Income Tax Return (ITR) is a form in which taxpayers submit information about their income and tax payment to the income tax (IT) department. The Income Tax Act and the IT rules require Indian citizens to compulsorily file their returns with the IT department on or before the due date mentioned. While taxpayers understand the significance of income tax, filing ITR has always been a taxing and cumbersome process for them. The forms, nomenclature and jargons in it are complicated. Missing out a small detail could lead to huge consequences. The following are the challenges faced by taxpayers while filing ITR.
- Finding the Right Form for Filing ITR
There are seven different forms provided by the IT Department for the taxpayers to report their income, claim deductions or rebates and receive a refund. The seven forms are ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7. A complete understanding of each of these forms is very important to file the returns accurately. Choosing the ITR form is based on the taxpayer’s nature of income and the category to which he belongs to. For instance, ITR-1 or Sahaj has to be used by salaried class of taxpayers with income up to INR 50 lakhs from salary and with no capital gains income and ITR-3 has to be used by individuals with income form business or profession.
Thus computation of income and knowing which ITR form to fill is tricky and challenging. Selecting the incorrect form is one of the common mistakes committed by the taxpayers. In case of filing the returns on a wrong form a taxpayer will get a defect notice from the department and the return will not get processed.
- Computation of Taxable Income
A taxpayer might be getting income from various sources like rental income from house property, fixed deposit interest, long term capital gains, income from business etc. The first challenge in this is to keep a track of all these sources of income.
According to the IT laws, some of these incomes are tax- free and deductions and exemptions can be claimed on some of the incomes. Computation of taxable income can be a daunting tax with the ever-changing tax laws and new jargons being added every day. It is very important for the taxpayers to decipher what portion of their income is taxable and what they can save.
- Calculating Deductions
IT deductions are tax-free expenses made during the year. These must be subtracted from the gross annual income at the time of filing returns. So, deductions offer a gamut of opportunities to lower the taxable income and ultimately lower a person’s or organization’s tax liability. By investing, saving or spending on certain expense one can avail a tax deduction.
Some of the common deductions include: As per 80C of the Income Tax Act, 1961, taxpayers earning upto INR 1.5 lakh per financial year can save tax by invetsing in various financial products like PPF, EPF, Mutual Funds or by choosing payments like kids’ tuition fees. Sec 80D is a deduction one can claim on medical expenses. Homeowners have the option to claim up to Rs. 2 lakh as a deduction for interest on home loan for self-occupied property. Sec 80G of the IT Act offers deduction on donation to charitable organizations. However certain restrictions are applicable for the above. There are several other deductions available under various sections of the Income Tax Act.
Taxpayers may not be aware of all these deductions and allowances which they can avail. This is a huge challenge and can make it difficult to calculate the tax-savings
- Mentioning the Correct Tax Deducted at Source (TDS)
Form 16 and 16A are tax credit statements that have a summary of the amount paid to employee and the tax deducted from the income of an individual or company. These statements confirm that the tax has been deducted by the employer and he hass deposited the same with the IT department.
Form 26AS is a government record of the tax deducted from an individual or company.
TDS should ideally be the same in Form 16 or 16A and 26AS. However, sometimes there might be a mismatch in the TDS amounts in the two statements due to reasons like non-filing of returns by the employer, filling incorrect details like wrong assessment year or PAN number etc. All these could lead to delays in filing the returns.
- More than One Form 16
When a taxpayer switches jobs during the financial year they need to get Form 16 not only from the current employer but also from the previous employer. This can be challenging as the taxpayers have to aggregate their incomes from both their employers and many are not sure how to do it. The problem becomes more complex if the taxpayer has invested money regularly in tax-saving products.
- Unable to get HRA tax relief
House Rent Allowance (HRA) is a salary component paid by the employer to employees to meet their house rent expense. This allowance for house rent is given by the employer for the welfare of the employees. Salaried employees are eligible for HRA exemption for the income tax that they are required to pay in a financial year. However, tax exemption on HRA can be claimed by the employee only if he is residing in a rented house. Section 10 of the IT Act deals with the HRA and the exemption from tax can be claimed partially or fully.
Calculation of HRA exemption is important as it helps to know how much tax exemption one can avail on the income. However in order to make use of this allowance all the required documents like rent receipts, rent agreement and PAN of the landlord in case the yearly rent exceeds INR 1 lakh have to be submitted to the HR department of the company in which the taxpayer is employed. This is challenging as one cannot avail this benefit even of one these documents is missing.
- Submitting all the Tax proofs to the Employer on Time
Every year salaried employees have to submit investment proofs so that their employers deduct the right amount of TDS. Various IT deductions and allowances are calculated and allowed only on the basis of the proofs submitted by the employees. For instance, one can claim various allowances like HRA, Leave Travel Allowance, children’s tuition fee, health insurance premium by submitting the appropriate receipts and invoices. Also proofs for tax-saving investments like investment in NSC, LIC also have to be submitted.
Deduction from taxable income is based only on the actual proofs submitted by the employee and not on the amount declared. Submitting all the investment proofs on time to the employer is a challenge.
- Remembering Login Credentials
Since filing of returns is a onetime affair it is very possible to forget one’s ITR account password. Recovering the password if a tedious affair. One must keep a note of one’s password and other credentials.
- Unable to Pay Advance Taxes on Time
Advance tax payment is mandatory for all assesse whose estimated tax liability is above INR 10,000. Advance tax is calculated by applying the tax slab rate on the estimated income of an individual for the concerned year. Advance tax is to be paid in 4 instalments
- On or before June 15th– 15% of Advance Tax
- One or before September 15th– 45% of Advance Tax Minus Previous Instalment
- On or before December 15th– 75% of Advance Tax Minus Previous Instalment
- On or before March 15th– 100% of Advance Tax Minus Previous Instalment
In case of late payment of advance tax, 1% of interest is applicable as late fee. Therefore a taxpayer must ensure that all the tax dues are cleared on or before 31st March of the financial year.
- Filing of the Returns At the Last Moment
Filing of IT returns at the last moment or in a hurry to meet the deadline can result in mistakes like mentioning the wrong bank account number, claiming or forgetting to claim a deduction etc. Leaving ITR filing until the last minute can create several complications. So it is better to get started with the process much earlier than the deadline and avoid various consequences including levy of mandatory fee.
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