With July 31st round the corner, it’s time for people to start filing their Income Tax Return. However many people, specially those who just started their job, do not know what Income Tax return means and are not aware of the importance of filing it. For the benefit of those, I have come up with this FAQ to educate people about filing Income Tax Return.
What is meant by “Income Tax Return”?
Income Tax Return is nothing but a document that gives the Income Tax department information about taxpayer’s tax liability. It is a declaration by you to the IT department about your income from all the sources (salary, saving bank interest, fd interest etc.) and the tax paid by you on that.
Is it mandatory to file Income Tax Return?
If you fulfill ALL of the following conditions, it is NOT mandatory for you to file the return for Assessment Year 2012-13:
Note that even if someone fulfills the above conditions, they can still file return if they want to. In fact, there are several benefits of filing return, which we’ll see later in this article.
Commonly Used Terms
TDS: TDS is tax deducted at Source, Generally Employers deduct our taxes in advance and pay to govt in advance.
Financial Year (FY): The year in which you earn the income
Assessment Year (AY): The year when you pay tax for the income earned in the financial year.
FY and AY start in April and end in March. This year we have to file the return for the income earned in 2011-12. So 2011-12 is the FY and 2012-13 is the AY.
I don’t earn much so surely IT department can’t catch hold of me if I don’t file my IT return?
This is a common misconception that people have. IT department has all the information about your financial transactions, which it gets from banks, credit card issuers, property registration authorities etc. IT department announced earlier this year that nearly 27.5 lac tax payers made cash deposits of over Rs 10L in their bank accounts in 2009-10 and 2010-11. More than 15 lac credit card holders made payments of over Rs 2 L in a year on their credit cards.
This should be enough indication that the Big Brother is watching and will catch you sooner or later if you don’t file your IT Return.
What are the benefits of filing Income Tax Return?
Some of the benefits of filing return are:
- Income Tax Return statement is needed for Visa processing.
- It is a proof of your income and net worth
- Return statement is needed while applying for a loan.
- If you paid more tax than was required, you can claim a refund only if you have filed a return. This happens a lot of times. For e.g., if you forget to submit proof of some investment to your employer, your employer would deduct TDS in excess. You can get a refund of that only if you have filed your return.
- You can carry forward Capital loss or losses from business to next year and get it adjusted against the income only if you have filed your return.
Interest on Refund
On the basis of the tax return filed, refund is paid at an interest of 0.5% per month.with retrospective effect from April 1 of the assessment year for which the return is filed.
e.g, Let’s assume you paid Rs 5000/- as tax when you were supposed to pay only Rs. 2000/-. The remaining Rs 3000/- will be refunded to you along with an interest on this amount. The interest will be calculated from 1st Apr of the AY for which the return was filed, till the date refund was issued at the rate of 0.5% per month. So, if the refund gets issued on 24th Oct 2012, you will get an interest for 7 months (from 1st Apr 2012 to 24th Oct 2012) at 0.5% per month, which comes out to be Rs 105.
The gail/loss made by selling an asset or an investment is called capital gain/loss. For e.g., if you bought a share at Rs 100 and sold it for Rs 120, the capital gain on your investment is Rs 20.
What is the last date to file Income Tax Return?
For individuals, the last date to submit returns is 31st July 2012.
There is a provision of late filing of return too, but with some penalty. The return of income can be filed within a period of two years from the end of the financial year for which it is being filed. So, for the financial year 2011-12, the return can be filed till 31st Mar 2014, with certain penalties, which are explained below:
I hope you now have a clear understanding of what Income Tax return means. Do you have further questions? Feel free to ask them through the comment form below.If you want a particular topic to be covered, please submit your request here, and we’ll make sure to write on it asap.