26 Sep 2015 16:24 IST

Getting your head around personal tax

Our protagonist Ravi, with the assistance of his Chartered Accountant friend Tina, learns how to file his taxes and so can you

Ravi realised that the due date for filing the income tax return had passed and he had missed filing his tax return. What would be the implications? Can he pay his taxes and file his returns now?

Ravi had earned a salary from his job at a consultancy firm and also made some investments in shares and mutual funds. He contacted his friend Tina, a Chartered Accountant, for advice. Tina explained to him the basic requirements under the Indian income tax law.

Basic requirements

The Indian tax system follows the system which considers the period from April 1 to March 31 as a financial year.

The tax return is generally due on the July 31, immediately following the end of the financial year. The tax returns can be filed on the website of the Income tax department.

Belated returns

However, Ravi was happy to hear that although he had missed filing his return by this due date, he could still file a belated return by 31 March 2017. Belated returns can be filed within two years from the end of the financial year.

Though there are a few drawbacks of filing a belated return as compared to a return filed on time.

If the return is filed late, it cannot be revised later if the individual notices a mistake in it and wants to file a corrected return. If losses are incurred, the same cannot be carried forward for adjustment against income of future years in case of late filing of return. Also, if taxes are due to be paid, then an interest would be required.

Taxes on salary income would already have been deducted at source by Ravi’s employer on a monthly basis and paid to the Government. Ravi would be responsible to pay taxes on other income such as gains from investments etc, while dividends on approved mutual funds are exempt from tax. Banks also deduct taxes on interest income in certain cases.

Ravi looked worried. How would he know the amount of taxes deducted by his employer and the banks?

Form 16

Tina, his chartered accountant friend, clarified this for him. The employers need to issue a Form 16 which summarises the salary paid and taxes deducted, at the end of the financial year to each employee. Banks also issue similar statements. Apart from these, using the tax payer’s username and login, a statement showing taxes remitted in relation to the Permanent Account Number (PAN) of the individual can be downloaded. Any taxes remaining to be paid would need to be paid by the individual.

Individuals are generally required to pay taxes in advance on a quarterly basis on income on which tax is not deductible. This would help reduce interest on taxes due to be paid at the end of the year.

Further, in calculating his taxable income, Ravi can claim deduction for contribution to Provident Fund, principal repayment of housing loan and other specified payments up to a maximum of Rs 150,000. Deductions are also available in relation to medical insurance premium paid and donations.

What about the apartment Ravi had recently purchased? Tina explained that since Ravi was living in his new apartment, he would get a deduction of up to Rs 2,00,000 for the interest he was paying in relation to the housing loan that he had taken. If a property is let out, then the income received would be taxable after considering standard deduction and also deducting the interest amount for loan, if any.

Apart from details of income and taxes, other information, such as details of bank accounts are also required to be provided in the income tax return.

Further, detailed disclosure requirements are specified in relation to foreign assets owned by a resident individual.

Taxed on foreign salary

Ravi was planning to take up an assignment in the US next month. He had a question - Will he be taxed on the salary received abroad as well? Tina pointed out that the critical aspect of determining taxability in India for an individual, like in most countries, would be the residential status. The residential status is determined based on the duration of the individual’s stay in India during the financial year concerned and preceding financial year. Therefore, it is important to keep track of travels.

While Ravi would not be taxed in India for salary received abroad if he is considered as a non-resident, this would not be the case if he is classified as an ordinarily resident. If Ravi is considered ordinarily resident, he would need to offer his worldwide income to tax in India. Of course, he can claim deduction/ benefit that may be available under the tax treaty between India and USA.

Ravi thanked Tina for her inputs and Tina wished him the best for his assignment he would be travelling to the US for.

(Views expressed are her personal)