VoteUpIndia

Haste is waste: Tax returns are better belated than inaccurate
The last week of July witnesses the same drama unfolding every year.

In spite of having four whole months after March 31 to file tax returns, some taxpayers (or should I say most?) typically procrastinate, and then in the days leading up to the end of this month, there is a mad scramble to file the returns.

Now, those who find themselves in this situation shouldn’t panic. As has been mentioned in this column before, though July 31 is the due date, one can file the return till March 31, 2011 without incurring any penalty.

What is important is not this due date of July 31, but the fact that the return should be filed with accurate information where neither the income is inadvertently under-reported nor any expense or deduction overlooked due to lack of time. However, if any tax is due, the taxpayer should arrange to pay the same immediately — the return can then be filed in due course.

In fact, the return for 2009-10 can even be filed by March 31, 2012. Such a return is termed as a ‘belated return’ and may attract a penalty of Rs 5,000 if filed after the end of the assessment year. So in short, if you file your return after July 31, 2010, but before March 31, 2011, it would be a belated return, but no penalty will be imposed. Needless to add, a tax return is always better belated than inaccurate.
You may also want to see

* Portal offers to make filing income tax returns easy
* Earn confidence of tax payers, Meghe, Darda urge income tax
* Income tax department biggest litigant in govt: Pranab Mukherjee
* What happens if the taxman finds undisclosed income?
* Don’t let the rain halt your tax payment

An example of haste causing waste, is the case of Rajiv, (name changed) who was more interested in filing the return on time even after knowing about the belated return facility. For 2009-10, he earned long-term capital gains from sale of property. In his hurry to file the returns, he simply forgot that expenses related to improvement of property too can be indexed along with the cost.
In other words, he duly indexed his cost of acquisition but missed indexing the expenses and ended up paying a higher tax than what was actually due.

Had he waited and reviewed the computation without being in a mad hurry to e-file the return, he could have saved a neat packet. So, in a nutshell, do not be in a hurry to file the return per se. First ensure that the return is correct and complete in all respects and then arrange to get it filed.

Going by this theme, this article is a discussion on common exemptions and deductions where there is a potential for oversight or error on the part of the taxpayer. An understanding of the same would help the reader optimise his/ her tax return, not only in terms of paying lesser tax but also making it error-free.

House rent allowance

Take HRA. Though the following point has been covered in previous articles, the misperception is so widespread that I think a reiteration is warranted.

HRA and home loan provisions are two different issues as far as the Income-Tax Act is concerned and one does not influence the other. So, you may own a flat or any number of flats, either in the same city that you work or anywhere else in the whole of India or for that matter abroad — this will, in no way influence the HRA deduction that you are entitled to.

Conversely, notwithstanding the amount of HRA that you receive, your home loan deductions on the EMIs for the house that you have bought or intend to buy will not be affected.

But note that it is not compulsory for your employer to provide HRA. So what happens if you stay in a rented house, but your company doesn’t pay you HRA? How can you claim deduction on your rental payments? For this, you need to take recourse to Section 80GG of the Income-Tax Act. This section provides a deduction on rent paid in excess of 10% of your total income to the extent to which such excess does not exceed i) 25% of your total income or ii) Rs 2,000 per month, whichever is lower.

Section 80C

Generally, Section 80C is synonymous with deductions available in respect of payment of life insurance premiums or investments in Public Provident Fund (PPF), National Savings Certificates (NSCs) and tax-saving mutual funds (ELSS).

However, even tuition fees paid to any school or college for full-time education of up to two children is allowed as a deduction. Also, recently, investments in Nabard bonds, senior citizen saving schemes and post office term deposits have been added to the list of eligible investments.

Public Provident Fund

Regarding PPF, most know that deduction is available in respect of contributions made in the name of self, spouse or children. However, did you know that the combined investment limit for yourself and your minor children is Rs 70,000? We have come across several investors who invest Rs 70,000 for themselves and additionally in the name of minor children. This is not allowed under PPF rules.

Housing finance

With respect to housing finance — the principal portion of the EMI paid in respect of your house is deductible. However, in order to claim the deduction, the house needs to be owned for five whole years. If you sell your house in the interim, the earlier deductions claimed are to be added back to your taxable income in the year in which the house is sold.

Section 80E

Yet another deduction is Section 80E, which offers a tax break in respect of education loans. Interest paid on the loan is fully deductible without any limit for eight successive years starting with the year in which the interest is first paid. Earlier, this deduction had a ceiling of Rs 40,000. Also, it used to be available only to the person taking the loan. So if a student were to take the loan, he/ she didn’t really have the taxable income to avail the deduction.

And if parents were to take the loan, the deduction wasn’t available to them as it was not used for the parents’ education but that of the child. Thankfully, this anomaly has been corrected and now interest paid on a loan taken for the education of children and even the spouse may be deducted.

Capital gains

The Securities Transaction Tax (STT) paid is not allowed as an expense in calculating your capital gains. Secondly, in respect of adjusting capital losses, note that any capital loss can be adjusted against capital gain income only and not against any other type of income.

However, the taxable capital gain may be adjusted against other losses such as business loss or loss under house property. Even within the umbrella of capital losses, note that though short-term loss may be adjusted either against short-term gains or taxable long-term gains, any long-term loss can be adjusted against taxable long-term gain only.

Unadjusted capital losses may be carried forward to be set-off against eligible capital gains for eight years. However, this facility is not available if the tax return is not filed within time.[Story Source]

This post was submitted by Rishi Kumar Maurya.