Smart things to know: Clubbing of income for taxation

The income tax rules define certain situations, wherein one is liable to pay tax on income earned by others. This is called clubbing of income, and helps eliminate tax avoidance by transferring income to those with lower tax incidence.

The income earned from an investment made in the name of a minor child is taxed as income of parents. It is added to either parent's income, depending on whose income is more.

If the income earned from an asset, say, the interest earned on a bank deposit, is transferred without shifting the ownership of the asset, the income will be taxable in the hands of the transferer.

If the transfer of an asset is revocable, that is, if the transferer retains the right to re-transfer the asset to someone else, the income earned on the asset will continue to be taxed in the hands of the transferer.

Depending on the source, the clubbed income will be taxed under the applicable head of income, such as salary, house property, profit and gain from business or profession, capital gains and other sources.

Unpaid tax on interest can throw up last minute surprises :MoneyControl

Individuals are often confused as to why they are suddenly presented with a tax payment at the time of filing of their income tax returns when they seem to have discharged all their tax obligations. This happens with the salaried as well as people who have income from business and profession.

One of the main reasons for this situation is the presence of fixed deposit interest in their income. The argument goes that there is already tax that is deducted on these deposits so there should not be an extra amount to be paid at the time of filing returns. Here is a simple reason how this situation actually arises.

Fixed deposit interest

There is interest that is earned on fixed deposits that a person has with the bank. Salaried people will have this income and so will businessmen and professionals depending on the presence of the instrument in their portfolio. The basic condition is that once the income from deposits for a branch exceeds Rs 10,000 there will also be tax deduction at source that is undertaken by the bank on the income and the net amount will be received by the investor. 

At the end of the financial year the bank will also give a Form 16A which will list out the interest earned and the tax deducted and this is to be included in the calculations at the time of the filing of the income tax return by the individual.

Working

The moment the tax working is done either by the chartered accountant or the software that is used at the time of filing the return then there is a tax due pops up in the working. This happens for salaried individuals also and there is surprise as to how this has actually taken place even when all the tax obligations have been completed by the individual. 

While it might seem that the obligations have been completed in reality this is not actually true and hence the individual has to take a careful look at the entire situation. 

The main reason for the additional tax is due to the income slab that the individual actually falls under. If the investor takes a look  at their total income then they will know  the  maximum  rate that they  actually are paying on their income and for many people this is 30 per cent  because  their income is high or in  some cases it  is  20 per cent.

Difference

When the bank deducts the tax at source on the fixed deposit it is doing so at a rate of 10 per cent in most cases (if PAN is not submitted then this will be a higher rate) while the actual rate at which the tax has to be paid on the income is 20 per cent or 30 per cent depending upon the slab that the individual falls under. Only if the overall income is very less will the rate applicable on the income earned will be 10 per cent which matches with the tax deducted.

Now what remains to be paid is the difference between the rate deducted and the rate applicable. So for example if the fixed deposit interest is Rs 50,000 and there is a tax deducted at 10 per cent that comes to Rs 5,000 the investor will have to check the rate applicable to their income. If their income is say Rs 12 lakh then this will be 30 per cent then there is a differential that still has to be paid on the income. The final figure will be slightly different on account of the cess and other details involved in the final calculation. However this is the reason why there is still an amount outstanding that needs to be paid and hence this has to be taken care of by the investor. 

There is also the danger that if the amount to be paid crosses the Rs 10,000 figure then there is also interest on advance tax that would have to be paid which would increase the amount due.

Income tax return: Top 5 reasons why you could be paying more tax :EconomicTimes

Although the only certainties in life are death and taxes, have you ever wondered why some people end up paying more tax than their peers?

According to a study conducted by TaxSpanner, the following are the top 5 reasons why you could be paying more tax than your peers:

1. IGNORING HRA EXEMPTION

Tom and Jerry may be getting the same salary, but one of them may outsmart the other.

Both live with their own parents. Tom pays household expenses to his parents on a monthly basis and Jerry simply makes this payment as rent to his parents who (being older) fall into a low income tax slab. And Jerry claims HRA exemption against this.

Moral of the story: Claim your HRA exemption to save tax.

2. NOT CLAIMING MEDICAL INSURANCE PREMIUM DEDUCTION

Given how Tom gets beaten up every now and then, he would have saved a lot of money. How? All he needed to do was to buy himself a mediclaim policy. This way, he lets his insurer bear medical expenses and claims the premium paid for the policy as deduction.

Moral of the story: Get your medical expenses covered by taking the benefit of the medical insurance premium deduction and save tax too.

3. FAILING TO CAPITALIZE ON HOME LOAN TAX BENEFITS

Tom and Jerry came to the City of Dreams together. Both are still trying to make it big.

Tom tries to save every rupee of his salary that he can, hoping that someday he'll be able to buy his dream home. However, property prices in the metro kept him from owning one.

Jerry, on the other hand, makes his dream come true. How?

After making a decent amount of money, he takes a loan and buys a house in his hometown. But that's not all; he also gets a regular rental income out of it and claims home loan tax benefits.

Moral of the story: Capitalize on home loan benefits to save tax.

4. NOT INVESTING IN TAX-SAVING INSTRUMENTS

Tom always wondered why his TDS was more compared to Jerry's, when Jerry and he earned the same salary.

On some probing, Tom found out that while he kept his extra earnings lying idle in the savings account, Jerry invested them in a tax saving fixed deposit.

This way Jerry not only saved a significant amount of tax, but also earned a higher return.

Moral of the story: Save tax by investing in tax saving instruments and benefit from higher return.

5. NOT REPORTING INCOME FROM OTHER SOURCES

Tom and Jerry were making merry. Suddenly, Tom had a reason to worry. The Income Tax Department sent him a notice.

What had happened was that Tom made the mistake of not reporting his income from bank interest. He assumed he did not need to declare this income as the bank had already deducted TDS on it.

The bank had deducted TDS at 10%. However, Tom fell in the 20% income tax slab. Thus, he had to pay tax apart from TDS. The Income Tax Department discovered this on scrutiny and sent Tom a notice, asking for a penalty of 300% of the tax evaded.

Jerry made it a point to report income from all sources, including bank interest, dividends, prize winnings, etc. while filing his tax returns.

Moral of the story: Never skip any sort of income earned from other sources while filing your I-T return.

How to deal with income tax refund delays: EconomicTimes

Delay or non receipt of tax refund is the biggest grievance of many taxpayers. Unintentional error in bank details, delay in processing of paper income tax return (ITR), change in residential address are among the common reasons for the delay.

"Some employees declare the details of the tax exemptions or deductions they are eligible to claim but fail to provide the relevant documentary proof to the employer organisation within the timeframe prescribed by the employer," says Vaibhav Sankla, director, H&R Block India. "Further, deduction on account of donation is not considered by the employer while deducting tax on salary income. This deduction then can be claimed at the time of tax return filing," he adds.

When do you qualify for a refund?

Most companies ask their employers to declare the details of their tax planning at the beginning of the year, but some employees fail to make such declaration and it leads to higher tax deduction, which in turn results in tax refund.

The deduction on interest on housing loan is reflected in the Form 16 based on the provisional certificate obtained from the housing finance company/bank during the financial year. For FY 12, since the interest rates were on the rise, the final certificate would show a higher amount of interest to those who availed of variable rate loans. This too can be one of the reasons for tax refund.

Some individuals pay advance tax on the capital gains they make during the year. In some cases it so happens that they incur some capital loss later in that year. "Or in some cases the tax payer realises that the actual amount of capital gain is less (due to indexation, deductions u/s 54/54EC/54F, incorrect cost calculation etc.) than what he initially computed while paying the advance tax," says Vineet Agarwal, director, KPMG.

E-filing speeds up refund process

The processing time for tax refund is not standardised. It may be processed as early as 20 days or it may take up to two years in some cases. But starting this year, tax experts expect some speedy processing of refunds. This is because of the CBDT circular, which mandates individuals earning an annual income of 10 lakh and above to file their income tax return (ITR) online.

"To get the tax refund without any hassle, it is advisable to file online tax return. The taxpayer should also file Form 30 with the tax officer within two years from the close of the financial year," says Sonu Iyer, tax partner and national leader, human capital mobility services, Ernst & Young.

"When an individual files his/her tax return offline, one has to track the status of the refund by contacting the help desk of SBI at 080-26599760 or contacting the Aaykar Sampark Kendra at 0124 2438000. Alternatively, an individual can follow up, preferably in person, with the assessing officer of the jurisdiction where the return was filed," says Vineet Agarwal.

But this process is very cumbersome. However, if you filed your ITR online, the ITR is processed faster. As a result, it ensures quicker refund payments.

Steps for a faster refund

"In order to ensure a hassle-free and timely refund, you should provide correct details, such as the bank account number and MICR code of the bank branch, in the tax return. This will facilitate direct credit of the tax refund amount in the tax payer's bank account," says Vineet Agarwal.

In case of refund through cheque, one should ensure that along with the account details address mentioned in the return is correct. If you receive a cheque after its expiry, you should approach the concerned tax ward / circle where you have filed your return for re-issue of refund cheque.

Income tax return: Filing tips for first-time taxpayers :EconomicTimes

For most Generation Y professionals, tax is something they would rather not be involved with. These bright youngsters can tackle the toughest corporate challenge but fumble when it comes to their own tax planning. It needn't be like that. Tax planning may appear complicated but once you get the hang of it, it can be empowering and rewarding. Just spend a little time to understand what it is all about and the knowledge will benefit you for the rest of your life. Here are some basics of tax planning. 

Do you have to pay tax? 

That depends on how much you earn and under what heads. Some salary components such as the basic salary, dearness allowance, special allowance and bonuses are taxable. Others such as house rent allowance, conveyance and other reimb ursements are exempt subject to rules. But apart from the income from your employer, you may also earn interest on fixed deposits, bonds and on the balance in your savings bank account. If you invest in stocks or funds, there may be dividend income and ca pital gains as well. If you own property, there may be rental income coming in. 

If the income you earned in a financial year (1 April to 31 March) exceeds the basic exemption limit of Rs 1.8 lakh (Rs 1.9 lakh for females), you have to pay tax on it. From next year, this basic limit will be raised to Rs 2 lakh. The threshold is higher for senior citizens but we won't get into that. 

Tax deduction at source 

Your employer calculates the tax payable and deducts it from your salary. But since tax is payable on th e combined total income, the TDS by your employer may not suffice unless your income from other sources (interest, rent, capital gains, etc) has been factored in. If you changed jobs during the year, you must report the income from the previous employer a s well. If you don't do that, you will end up availing the basic exemption twice in a year, which will lead to a big tax outstanding at the end of the year. 

Before your employer deducts tax, you are asked if you have made any tax saving investments or are eligible for any other deduction or exemption. You can invest up to Rs 1 lakh in any option under Sec 80C. Some of these are automatic-your contribution to the PF, for instance. The other options are PPF, NSCs, tax saving FDs, ELSS mutual funds, life insur ance policies and pension plans. Your choice should be guided by your needs and ability and willingness to take risk. Don't buy an insurance plan if you don't have dependants. Don't jump into equity-based ELSS funds if you can't stomach the risk of stock i nvestments. There are other deductions too. Medical insurance policies for yourself or your parents are eligible for deduction under Sec 80D. If you submitted documentary proof of all these investments to your employer within the stipulated time, the TDS will be low. But if you missed the deadline, you would have paid more tax than was due. 

Do you have to file your return? 

The CBDT has exempted taxpayers with an income of less than Rs 5 lakh from filing their tax return. However, you can avail of this exe mption only if you have income from salary and bank interest. Also, this interest should not exceed Rs 10,000 in a year and you should have paid the tax due on it. You should also not have any tax refund due. 

If you have paid more tax than due, the only way you can get it back is by filing your return. Don't look at filing your tax return as a painful exercise. Instead, think of it as sending a bill to the Income Tax Department demanding a refund of the amount you overpaid in taxes during the previous year . The sooner you do it, the better it is for you because the faster your tax refund reaches you. 

Understanding your Form 16 

Your employer must have given you a Form 16, which is a certificate of the TDS from your salary. For most salaried individuals, th e Form 16 has nearly all the details they need to put in their tax return form. But if they have other investments as well, there could be TDS certificates from the bank or bond issuer on the interest they might have earned. These details need to be fille d in the tax return form. 


A refund is not the only reason to file your tax return. Your return is a declaration of your income and will come handy when you are seeking a loan, buying property, going abroad or even taking a large insurance cover. Banks want to see your income details before they extend a loan. Many countries want to know if you are financially stable before they issue you a visa. Insurance companies want to know if the cover you want is commensurate with your income. The income tax return i s your single sheet answer to all these queries. 

Not filing your return can have serious repercussions. You can be slapped with a penalty of up to `5,000 even though all your taxes are paid. Besides, it will unnecessarily raise suspicion and the income tax department may scrutinise your finances further. 

How to file your return 

You can file your return online or offline, by yourself or with the help of a tax professional. It is advisable to take the help of a tax professional at least for the first time. A chartered accountant will be able to guide you on how to fill up the form and choose the ITR form that is applicable to your case. Once you get the hang of it, you can start filing your return by yourself. Online filing is very simple and doesn't require too much effort. There are websites that guide you at every step of the process. 

They even choose the correct ITR form for you based on your income so there is zero chances of you going wrong. For as little as Rs 200-250, some portals even cross check your return before it is filed to make sure it is error free. It is a small fe e to pay for peace of mind.

Income tax returns: Smart things to know about e-filing :EconomicTimes

1. Tax payers can file income tax returnselectronicallly. E-filing is a quick process and can be done anytime from any place. It can be done through the government portal incometaxindiaefiling.gov.in or any of the private tax websites.

2. The IT department has also appointed intermediaries who provide upload facility for returns through their portals for a fee. However, direct upload on the IT website is free and the service is available 24 hours a day.

3. The tax payers need to fill up the return form offline in the prescribed excel worksheet format. Once the return form is complete, the return must be uploaded on the website in the XML format.

4. Once uploaded, a receipt or the 'ITR-V' will be generated. The tax payer should sign this and send it by post to the Income Tax Department CPC, Bangalore, Karnataka, within 120 days of e-filing.

5. If the tax payer uses a 'digital signature' to authenticate identity on generation of ITR-V, it does not have to be sent to the IT department by post as the process is complete.

6. If the ITR-V is not submitted within 120 days of e-filing, the uploaded return is considered as null and void and the returns have to be filed again.

Inaccurate return can increase tax liability: EconomisTimes

The countdown has begun for filing your income tax return (ITR). It was easier in the previous financial years, when you just handed your Form 16 over to your chartered accountant to file the income tax return on your behalf. The chartered accountant would take care of your paperwork, Form 16, accuracy of the return and hand over the ITR receipt on the completion of the process.

But starting this year, you are required to file tax returns online especially if you are earning an annual salary of Rs 10 lakh or above. The tax portals are very user friendly and decode most of the technical details for the tax payers. However, the onus lies on you to enter every financial detail appropriately and file an accurate tax return.

Generally, due to the inbuilt mechanisms, returns filed electronically would have all the information mandatorily required to be filled in. These would include residential status, gender, TAN of the employer etc.

The ITR would be considered inaccurate if certain details mentioned in the return are wrong or certain details are missing altogether. "The inaccuracies can have financial implications for the tax payer as a particular deduction, tax credit or loss may not be considered by the tax department; and this will enhance the tax liability of the tax payer. At times, there could be penal consequences too," says Vaibhav Sankla, director H&R Block, India.

Common Misses

The most common detail which tax payers forget to mention in their income tax return is the interest income from bank FDs. "Sometimes it could be due to lack of awareness or the delay in the TDS certificate to be given by the banks. Generally, banks give the TDS certificate in February or March every year," says Saakar S Yadav, managing director, myITreturn.com, a tax portal. "Tax payers fill the ITR details as mentioned in the Form 16 and leave out such details which are usually not mentioned in it," he adds.

"Tax payers should refer to tax credit statement in Form 26AS to ensure that their income, TDS and tax payment details are completely reflected in the tax return form," says Vaibhav Sankla.

The second missing element could be claiming deductions/exemptions which the tax payer is entitled to, but are not reflected in the Form 16. "Often employees invest in tax saving instruments after submitting their investment declaration to the employer. In such cases the Form 16 will not have complete details of such investments," says Saakar S Yadav.

Most individuals avail deduction of interest on repayment of home loan. "However, not many are aware that any interest paid on home loan for reconstruction, renewal and repair of the house property is allowed as deduction up to a maximum of Rs 30,000, subject to the overall limit of Rs 1,50,000," says Vineet Agarwal, director, KPMG. Hence before filing the return you should look at every investment and loan and understand the tax treatment for them.

Must Mentions

For Salaried Class

"You have to mention details of your rental income, capital gains or income from other sources (such as bank interest, etc) earned during the corresponding financial year. Moreover, if you qualify as resident and ordinarily resident in India and have overseas assets, the details of the same should be mentioned in appropriate columns in the income tax return," says Sonu Iyer, tax partner & national leader, human capital mobility services, Ernst & Young.