Archive for June, 2007

Interest calculation

If you don't pay tax on time the Tax Inspector wants you to pay interest. But they give you clinical names for the sections for which interest is charged. Let me decode them for you.

• Field 13a, Section 234A: means interest if you file your return late. If you have not filed your return before July 31 then you pay 1% per month of delay. (Note: If you file on September 15, you pay 2% as interest, not 1.5% - it is not pro-rated) Also, this applies on any tax that is payable as of July 31 - if your taxes are fully paid, you don't have to worry. Please file your returns in any case by March 31, 2008 - as after that there is a Rs. 5,000 fine.
• Field 13b, Section 234B: Interest on failure to pay advance tax. If you're a salaried employee paying TDS (or if your interest receipts are getting tax deducted on them) you should be safe. Essentially this section means: You should have paid 30% of your total annual tax by Sep 15, 60% of it by December 15, and 100% of it by March 31. Interest of 1% per month applies.
• Field 13c, Section 234C: Same as 234B, except this section applies when the advance tax is SHORT of the actual tax payable. (Means some advance tax was paid, just not enough). Note that this section does not include any capital gains that you were not able to estimate earlier.

Taxes Paid

Field 15a: This refers to the advance tax paid, and should come from the section below (Item 23) where you fill in details of advance tax.

If you have NO idea what advance tax means, here's a quick explanation: You are supposed to pay tax when you receive income, not at the end of the year. For salaries, some tax is deducted at source (TDS). For any other receipts like interest or consultancy income, only part TDS is deducted. You are expected to figure out how much your TOTAL tax liability will be at the end of the year (extrapolating your income and expenses) and then pay:

• 30% of total tax payable by September 15
• 60% of total tax payable by December 15
• 100% of total tax payable by March 31

Field 15b: This is the sum of all TDS paid on your behalf. Includes TDS paid by your employers, bank or other such organisations when they have to pay you something.

Field 15c: If you paid tax post March 31, 2007, it is no longer called "Advance Tax". It is called "Self Assessment Tax" (Don't ask me, I didn't write the rules). You must fill in such tax paid here.

Refunds
Some of you may have paid more tax than necessary. In such situations, you will require a refund, and here's the section where you fill that in:

Items 18 to 20 apply to refunds and are mandatory. Type in your Bank Account number, Type of account (Savings/Current) and MICR Code (the 9 digit number on the bottom of each cheque, next to the cheque number).

TDS Details (Items 21 and 22)

Fill in details of Tax Deducted at Source. For Salaries you should receive a Form 16 from your employer(s). You will get a Form 16A for TDS deducted on interest income. Fill all the fields as given in the forms you receive.

Advance Tax and Other information

Fill out advance tax details - BSR code and challan serial numbers are available on the challans (counterfoils) your received when you paid tax.

Other information includes certain key information that the Income Tax has started collecting this year. They expect you to fill out amounts against the codes in this manner:

• 001: Cash deposits into a bank account, of Rs. 10 lakhs or more. This is not amounts by cheque. It's only the amount paid in cash.
• 002: Payments against bills for a credit card, of more than Rs. 2 lakhs a year. This is an aggregate amount, so even 20K per month on a single card meets this criteria. Enter the total amount.
• 003: Payment for mutual fund units aggregating Rs. 2 lakhs or more. I believe this is towards units of a single fund scheme (but please confirm with an accountant). This includes any "dividend reinvestment" in a scheme.
• 004: Bond or debenture purchases of Rs. 5 lakhs or more.
• 005: Payment for Rs. 1 lakh or more of shares in a company. This applies only to shares of the same company and from Rule 114E, it seems that this only applies to shares applied in public issue such as Initial Public Offer (IPO).
• 006: Purchase of Rs. 30 lakh or more worth of property. NOte that this field must be filled even if you took a loan to buy the property.
• 007: Sale of property worth Rs. 30 lakh or more.
• 008: Purchase of RBI bonds worth Rs. 5 lakh or more.

When you should not file ITR-1

• If you have income from business or profession (such as Google Adsense) - Use ITR-2, 3 or 4.
• If you have income from capital gains (long or short term) - including from sale of shares, property, gold or such capital assets. Use ITR-2.
• If you want to claim the Rs. 150,000 exemption on interest paid for a housing loan. You should use ITR-2 for that.

Download the ITR-1 Excel file here.
Note: the sheet is "protected" in Excel, so you can only select fields which I believe you should use to enter data. If you really need to change other cells, use Tools menu | Protection | Unprotect sheet and make your changes.

Income and Deductions

1. Fill in your salary as given in your Form 16. You do not need to attach the form 16 with this return. For those of you that have multiple employers in the financial year, add all the salaries up and put in the total here.
2. If you have interest from Fixed Deposits, savings bank interest, or other such sources - this must be entered here. Don't assume you have no interest - please get an interest statement from your bank. If you have received interest of more than Rs. 5,000 banks will deduct TDS, and give you a Form 16A. In that form the "Interest earned" will be mentioned - total up all the interests received if you have more than one source, and put the total in this field.
3. Gross total Income is the sum of 1 and 2 above. In the Excel sheet this is automatically calculated and thus coloured orange.
4. Section 4 contains all sorts of deductions.
   • Most of you will have 80C deductions, like:
     • Public or Employee Provident Fund (your contribution, not your employer's)
     • National Savings Certificates (NSCs)
     • Insurance Premium payments
     • Tution fees (upto two children, only tuition fees - no donation or such)
     • Principal repayment of a housing loan
     • Five year Fixed deposits under 80C deductions
     • ELSS mutual fund purchases
     • Other such 80C deductions (refer to the act)
     Note that the total amount of all the above allowable for deduction is limited to 1 lakh.
   • 80CCC refers to certain pension fund purchases. If you have such a fund this section will be mentioned in the document of purchase.
   • 80CCD is for purchases of central government pension schemes.
   • 80D: Upto 10,000 a year paid towards medical insurance premium for you, your spouse, dependant parents or children.
   • 80DD: deductions for taking care of disabled dependants
   • 80DDB: Upto 40,000 paid towards treatment of certain diseases like cancer, AIDS, Renal failure etc. (Certificate from a doctor in a government hospital is required. Don't attach it with the form, but keep it in case they ask)
   • 80E refers to interest paid for higher education loans.
   • If you donate money to certain charities or funds, 80G deductions can be claimed.
   • 80GG: If you don't get Housing Rent Allowance (HRA) from your company, You can get a deduction of actual rent paid upto 2,000 per month, if rent paid is greater than 10% of your income. This is a simplified explanation, read the section for details.
   • 80GGA gives you deductions if you donate to certain scientific research or rural development. (Yes, it's a complex section)
   • 80GGC allows deductions for contributions to political parties. (Wow)
   • 80U allows certain deductions to disabled persons.
   Note that I have not provided complete details - I am not a chartered accountant, and you may need to use such an accountant to help you with more details.
5. Total income is calculated as the sum of salaries+interest minus all deductions.
6. If you are a farmer, like Amitabh Bachchan but hopefully less controversially so, please enter your agricultural income here.
7. Aggregate income is the sum of all your income.

Field 8: The tax payable is calculated in slabs. For the first Rs. 100,000 of your income you pay no tax. This limit is Rs. 135,000 for women and Rs. 185,000 for senior citizens.

For the amount from 100,000 to 150,000 you pay 10% of whatever is greater than 100,000. (Lower limit is 135,000 for women and for senior citizens this section does not apply)

From 150,000 to 250,000 you pay 20% of whatever is above 150,000. For senior citizens, the lower limit is Rs. 185,000.

You pay 30% of whatever is above 250,000.

Examples:

For a salary of Rs. 125,000 (male):
Upto 100,000: No tax
Slab 1: 100,000 to 125,000: 10% tax on (125,000-100,000)=Rs. 2,500.

For a salary of Rs. 240,000 (woman):
Upto Rs. 135,000: No tax
135,000 to 150,000: 10% of 15,000 = Rs. 1,500
150,000 to 240,000: 20% of 90,000 = Rs. 4,500
Total Tax: Rs. 6,000

For a salary of Rs. 400,000 (senior citizen):
Upto Rs. 185,000: No tax
185,000 to 250,000: 20% of 65,000 = 13,000
250,000 to 400,000: 30% of 150,000 = 45,000
Total Tax: 58,000

Field 9b: If you have an taxable income of more than Rs. 10,00,000 (10 lakhs), you must pay 10% of the tax as a surcharge. (Actually you need to have a taxable income of Rs. 10,25,773 for this surcharge to apply)
Field 9c: 2% of your tax (plus surcharge) is additionally payable - put the amount here.
Field 10 and 11: There are specific deductions available for salary paid in arrears or as an advance in a year under section 89. Section 90/91 refers to double taxation agreements with other countries, which allows you to claim tax relief for taxes paid abroad on income earned abroad.

I shall have to continue the rest in another post since this is getting too long. Please post me your comments.

Download the ITR-1 Excel file here.
Note: the sheet is "protected" in Excel, so you can only select fields which I believe you should use to enter data. If you really need to change other cells, use Tools menu | Protection | Unprotect sheet and make your changes.

Note: I will, in another post, link to an excel file for download that you can use to fill in fields easily.

First, fill out personal information at the top of the form.

In this section, what is important is your PAN (Permanent Account Number). If you don't have a PAN, please apply for it now - you can apply online or read the FAQ.

If you use the excel sheet, note that you can do the following:

Next, you must fill out the Filing Status section.

Three things to note:
1) Assessing officers' designation, ward and circle can be obtained online. Go to the Income Tax web site and choose About Us|Organisation and Functions|Field Offices _> your nearest field office. On the page displayed, choose Jurisdiction and browse into the section that applies to you.
2) The section you file returns will be one of the following codes:
11: Filed voluntarily before 31/7/2007 (applies to most of us)
12: Filed voluntarily after 31/7/2007 (must file before 31/03/08)
13, 14, 15: Filed in response to a notice from the IT dept. (See section 9 of instructions)
3) If you're filing a correction to an earlier return you must enter the date and receipt number of the earlier return. Always keep your receipt number and this date handy so you can file corrections later if necessary.

In later posts I will explain how you must fill individual forms : ITR-1 and ITR-2. For ITR-3 and 4, the fields are common but you'll need to use an accountant or a Tax Return Preparer since this involves calculation of business income and/or partnership income.

From what I hear in the comments on the earlier post, I've decided to do a series of articles that explains how to fill out these forms.