1. Identifying your sources of income under these income heads.
- Income from Salary
- Income from House Property
- Income from Capital Gains
- Income from Business/Profession
- Income from Other Sources
2. Keeping documents ready
Check out which documents you need to keep handy in order to calculate your tax.
Which Documents to Keep?
Identify your income sources and place them under the right income heads. Accordingly, you would need documents. Here’s a list.
Income from Salary
- 4Form 16
- 4Form 12 BA
Income from House Property
- Particulars of tenants, including their PAN
- TDS certificate 4Gross rent received
- Advance tax challans
Income from Capital Gains
- Contract notes
- Advance tax challans
- Sale/purchase documents of moveable/immoveable assets
Income from Business/Profession
- Profit/loss account 4Balance sheet
- TDS (tax deducted at source) certificates
- Advance tax challans
Income from Other Sources
- All documents related to income
- TDS certificates
- Advance tax paid
3. Computing the gross total income (GTI)
Add up your earnings from the five income heads to arrive at total taxable income.
How to compute your taxable income
We have prepared a worksheet for you, wherein you can fill in your income and expense details under various heads and compute your gross total income, deductions and total taxable income.
Now that you have got your papers in order, how do you calculate your tax liability and figure out whether you need to pay more tax, get a refund, or have done it right? To do that, you will have to add up your total earnings from various income sources. This will give you the gross total income. To get your total taxable income, you will have to subtract the standard tax deductions (Section 80) from the gross income. Here’s a look at the five income heads and what they include.
Income from salary
Gross salary includes basic salary, commissions, allowances and perquisites. Subtract certain deductions from this. The balance is charged under the head ‘salary income’. Your basic, allowances, commissions and bonuses are fully taxable.
4. Calculating deductions
Add up all your Section 80C and non-80C deductions.
House rent allowance (HRA). This is exempted up to a certain limit if you are actually paying house rent. The lowest of three amounts, actual HRA received, rent paid in excess of 10 per cent of basic salary, and 40 per cent of your basic salary (50 per cent for Mumbai, Kolkata, Delhi and Chennai), would be exempted. Conveyance allowance up to Rs 800 per month is exempt from tax.
Leave travel allowance (LTA). It is a reimbursement for travel expenses that you and your family members incur within India while you are on leave. While LTA can be paid to you every year, it is treated as tax-free only for two journeys in a block of four years. Both these journeys can be made in any one of the four years or spread out over the four years.
5. GTI minus deductions.
Medical allowance. Reimbursement of medical expenditure incurred by you and your family is tax-free up to Rs 15,000 per annum. All reimbursements need to be supported by bills.
Perquisites. These are benefits that you get in addition to your regular salary. These are usually in the form of accommodation, car and concessional loans. The total of all perquisite values is added to the salary and tax is calculated on the usual slabs.
Premium for group medical and term insurance paid by your employer escapes the tax net. However, you need not worry about calculating all this. Your employer will give you Form 12BA, which will show the value of your perks as part of your salary.
6. Calculating total taxable income
Income From House Property
Rental income from a residential or commercial property that you own is taxable. If you have more than one house property and one is self-occupied, then even if the other properties are not rented out, they will be treated so and the implied rent, based on annual value of the property, will be taxed.
The gross annual value is the highest of the municipal value, the actual rent, or the fair rental value. Preferential treatment is given to one self-occupied house, whose annual value is taken as ‘nil’. The interest payable on home loans is tax-deductible up to Rs 1.5 lakh a year.
Income from capital gains
Now, let’s assume you made certain capital gains last year. If you held real estate, gold or silver for more than 36 months, they will be termed as long-term assets. Otherwise, they are short-term assets.
However, shares and equity mutual funds (MFs) are short-term assets if you hold them for a year or less and long-term assets otherwise.
Short-term capital gains are included in your gross total income and taxed according to the slab in which your income falls. Except listed securities, long-term gains made from all other asset categories are taxed at 20 per cent with indexation.
Gains from shares or equity MFs are tax-free in the long term. These gains are taxed at 15 per cent in the short term, provided, of course, that the securities transaction tax has been paid.
7. Calculating tax payable
Your total tax liability may stand reduced if some tax has been deducted at source (TDS). Subtract TDS from your total tax liability to get the final amount to be paid as tax.
Income from business/profession
In case you have income from a business or you are in a profession, the excess of gross receipts over expenses incurred to earn it will be taxed under this head. A person earning his living in a profession such as law, medicine, engineering, architecture or technical consultancy, whose total gross receipts from that profession exceed Rs 1.5 lakh per annum, is required to maintain books of accounts.
Income from others sources
Usually, any income that does not fall under the four heads of income mentioned above is taxed under this head. Examples of such income are, interest earned on bank fixed deposits, savings account and National Savings Certificates.
Now that you have the numbers right, you can proceed to the final act of actually filing your taxes.
8. Finding your tax rates
Check out how the separate categories of women, senior citizens and ‘others’ are taxed.
How much tax to pay?
Individual taxpayers are catgorised as women, senior citizens and others. Identify your category and check out your tax liability according to the tax slab applicable for assessment year 2009-10 or financial year 2008-09
Tax rates for ALL except senior citizens and women
Up to Rs 150,000: Nil
Rs 150,000-300,000: 10% of total income exceeding Rs 150,000
Rs 300,000-500,000: Rs 15,000 +20 of total income exceeding Rs 300,000
Rs 500,000-1 million: Rs 55,000 +30% of total income exceeding Rs 500,000
Above Rs 1 million: Rs 205,000 +30% of total income exceeding Rs 1 million
Tax rates for Senior Citizens
Up to Rs 225,000: Nil
Rs 225,000-300,000: 10% of total income exceeding Rs 225,000
Rs 300,000-500,000: Rs 7,500 +20% of total income exceeding Rs 300,000
Rs 500,000-1 million: Rs 47,500 +30% of total income exceeding Rs 500, ,000
Above Rs 1 million: Rs 197,500 +30% of total income exceeding Rs 1 million
Tax Rates For Women
Up to Rs 180,000: Nil
Rs 180,000-300,000: 10% of total income exceeding Rs 180,000
Rs 300,000-500,000: Rs 12,000 +20% of total income exceeding Rs 300,000
Rs 500,000-1 million: Rs 52,000 +30% of total income exceeding Rs 500,000
Above Rs 1 million: Rs 202,000 +30% of total income exceeding Rs 1 million
Taxable income level
10% surcharge on income above Rs 1 million, 3% cess on tax payable
9. Choosing the correct income tax return (ITR) form.
Based on your income sources, you need to choose your ITR form.
The Final Act
Once the documents and the maths are done, the process of filing tax enters the final phase. Get going now instead of getting bogged down later.
Which form to fill?
The return form that you would need to fill will depend on your income sources:
ITR-1: For individuals having income from salary, pension and interest earned in the financial year
ITR-2: In addition to the above income sources, income from capital gains, income/loss from house property and income from any other source
ITR-4: For all individuals having income from a business or profession
How to file your returns?
You can file your returns offl ine or online. However, before doing so, check whether you still have a tax liability. In you are still to pay taxes, do so through Internet banking or through cash/cheque at any bank along with Form 280.
In both cases, you will get a receipt number which will have to be quoted in your income tax return (ITR) form
Fill ITR yourself or take a CA’s help
Submit it at the IT office
Get an acknowledgment
Input details of Form 16 in ITR
To submit ITR physically, take its printout to the IT office and get an acknowledgement
If you want to send tax details to the IT department online and don’t have digital signature (DS):
Save XML file, upload it on IT department site
Download ITR-V (acknowledgement)
Courier ITR-V at IT office (if you have DS, there’s no need to do so)
Now that you have sorted out the documents needed to file your tax returns and worked out the mathematics, you just have to transfer the necessary information to the income tax department in the prescribed format by filling out a tax return form and depositing it.
Once that is done, your task is over — for this year. Here’s what to do:
Which form should you use?
There are two income tax return forms, ITR-1 and ITR-2, for salaried individuals. Your sources of income (they will fall under one or more of the five income sources mentioned in the earlier articles) will decide which form you need to use.
Use ITR-1 to file your tax return if your income is from salary, pension or interest. In case of any capital gains, income or loss from house property and income from any other source, you will have to file ITR-2. You can go to http://www.incometaxindia.gov.in/download_all.asp to download any of these forms.
You will find ITR-1 fairly simple to fill. A prerequisite for the exercise is Form 16, the certificate that comes from the employer. It shows the tax deducted at source (TDS) from the income chargeable under the head salary.
ITR-1 is almost a replica of Form 16. You just have to pick the numbers from Form 16 and put in the ITR form.
That’s the end of your job. After this, all you have to do is deposit this form. You will need to fill up ITR-2 if you, as a salaried individual, have made any capital gains. That would require putting in the Form 16 figures in ITR-2 in the same way as you did in case of ITR-1.
In addition, you will have to fill in the capital gains or income, if any, from house property and securities.
If your income is from business or profession, which means that you are not a salaried person, you will need to use ITR-4. This form is slightly more complicated than the other two and you will possibly need the help of someone trained in preparing a tax return, preferably a chartered accountant (CA).
10. Filing returns
You can file your returns offline or online.
Remaining Tax Liability
Subtract your TDS from the tax liability that you computed earlier to ascertain if you are still to pay any taxes. If you still have a tax liability, get hold of Form 280, fill it up and deposit it in any bank along with the tax payable in cash or cheque before filing your returns.
You can also pay this through Internet banking. In both cases, you will get a receipt number, which has to be quoted in the ITR form.
What to do for refunds?
If you are entitled to a tax refund, in addition to your contact details, enter your bank details in the form. It is equally important to mention the MICR number of your bank branch. MICR is a 9-digit number mentioned next to the cheque number in the cheque leaflet. If you file your return on time, you will get interest on the refund amount from the beginning of the assessment year.
How to file?
The actual filing of return can be done either by using the traditional paper form or electronically over the Internet.
Offline: Under the offline method, you will have two options — you may either submit the ITR form at the nearest income tax office (ITO) after filling it up yourself, or you may get a CA or a tax return preparer (TRP) to do it for you.
You may also take help from the public relations officer of the ITO to fill the form. No documents or investment proofs need to be attached with the form, but remember to bring photocopies or originals with you to the ITO.
These will come in handy if you are asked to authenticate your numbers. The CA would charge a fee in accordance with your income slab and the number of income sources. Typically, it would range from Rs 300 to Rs 2,000.
Online: Known as efiling, this method is fast catching up. Ankur Sharma, managing director, TaxSpanner.com, an efiling site, says there has been an increase in efiling this year over last year. “Unlike last year, when efiling picked up only in June, activity has been building up since May this year,” he says.
Last year, nearly 4.8 million returns were e-filed. Out of this, 4 million were by individuals and non-corporate entities.
Sharma says availability of digitally signed Form 16 from the employers is making efiling popular. He says: “Employees who have digitally signed Form 16 would simply have to send it to us and their returns would automatically be filed. They wouldn’t even need to fill up the form.”
Filing returns online is compulsory for companies, but optional for salaried individuals. In the future it will become compulsory for individuals with a certain level of income, so it may not be a bad idea to familiarise yourself with the process.
In order to efile your returns, you will have to input the details of Form 16 in the software of the website, which would automatically generate an electronic return in XML format.
This format helps in sharing of structured data across different information systems. A PDF file of the relevant ITR form is also created along with the XML format on the desktop of your computer. You can download this ITR form, submit it at the ITO and get an acknowledgement.
Alternatively, save the XML file on your desktop and then upload it on www.incometaxindiaefiling.gov.in, the government site. Private sites upload it on the government site on your behalf. You will get the acknowledgement by email.
Using Digital Signature
Using a DS will help you complete the efiling process without paperwork and visits to the ITO. In case DS is used, the acknowledgement is emailed to the taxpayer.
Why DS? Though not mandatory, it is advisable to use a DS for filing your return electronically. A DS authenticates electronic documents in the same way as a handwritten signature authenticates printed documents.
However, using a DS makes efiling a little expensive — every website has its own charges and it has a validity of one or two years. The cost of DS may be built into the package you choose.
How to get a DS? A DS can be acquired from any of the agencies authorised by the government for the job, including the private and government websites meant for filing tax returns. To get your DS from a tax site, download the relevant form, fill it up, attach the required documents, such as your identity and address proofs, and courier them to the address concerned. The entire process of acquiring a DS may take around 15 days.
E-filing without DS
E-filing without DS is equally convenient now. After filing the returns online, the taxpayer receives an acknowledgment called the ITR-V. Till last year, ITR-V had to be submitted at the nearest ITO, making efiling a manual affair at the end.
From this year, this form just needs to be couriered to a specific IT office in Bangalore making the process convenient for assessees.
The government too has a site that offers this facility free of cost. The site is: http://www.incometaxindiaefiling.gov.in/portal/index.jsp. You will have to use your Permanent Account Number (PAN) as the username for registering on this site.
All the three non-government sites mentioned above are secure and easy to navigate. They are different from each other on two major counts — the number of income sources they cover and the process.
Get clarity on the cost and features offered before opting for one. Says Ravi Jagannathan, managing director of http://www.taxsmile.com, “Check if special cases like arrears or clubbing of income are also taken care of.” This will save the pain of starting the process all over again.
The cheapest package would normally cover only salary income. You may require the advanced version if you have income from other sources. Taxspanner is the only private site through which you can fill ITR-4, meant for individuals with business or professional income.