Filing IT Returns For The First Time? Here Is What You Need To Know

By | July 7, 2017

Filing IT Returns For The First Time? Here Is What You Need To Know

Filing income tax for the first time is exciting. At the same time, it can be a confusing and frustrating exercise amid various rules governing exemptions, tax rates, deductions and deadlines.

You are required to file income tax returns if your income is over Rs. 2.5 lakhs. Your total income would include income from salary, house or property, capital gains, business and profession, and any other source. In case, you don’t file your returns, it can invite some penalties from the IT department. If your income is below Rs. 2.5 lakhs p.a. then you are exempt from paying income tax. However, it is a good practice to file income tax returns anyway as a record of filing returns can come in handy in many places.

You can file you returns online(e-filing) or physically by July 31. Filing returns using the online mode is easy and can be done by all the taxpayers. However, if your income is Rs. 5 lakhs and above, it is mandatory for you to file your returns online. Individuals owning assets outside India and whose income needs to undergo an audit are also required to file returns online. Being a safe and secure method, e-filing wins over physical filing as returns can be filed from anywhere and anytime using the internet.

The process of e-filing is simple and you can do it yourself by registering on the income tax department website (https://incometaxindiaefiling.gov.in). You can also take professional help to file your returns.

Let us take a look at a few aspects that a first-time income tax payer needs to know.

Income tax slabs and corresponding tax rates

Not everyone who earns an income needs to pay taxes. There is no tax on annual income of up to Rs. 2.5 lakhs. Here are the tax rates for various income levels.

Income slab for an individual Income Tax rate
Up to Rs. 2.5 lakhs per annum Nil
Rs. 2.5 lakhs to Rs. 5 lakhs per annum 10% of the amount exceeding Rs. 2.5 lakhs
Rs. 5 lakhs to Rs. 10 lakhs per annum 20% of the amount exceeding Rs. 5 lakhs
More than Rs. 10 lakhs per annum 30% of the amount exceeding Rs. 10 lakhs

(It is important to note here that tax rate is 10% (income slab Rs. 2.5 lakhs to Rs. 5 lakhs p.a.) for those who are filing returns for FY16-17. The government has revised the tax rate to 5% for the same salary bracket for financial year FY17-18.)

Here is how you can find out the income tax that you have to pay. If your income is Rs. 12 lakhs per annum, then the tax liability will be as follows, assuming there is no tax saving investment or applicable exemptions.

10% of 2.5 lakhs = 25,000

20% of 5 lakhs = 1,00,000

30% of 2 lakhs = 60,000

So your tax liability is 1.85 lakhs. A cess of 3% is applicable on this tax liability.

Exemptions allowed under various sections and categories

Government has allowed a few exemptions to encourage taxpayers to invest in certain assets that are tax-deductible. The major tax benefits that you could avail is under Section 80C, where you can invest up to Rs. 1.5 lakhs in tax saving assets. There are other categories that provide tax benefits such as Home Loan repayment, NPS, Health Insurance, etc.

In case you are making full use of the Section 80C deduction limits, you can deduct Rs. 1.5 lakhs from your taxable income and pay tax on the balance. In the previous example, your taxable income would go down to Rs. 10.5 lakhs, and your tax liability would reduce to Rs. 1.4 lakhs (10% of 2.5 lakhs + 20% of 5 lakhs + 30% of 50,000) plus cess.

Documents needed to file income tax returns and claim exemptions

You must have a Permanent Account Number (PAN) card to file your income tax returns. At the same time, you have to provide address proof and identity proof. The PAN card works as identity proof too. Your bank account details should also be provided irrespective of whether you expect a refund or not. The Government has recently made it a mandatory requirement to attach your PAN card with the Aadhaar number from 1st July 2017 for filing your tax returns.

Apart from these documents, salaried people need to provide Form 16. The Form 16 is your TDS certificate which is a proof of how much tax is deducted from your income.

If you want to claim tax deduction under any scheme such as 80C, you need to provide the proof for the investments.

If you want to claim deduction under Home Loan repayment scheme, submit the address proof of home, Home Loan interest certificate provided by the lender or bank, and owner’s details.

If you invest in Fixed Deposits, Gold, properties, Mutual Funds, or equities and have made profits, you must file it in your tax declaration. It is important to know the tax rate on long-term and short-term capital gains. Both have different rates. Moreover, the definition of short term varies for stocks, Mutual Funds, Gold, and real estate. Knowing these details will help you file correct tax returns and avoid any complications in future.

Lastly, take help in case of multiple sources of income

Filing tax returns can be complex or simple depending on your sources of income. Each source adds to the complexity of income tax filing. Hence, it is advisable to take help of a competent Chartered Accountant (CA) if you have multiple sources of income apart from your regular job.

(The writer is CEO, BankBazaar.com)

 

 

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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