Is not filing income tax return a loss to you?

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Income tax return, the ITR is buzzing as March month approaches. Tax savings is as important as tax paying. Tax gets deducted at source only for the person in a salaried category. Means their employer deduct tax amount before crediting salary to their employees. According to government data published in a national financial daily in FY 2015-16, “Of the 0.76 crore individual assesses who declared income above Rs.5 lakh, 0.56 crore were in the salaried class”. Similar is the case for other slab categories as well. This highlights the fact that major chunk of direct taxes in the country is paid by this salaried class.

Further, in FY 2016-17 as per Center Board of Direct Taxes (CBDT), income taxpayer base has increased to 6.54 crore. This was 5.59 crore in the previous financial year. These taxpayers either have filed income tax return, had paid advance tax or their tax has been deducted at source. It is a fact in case of India that not everyone who pays tax files income tax return. Most salaried employees taxes are deducted at source and are paid by the employers.

According to the tax department in 2015-16, only 3.7 crore individuals filed tax returns. It comes out to be 66.19% of the total who paid tax. This means that 33.81% taxpayers never file the return. It is quite possible that this 33.81 % of taxpayers may not even qualify for tax. But their tax gets deducted and is with the tax department. Not sure but is possible. Also, each year 0.6 crore taxpayer are added. While 0.1 crore stops paying the tax due to death, retirement etc. This results in net taxpayer addition to around 0.5 crores each year.

Why individuals whose taxes are deducted at source need to file an income tax return? 

Besides salaried whose taxes are deducted from sources, are those whose sole source of income is through interest income. Retired persons, housewives or persons with small business comes under this category. Banks and post office above a limit deducts TDS on in interests earned in any fiscal year. For FY 2017-18 the limit was Rs.10000 while for FY  2018-19 it is Rs. 50000. Even if the individual’s net taxable income does not qualify for tax payment, their hard-earned income got deducted.

There is provision for getting the refund from the tax authority. But in most such cases, people never file income tax return. This is mostly due to unawareness. Unknowingly the hard earned money got deducted and never claimed back even though the income remains below taxable income.

Moreover, in case of income is under taxable income one can save by pre-planned investments and methods. The current blog article is an initiate towards making every non-tax payer aware of this. All taxpayers can benefit. They will come to know the existing options of investments and methods which can help save money.

Filing income tax return will help you claim back your deducted tax. This is possible in both cases. When income is within taxable income, you will get the full refund. But when income is above taxable income, you will get the refund after adjusting tax amount. I will exclusively focus on the available options for tax savings. An individual taxpayer can apply them so that they will become eligible for little or no deductions at their earnings.

Before proceeding let us understand the current tax slab properly for various category of individual taxpayers.

Income tax return slab for a normal individuals – FY 2018-19

INR 0 to INR 2,50,000 No tax
INR 2,50,001 to INR 5,00,000 5%
INR 5,00,001 to INR 10,00,000 20%
Above INR 10,00,000 30%

Income tax return slab for senior citizens (aged 60 Years but less than 80 years) – FY 2018-19

INR 0 to INR 3,00,000 No tax
INR 3,00,001 to INR 5,00,000 5%
INR 5,00,001 to INR 10,00,000 20%
Above INR 10,00,000 30%

Income tax return slab for very senior citizens (aged 80 years and above) – FY 2018-19

INR 0 to INR 5,00,000 No tax
INR 5,00,001 to INR 10,00,000 20%
Above INR 10,00,000 30%

A surcharge of 10% is applicable for income between Rs.50 lakhs and Rs.1 crore with marginal relief. And a surcharge of 15% is applicable for income above Rs.1 crore with marginal relief. Marginal relief is the relaxation provided to a taxpayer where the total income exceeds marginally above Rs.50 lakh or Rs.1crore.

“You have always an option to get back your money from the income tax department, in case of TDS amount is below your taxable income. For this, you need to file income tax return and claim the refund for the amount deducted as TDS “

Top Tax savings investments options available under the income tax

Besides these slabs, it is important to keep in mind that any investment in fixed deposits and some other instruments attract TDS. If interest earned by way of interest is above INR 10000 in any financial year it is liable for TDS. This limit is increased to INR 50000 from FY 2018-19. The income tax provision allows for some deductions applicable even prior to TDS. You just need to furnish some documents to the concerned TDS deducting authorities.

For example in case of the salaried person, if you have investments that qualify for deductions, and your taxable income is below tax bracket or is in the lower tax bracket, you can claim that with your HR manager. What you need is to provide him with proof of such investments.

You can save tax either through some investment instruments or through making donations. Further, in both cases, you must check whether that particular investment qualifies for tax deductions. And under which head (sections of IT Act). Also, you need to check for the maximum limit that is allowed for deductions under each head.

1. Investment in miscellaneous instruments (section 80C)

You can avail tax deduction on investments up to Rs.1.5 lakhs under Section 80C of the Income Tax Act. Investments that qualify for tax benefits under this section includes Public provident fund, Employees’ Provident Fund (EPF). Investments in an approved superannuation fund, Sukanya Samriddhi Account, National Savings Certificate and tax-saving fixed deposits also qualify this.

Further, the premium paid for life insurance plans, National Pension Scheme (NPS) and tax-saving mutual funds (ELSS) also qualify for deduction under Section 80C. You can also claim tuition fees paid for up to two children, principal repayment on home loan by the bank, contribution to pension fund set up by the mutual fund under Section 80C.

2. Deductions under section 80CCC, 80CCD & 80CCD(1B)

Under 80CCC you can get tax benefits on a contribution to pension fund run by Life insurance company of India. In addition to this, the benefit of 80CCD is applicable for individuals employed by employers other than Central government as well as to self-employed individuals. It provides deduction in respect of a contribution to the pension scheme of the Central government.

The maximum deduction allowed for 80C, 80CCC & 80CCD is up to 1,50,000. Further, 80CCD (1B) provides an additional deduction for the contribution to NPS scheme notified by the central government. The maximum deduction allowed under this is Rs.50000 per FY.

3. Deduction for medical insurance premium (section 80D)

This deduction can be availed for self, spouse and children and parents. The Limit is Rs 50,000. An individual can claim up to Rs. 25000 per year. But if the individual avails for parents he can claim additional Rs. 25000. However, if an individual is a senior citizen and also avails for his senior citizen parents, then the deduction is up to Rs.60000. From FY 2018-19, for senior citizens, this limit has been raised to Rs50,000 from Rs30,000.

4. Deduction under section 80DD

This benefit is available only for a taxpayer who is a guardian of a disabled dependent person. Then he can claim deductions of Rs.75,000 for normal disability and Rs 1,25,000 for severe disability under this section irrespective of actual expenditure.

5. Deduction in respect of medical treatment (section 80DDB)

This deduction is primarily for those who need treatment for a specified critical disease. Under this section, the deduction amount is the actually spent amount on treatment or Rs.40000/100000 whichever is lower. Rs.40000 is for individual below 60 years and Rs.100000 is for senior citizens. The taxpayer must produce the prescription for such treatment from a neurologist, an oncologist, immunologist etc.

6. Deduction of interest loan for higher education (section 80E)

If you have taken education loan, then this section will provide you a deduction of interest amount you pay for your education loan. Higher education means any course of study pursued after senior secondary examination. Loans taken from a financial institution or approved charitable institution is mandatory to avail this deduction.

7. Deduction of interest on housing loan (section 24B)

Interest paid on housing loan for the acquisition, construction, repairs renewal or reconstruction can be claimed as a deduction. As per Section 24B if loans borrowed was before 1.4.1999, then Interest up to Rs.2 lakhs in a financial year is allowed. However, if it is after 1.4.1999, then interest up to Rs.30000 is allowed as a deduction.

8. Interest on deposit in a savings account (Section 80TTA)

Your Savings Bank account, earn a fixed rate of interest on the balance every quarter. Now, the interest that you earn during a particular year becomes your income for that financial year. Under this section, every taxpayer gets the interest income deduction up to Rs.10000 per annum by way of interest or deposit in a savings accounts (excluding Fixed deposits)

9. Deduction of interest from banks/post offices/fds (section 80 TTB)

This section is specifically inserted for senior citizens. Especially those senior citizens who mainly depend on the interest income from the bank, fixed deposits for their day to day expenses, is to benefit. The deduction is up to Rs 50,000 for interest on bank and post office.

10. House rent allowance [section 10 (13A)]

If you receive HRA as part of your salary and you live in a rented accommodation, then you can claim HRA exemption fully or partially under section 10. HRA exemption depends on the city which you live in.

Tax exemption on HRA is least of the following:

  1. Actual HRA received
  2. Actual rent paid reduced by 10% of salary
  3. 50% of basic salary if the taxpayer is living in a metro city
  4. 40% of basic salary if the taxpayer is living in a non-metro city

11. Investment in housing loan (section 80 EE)

This section was re-introduced in Union Budget 2016. An additional deduction of Rs.50000 is available under this section. This is over and above the limit of Section 24B on interest paid on home loans. This is only applicable to a person who is buying a house less than Rs 50 lakhs for the first time by getting a loan upto Rs 35 lakhs from a financial institution and the loan should be sanctioned between 1st April 2016 to 31st March 2017.

12. Donation to certain funds, charitable institutions. (section 80 G)

The deduction available under this section is either 100% or 50%. The specified donations are mentioned in the unlimited or limited category. Donations mentioned in the unlimited category include National defend fund set by Central Government (100%) and Jawahar Lal Nehru memorial fund (50%). Donations in the limited category are the contribution to the government or association for promoting family planning (100%), an institution established for a charitable purpose (50%).

In case of donations specified in unlimited category, you can claim full 100%/50% of the amount donated. However, in case of donations mentioned in limited category, you can claim as either 100% or 50% of 10% the gross adjusted income of the individual

Gross Adjusted income for this purpose is calculated as gross total Income minus (i) all exempted incomes, (ii) long-term capital gains and, (iii) all deductions under section 80C to 80U except for 80G.

13. Deduction in case of donation for scientific research and rural development

This section is for those taxpayers who do not have any income chargeable to tax under the head profits and gains of business & profession. A 100% deduction is allowed if –

  • the taxpayer has paid the sum to a research association which has an object of scientific research or
  • donation to the university, college or other institution for scientific research.

The taxpayer has to ensure that the sum paid should be in a mode other than case if the sum exceeding Rs.10000.

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