can upload your Form 16 and e-file your income tax return. No income tax login required.

Form 16A

Form 16A is very similar to a Form 16 in that it contains how much tax was deducted over what income. So how’s Form 16A different? Form 16A will never be issued by an employer. They’re usually given to you by a bank that’s deducting TDS, or a company that’s deducted tax on your freelancing service.

Investment submission proof deadline

Depending on how large your company is, you might have two deadlines related to investment proofs. There’s one in the beginning of the year (April) that needs you to just declare how much money you’re planning to invest in Section 80C. This will give an indication on how much they need to deduct in TDS.Again in the last quarter (roughly between December and February), you will be asked to submit investment proofs. This is when you need to submit all your rent receipts, medical bills (if you’re getting medical reimbursement), investments under Section 80C, 80D. Learn more about Investment submission proof deadline

Assessment Year/ Financial Year

Financial Year runs between April 1 and March 31 of each year. Income tax is calculated for this period. Income tax returns are assessed the year after the financial year has finished. So that’s your Assessment Year. During the assessment year, taxpayers file their income tax return. Income tax return and refunds are processed by the I-T Department that year.

ITR-V

ITRV stands for Income Tax Return – Verification. After filing your tax return online, you must print and sign a 1-page document and send it to the Income Tax Department.

Challan 280

Challan 280 is the slip that you will use for online income tax payment. Follow this guide to learn how to pay tax due. This is the link to the Income Tax Department website. If you are a taxpayer, you’re going to need to use for: