Photo credits : Alan Cleaver
Income tax authorities allow you to self assess your income and accordingly pay taxes. Many people tend to believe that his/her income tax return is a drop in the ocean for the income tax authorities and hence not declaring income or understating income may well be worth because it saves you a few bucks. Deliberately hiding your income from the income tax authorities, to reduce your tax liability, amounts to tax evasion. Some examples of tax evasion include, not declaring interest received on bank fixed deposits or accepting income in cash and not route it through the official system.
There is a perception among several individuals that having paid taxes via TDS, filing of returns is not important, because after all, the government’s main objective is to ensure that its tax kitty is getting the revenue due to it. This is a misconception and it is essential to know that it is our constitutional obligation to file tax returns when you are required to do so. So your job does not end at paying taxes, filing returns is equally important. This brings you to the question –
When does it become essential to file returns?
It is essential to file returns when your income crosses/exceeds the basic exemption limit even if it means that on account of you investment planning, your tax obligation may be nil. So for FY 2009-10, filing of tax returns is essential if
- Individuals have taxable income exceeding Rs.160,000 p.a.
- Women have taxable income exceeding Rs.190,000 p.a.
- Senior Citizens have taxable income exceeding Rs.240,000 p.a.
Tax Evasion
Income tax authorities allow you to self assess your income and accordingly pay taxes. Many people tend to believe that his/her income tax return is a drop in the ocean for the income tax authorities and hence not declaring income or understating income may well be worth because it saves you a few bucks. Deliberately hiding your income from the income tax authorities, to reduce your tax liability, amounts to tax evasion. Some examples of tax evasion include, not declaring interest received on bank fixed deposits or accepting income in cash and not route it through the official system.
Methodology
In order to pick up cases of likely tax evasion, the tax department uses a computer-aided scrutiny system (CASS) that picks up cases by inputting various criteria. You may just be the unlucky one and you can come under scrutiny which is inviting trouble for yourself as you will be required to furnish all details that he asks for which could include, bank account statements, list of all assets owned by you and your family, details of all family members who reside with the you, and then the tax officer will do a match analysis of income and expenditure to figure out the amount of tax evasion.
The income tax officer can serve the scrutiny notice within one year from the end of the month in which you have filed your return. So, if you had filed your return of income for the FY ended March 31, 2008, on July 24, 2008, you may get a notice any time on or before July 31, 2009. The notice will be in a fixed format with your name, address PAN and the year in which it is issued and time and date when the tax payer should appear before the income tax officer. The tax payer need not appear personally before the income tax officer. He can authorize a representative to plead his case.
Impact of tax evasion
Individual found to be concealing income will be charged a penalty and that amount can be anywhere up to 3 times the amount of tax evaded. So if your tax evasion amount is Rs. 50,000, if your account is under scrutiny, you may have to pay a penalty of anywhere between Rs. 50,000 and Rs. 150,000 on a case to case basis.
Coming under the tax man’s scanner is certainly not a pleasant experience as it can be emotionally and mentally draining. Hence it makes sense to comply with the income tax regulations and file your returns correctly. In trying to save yourself a few bucks, you don’t want to be in a situation where you have the tax men chasing you resulting in sleepless nights.
Filing returns has advantages and hence it may make sense to file returns even if you’re not needed to because it is an important document that has a lot of weightage.
| Particulars | Pros | Cons |
| Fulfilling proof requirements | Income tax papers are an important document that comes in very handy when you are applying for a loan or an insurance policy or even when you’re applying for a visa to travel abroad. It is a proof of your income and other important details such as PAN card, address among other things are mentioned. This will ensure quick processing thus reducing hassles. | Not having the Income tax return proof can result in difficulty especially when it is a pre- requisite for may be a loan or an insurance policy or for completion of visa formalities. |
| Tax refunds | On the basis of the tax return filed, refund is paid at an interest of 8% p.a. with retrospective effect from April 1 of the year. | If you have not filed your return, but TDS has been deducted in excess by your company, unless you file your income tax return, you will not get a refund and hence you may end up losing money. |
| Income Official scanner | Filing accurate returns saves you from the hassles of getting caught by the income tax officials | If you come under the tax official’s scanner, then you may end up having to pay tax with interest on the tax amount payable and penalty too. Besides, you will also be stressed as you need to fulfill all the needs of the income tax authorities in terms of documentation. |
Documents to be kept handy for filing returns
In order to calculate your tax liability and file accurate returns, it is essential that you keep all the documents from which data is required handy. The documents required include
- Form 16: This document contains information on your salary and tax deducted by your employer. You need to obtain it from your employer
- Form 16 A: This you need to obtain from the parties who have deducted tax while making payments to you during the year. This includes banks/ companies with whom you have a fixed deposit, parties to whom you have given loan among others.
- Copy of bank statements: This will give an idea of all the income earned and expenditure incurred. This will ensure that you have not missed out on any details which should be part of your income tax return.
- Proof for all the deductions claimed in the return filed i.e. PPF, NSC, Mutual funds, insurance among others
- Documents concerning investment in property: If you have bought any property during the year, you will need details. In case the property has been purchased on loan, all the loan documents along with a copy of the certificate of the payments made is needed.
- Documents on purchase and sale of investments/assets: Keep a track of all your investments in shares, debentures or any other instrument. Record the purchase date and sale date so that you can assess the profit/loss for the purpose of filing returns.
The tax payer is not required to submit any documents at the time of filing returns. However, it is essential that all the above mentioned documents/information should be preserved at least for a couple of years as they may be useful to substantiate the return filed if it is picked up for scrutiny.