A first job is both exciting and memorable. With it comes the thrill of a first pay cheque and some responsibility too. Now that you have become an earner, you are likely to be a taxpayer as well. Here are some tips that help kick start your tax return filing:
What is the good in filing tax returns?
Tax filing is compulsory if your total income in a financial year exceeds the minimum income which is exempt from tax ie Rs 2.5 lakh. Even if your taxes have been paid in full, you should still file a tax return if your income is above this threshold. Those who are seeking a refund, can get it by filing a return. Having a proper trail of filing also helps in securing loans and visas.
What is assessment year?
Most of us know financial year is the 12-month period that begins on 1 April and ends on 31 March. Your taxes are calculated for this period. Say if you started working in June 2015, your financial year is 2015-16 which ends on 31 March 2016. The assessment year is the year in which tax return is filed for a financial year. The assessment year is 2016-17 for financial year 2015-16. It is the year in which your income details are submitted to the tax department. While preparing your return, you must make sure you select the assessment year correctly.
How should I prepare my tax return?
If you always saw your parents do a paper return, those days are long gone. E-filing of your tax return is compulsory if your annual income exceeds Rs 5 lakh. If you are salaried, some e-filers allow you to upload your Form 16 and your return is automatically populated. Form 16 takes care of your income from salaries. But your income tax return should include every income earned by you. Do you have any interest income from a fixed deposit or a savings account? Include that in your tax return under ‘income from other sources’. If there is any income from a prize or internship or rental income that should be included too.
From your gross total income ‘deductions’ can be claimed. These deductions reduce your total taxable income and you end up paying lower tax. Make sure you make the most of them. The most popular deductions are section 80C and section 80D. You can claim it, if you are enrolled for EPF, deposited in PPF or invested in ELSS during the financial year. Under section 80D, deduction is allowed for medical insurance.
What should I do about TDS?
Your employer deducts TDS from the salary you are paid. The bank cuts some TDS on your interest income. Anybody who pays you cuts some tax on the payment. This helps the government get its share of taxes as you get your payment. This tax deducted on your income is called TDS. TDS is linked with your PAN. You can locate all the TDS deducted from your income in one document called the Form 26AS. At the time of filing your tax returns, TDS that appears in your Form 26AS is adjusted against your tax dues. If higher TDS is deducted, you are eligible for a refund. Or your return will show a tax due if TDS was short. You must pay any dues before submitting your return.
Anything else I should keep in mind?
Remember to verify your return after submitting it. After your return is submitted, an acknowledgement is received from the tax department. You should now verify your return. This can be done easily via net banking through your bank account or via Aadhaar OTP. Verification is a critical step to return filing. A return which is not verified is not considered filed.
Remember to disclose stocks of your employer which are already vested, if they are listed on a stock exchange outside India. It is mandatory to include these foreign assets in your tax return.
Make sure you mention your personal email id in your return and keep track of all communication received from the tax department.
This article was published in Banking Frontiers on 18 July 2016.