31 March is a date which marks the end of beautiful 365 days or the end of a financial year. A period, which is considered as a good number of days for identifying how we did ‘financially’. As an aftermaths, we must compute our incomes, pay the due taxes and file our tax returns. I would admit upfront that there could be hundreds of Income Tax Filing Do’s & Don’t when it comes to tax computations and filings – thanks to the complexity and scale of the Income Tax Act. However, this post doesn’t aim to cover the entire set of complexity.
I am noting down few key points which I frequently come across while filing the tax returns for my clients and can be easily avoided by early diligence & review. As and when I come across more, I will add to this list.
- Archive All that Data – Take the opportunity to extract all financial records and archive them for future references. Examples include your bank statements, salary slips, TDS / Tax slips, insurance premiums, investment records, assets and loans / liabilities. Archiving them yearly may be of great help for quick future reference, for tax or any other reasons;
- Form 26AS, The Holy Grail – Extract Form 26AS from your income tax login and match it against the tax deducted against your incomes. It is one of the most common issues whereby owing to errors (or frauds), tax deducted on your account may not be paid to the tax man. Or if it is paid, your PAN is not accurately reported by the tax deducting person / Company. This would eventually result in tax demands being made by the tax man from you. You may get more details about Form 26AS here > Form 26AS – See How Much TDS Got Deducted
- Tax Audits – Don’t forget to get your books audited if your total turnover / sales cross 1 crore mark. If you accept digital payments (95%), this limit is 5 crores for you. A specific call out for those folks who did a lot of stock trading turnovers this year > if you crosses these thresholds, please get in touch with your CA in time.
- Delay in Filing – You do not need to wait till the last date of filing the returns or any extensions thereof. Remember, it is a yearly exercise. If you delay this year, you will have next year’s efforts coming your way within a few months. In addition, delayed filing could cost financial penalties of upto Rs. 10,000 and also prevent you from carrying forward of any tax losses. These losses come handy in setting off against future gains, thereby reducing tax payouts.
- Capital Gains – Many people have dabbled in stock markets recently. I have come across a few who think that gains from stock trading is a tax free income. No it isn’t. You may be in for a rude shock with those assumptions. For past 2 years, capital gain reportings have become onerous and most of the trading / investment applications provide necessary reports to make this task possible. If in doubt, please contact a Chartered Accountant.
- Form 16 Errors – I have often come across cases where Form 16s have grave errors. Its contents may not match with payslips and at times within its different parts. If you spot that early enough, you will have a chance to get it corrected in time for your tax filings. Hence please open up that Form 16 email from your HR and confirm if it matches with your records;
- Interest Incomes – Do not forget that interest income accruing in your bank fixed deposits. Download the Bank Interest Certificates and disclose the income.
- Overseas Assets – If you have lived overseas and are now back in India, it is likely you may have overseas assets. These could include your bank accounts, investment balances, properties outside India. Even if they don’t accrue any income, you need to disclose them ‘mandatorily’ !
- Disclosure of Assets – For those lucky folks whose incomes are beyond 50 lakhs, you are required to disclose all your assets and liabilities each year. This simple looking disclosure can bite back if you miss a material asset one year and add it to the next year. You will let the tax department guessing > how come this person added this extra piece of asset whose value goes beyond the yearly taxable income. Please be diligent here and do the maths well to avoid a tax notice.
- Dividend Incomes – From 1 April 2020, dividend income has become taxable. In many cases, the related tax (TDS) has been already deducted any reported to the tax man with your PAN details. Do not forget to report Dividend income and pay tax on it.
- Bank Statement Transactions – You should consider downloading the entire transaction statement of all your bank accounts in Excel. Add another column in the transaction history and add brief remarks for future reference. Examples could be ‘Dividend’, ‘Interest Income’, ‘Investments’, ‘Loan EMIs’, etc. Not only it will help in quick compilation of your tax returns, but also help in spotting any odd transaction which missed your eye.
Being a Chartered Accountant, I personally have to refer the Income Tax Act multiple times during the busy tax filing period. While hating the complexity of the tax code, I have often chuckled that till such time this complexity is maintained, the demand for CAs will be always be there. One may call it as the cost of earning income. In case you need help, please feel free to contact us via firstname.lastname@example.org