Checklist before Income Tax Returns Filing

Income tax return filing is a very important thing for every tax payer. 31st July is the last date for filing of income tax returns for individuals/HUFs and those whose income are not subject to audits. Filing ITR before the deadline has an utmost importance as by doing this we can ensure that we do not lose certain benefits. It is also advisable to develop this habit as starting next year there will be late filing fee, maximum up to Rs 10,000 if return is filed after the notified deadline. So how should we file the returns easily and without any mistakes? A proper planning and documentation makes the life easier. Here is the checklist before filing he returns so that we can do it more comfortably and without errors.

1.      Get all documents in order

The most important thing to start with ITR filing is getting the required documents together. Documents we require vary depending on the types of income you have. 

Documents required for salaried employees are:

a.      Form-16 issued by your employer. This contains all the salary and other benefits provided by the employer.

b.      Form 26AS is a summary of taxes deducted on your behalf and taxes paid by you. This is provided by the Income Tax Department.

c.      Investments made under Section 80C: which includes

                                                               i.     Contribution to Provident Fund

                                                              ii.     Children’s school tuition fees

                                                             iii.     Life insurance premium payment

                                                            iv.     Stamp-duty and registration charges

                                                             v.     Principal repayment on your home loan

                                                            vi.     Equity Linked Savings Scheme/Mutual funds investment

However the maximum amount that can be claimed under Section 80C is Rs 1.5 lakhs

d.      Details of Interest Income: This includes Interest in Saving Account which is exempted upto Rs 10,000 (under section 80 TTA). Interest on Fixed Deposits, Bonds debentures etc. If any TDS is deducted then it will be reflected in For 26AS.

e.      Details of investments under Section 80D for mediclaim

f.       Details related to other specific exemptions under section 80

g.      Other Investment documents, which includes :

                                                               i.     Interest paid on housing loan. Interest on housing loan is eligible for  tax saving upto Rs 2,00,000. This is for a self-occupied house.

                                                             ii.     From FY 2017-18, the total loss from house property available for set off against other income is capped at Rs 2 lakhs and therefore, interest on housing loan is eligible for tax saving upto Rs 2,00,000 for let out property as well.

                                                             iii.     Education loan interest payments exempted under section 80E.

                                                            iv.     Stock trading statement. The stock trades that were made during the year may be taxed under Capital Gain.

                                                             v.     Mutual funds redemptions details to calculate long term and short term capital gains

2.  Match the details

After getting all the documents in order, we should check the tax deducted with for 26AS, so that there should not be anything left out or if there is any discrepancy that needs to be sorted out.

3.  Calculate the tax dues

Before filing ITR, we need to calculate the total amount of tax to be paid. For this we need to take all the incomes apart from salary income i.e. Interest income, capital gains, income from house property and any other income and calculate the final amount of income tax to be paid by us.

Knowledge of slab rates, for instance, can help you compute your tax liability correctly. The slab rate applicable to an individual drawing taxable income between ₹2.5 lakh and ₹5 lakh has been reduced from 10% to 5%. Earlier, an individual with taxable income up to ₹5 lakh was entitled to a tax relief. Now, this limit has been reduced to ₹3.5 lakh. Also the tax rebate has been reduced from ₹5,000 to ₹2,500. Further those earning an income in the region of ₹50 lakh to ₹1 crore will have to shell out a surcharge of 10%. “Surcharge at the rate of 15% continues in respect of individuals with income more than ₹1 crore.

4.  Pay the tax dues

Once we have correctly determined the total amount of tax, we need to subtract TDS from this total and then pay the balance. The balance tax payable can be paid using net-banking facility of your bank or by visiting the bank branch and paying taxes using Challan.

5.  Check the payment in income tax website

Once we have paid your dues, we should ensure that the tax paid is reflecting in Form 26AS too. Although there can be gap of few days between the date of tax payment and the date by when it starts reflecting in the Form 26AS. So if we are filing in last days we may not find the payments there but we can check it later on.

6.  File the correct ITR Form

 We need to ensure that the form we have filed for tax return is correct form and applicable to us as otherwise it would be treated as a defective return. If we file ITR using the wrong form for we may receive notice under section 139(9) from the department asking us to file ITR again within the stipulated time. And if we fail to file revised ITR within the given time, then it will be treated as if you never filed the ITR.  

The I-T department has released seven forms this year –

a.      For salaried professionals or pensioners, the most relevant forms are ITR-1 (Sahaj) and ITR-2.

b.      For self-employed professional or run a small business, you should use ITR-4 (Sugam).

7.  Points to remember while filing the ITR Form

While filing the income tax form we should remember that:

a.  We have reported all the interest incomes earned in the previous year - in this case financial year 2017-18 - while filing ITR. Many people tend to forget mentioning the accrued interest earned on fixed deposits linked to bank lockers, recurring deposits, Bonds/Debentures or interest earned on savings bank account.

b.    We also need to show the Income exempted from tax such as interest earned from PPF account or tax-free bonds etc.. All these must be reported in our ITR under the 'Exempt Income' schedule

c.   While completing the tax return form, ensure that details of all bank accounts correctly, especially the one we have chosen for receiving tax refunds. Verify the bank name, account number and IFSC code we have entered in the ITR form before submitting the return. Tax refunds will be credited by the tax authorities only in the account furnished in the return.

d.   Ensure that we have mentioned our name in the manner it appears on our PAN card. The return will not be processed in case there is a PAN name mismatch.

e.   Do not forget to update your e-mail ID and mobile number so as to receive timely communication from the I-T department, particularly messages related to return and refund processing. Quoting Aadhaar is a must for resident taxpayers.

8.  Verifying the ITR

After filling and submitting the form we need to verify the same. The return won't be considered 'Valid' until it is verified. The IncomeTax department has made the process of verifying ITR easier by offering various ways to verify return including using Aadhaar OTP, net-banking etc. We can use any one of them and verify the same.

Education Loan: An option to enrich your skills even if you can’t afford it right now

Education loan is an option for those students who want to go for higher studies but are restrained due to financial reasons.  Recently Central government is pushing banks to promote education loan schemes. Further there is increased competition among lenders following the entry of NBFCs into this space, this made education loan easier and cheaper as compared to few years back.

An education loan not only funds our higher studies but also help save tax. Education Loan from recognised banks/NBFCs are eligible income tax benefits under Section 80E of Income Tax Act of India. The interest paid on the education loan can be claimed as deduction, as per Section 80E of the Income Tax Act of India, 1961.  

So how should one go for it?

1. Decide the Course and Institution: 

Just because we are getting loan does not mean we should take admission in any course. The decision for a course should be independent of whether it is financed by a loan or not. This decision should be based on what we want to do in future according to that the institute and course should match our future goals.

2. Determine the Amount

Once the course and institution is finalised then we need to determine the loan amount required. We need to consider other expenses also in addition to tuition fees. Like: hostel charges, mess expenses, other incidental expenses, if going abroad then visa and travelling expenses etc. also. After arriving to the total amount we need to deduct the amount our parents are going to contribute. The figure that is left with will be the loan amount required.

3. Analyse the future repaying capacity

After all this is a loan and we have to repay back from our future earnings. Hence we need to see that whether the future earnings after this course which we are doing will be sufficient enough to repay the loan. For that we need to analyse the job prospects of that course, historical placement details and the salary offered. We should consider the average salary and not the top salary offered to get a realistic income numbers. As a thumb rule our EMI should not be more than 30% of the prospective take home salary.

4. Find out the best deal

After determining the amount of loan based on our future payment capacity, we can check with various banks/NBFCs for the interest rates and other terms & conditions. Banks usually give loans at lower rates for premier institutions like IIMs and IITs as compared to other government or private institutions. Lenders also distinguish between students who get admission through the government quota and through the management quota. For foreign courses, GRE/IELTS/GMAT scores is basic criteria on which a student gets the Institution.

5. The Process

Education loans are generally unsecured loan and are cheaper than personal loans but more expensive than home loans. Generally the education loan is to be applied jointly with the parents of the students wherein the parents act as a guarantor for the loan, they can also claim the tax benefits till the student starts repaying the same. Sometime the collateral is also required based on the credit score of the parents and amount required.

6. The Moratorium

Moratorium period is one of the unique feature of education loans. Here the borrower has the option not to pay the EMI for up to 12 months after course ends or six months after he starts working, whichever is earlier. However we should remember that this moratorium is not an interest-free period. The interest keeps accruing for the period we are not paying EMIs. Hence it is always better to start repaying EMIs as soon as possible to reduce the interest burden.

7. The Repayment

Generally the education loans are for up to 10 years which could be extended upto 15 years for big ticket loans—₹7.5 lakh or more. The EMI is less for long duration loans, but the total interest payout is much higher, So one should take the loan for the period based on the repayment capacity of self. Just because we can pay for longer term does not mean to stretch is at the maximum. The interest on education loan is tax deductible under Section 80E for up to eight years, so if possible it is better to pre-pay long duration loans within eight years. We should also pre-pay the education loan if there are better investment opportunities that offer better tax adjusted return than the cost of education loan.

Finally

The education loan is a good opportunity for those who have talent but are constrained by the economic reasons. However this is a loan and we need to asses our repaying capacity based on future income. Since this could be a first loan for a student and will have great impact on his credit score, we need to be extra careful in choosing the course and institute for the same.

Inflation: Is it Good, Bad or Ugly?

Black and White are interesting colours. In few occasion wearing a Black shows the sad situation while for some cases like in marriage or business meetings this is called the formal. Black is associated with Black Magic a negative thing but black long hairs are symbolised as beauty. Similarly white is colour of peace and sorrow for some religions while for some it is for the celebrations (i.e. marriage).

What does it means?

Well as I understand most of the things have two sides and different people look at it through different perspectives. For some it is a sign of happiness for some it may be a symbol of sad and bad things.

Inflation also has two sides, while few countries especially the growing/developing nations are fighting hard to reduce/control it, while on the other side there are countries form developed nations like Japan who are struggling to increase it. Interesting but true.

What actually the inflation is?

As a dictionary meaning Inflation means continuous rise in the prices at a broad level.

In the economic terms it is called as: too much of money chasing too few goods and services.

How Inflation Moves?

When the gap between demand for goods and supply of money is too high, it causes prices to rise at a breath-taking pace. While a low to moderate gap results in a steady but minimal rise in the prices.

So when Inflation can be called as Good?

When the Prices of goods and services in an economy rise moderately and linear way it will be considered as desired.

But why should the rise in prices can be good?

When inflation rise moderately, Companies invest more in their businesses to increase their production to meet the ‘higher’ demand for goods/services. Therefore, more manpower is needed which pushes wages upwards. Money invested in production capacities fetches higher returns, which in turn accelerates the shareholders’ returns as well. This way economy creates more employment opportunities and also increases the wealth of shareholders as well as improves the tax revenue for government. A kind of win-win situation for all the stakeholders.

How high inflation impacts?

Some time there is lot of money/liquidity in the economy which results into such s strong demand that despite investing massively in production capacities, corporations usually fail to meet the demand. This spikes the prices of goods and services resulting them to become almost unaffordable.

This in turn reduces the discretionary income of the majority of households resulting into buying lesser goods. Then Companies suddenly realise that they went overboard with production during the boom time and soon start realising their overheads are unsustainable. This results into layoffs of employees. As people lose jobs, demand for goods and services falls again, followed by the price reductions which someday jumpstarts the economic upswing again.

So, how much inflation is good?

There is no fix formula for it. It depends on that country’s economic growth as well as the rate of inflation elsewhere in the world.  As said earlier, usually, developing nations witness sharp swings in inflation and cost of capital due to lower income and scarcity of capital and other resources.

As the country becomes developed economies the inflation goes down and stabilizes. This is because Economic prosperity reduces price volatility especially the essential items as they are the items which are important but will have some limited demands. (A person will not start eating more if he becomes wealthy).

What is life style inflation?

There is one standard inflation figure which is published by the government agencies. But is it really the inflation number for every person in that economy. The answer is NO.

Every person is unique and has different life style and accordingly the consumption is also different for different persons.

For example a Non-vegetarian person will be more impacted by the prices of fish and meats whereas the vegetarian person may not have any impact.

Twenty years back we use to have one TV in a home now we need in every room. One landline telephone was not just serving the family but the whole area and now every family member needs to have mobile phone in fact many of us carry two-three phones. So the cost of phone lines might have reduced but due to higher consumption our bills have not. One year school fees in a good convent school today would be equal to the amount of total fees paid from Nursery to College thirty years back. Similarly in every aspect of our life our aspirations have gone up and hence the headline numbers have very limited relevance and every person has to analyse his/her own inflation based on their own life style and aspirations.

How it impacts our investments?

So while deciding our future financial goal we need to consider our actual requirements and what kind of inflation it has historically. For example the education fees/ medical expenses rise much more than the headline inflation numbers. Further it could be worse, if inflation spikes up for any reason at a time when our goal is up for the fulfilment. Therefore, make a point to be conservative about the estimation of return on your portfolio and be cautious about the estimate of inflation.

To reach our financial goals and beat the inflation we need to ensure that we are investing in those assets which have capability to beat the inflation Equities and Equity based Mutual funds are those which can give us higher than inflation numbers over a longer period of time.

To Conclude

Inflation is a number based on various economic and social factors, and every individual has a different inflation number based on his own life style and expenses. We cannot say inflation good or bad on its own but other factors make it a boon or a bane. To face high inflation we need to have a proper financial plan in place.