A dummies' guide to filing taxes, because no one taught us how
Finance noobs assemble!
The thought of reading about tax slabs, investments and capital gains gets my stomach gurgling. Nothing gives me acidity – no, not even Raju’s chole-stuffed samosas – quite like the thought of filing taxes.
I don’t know what a Form 16 is but I can tell you that (a+b)² = (a²)+(2ab)+(b²). I’ve always heard people say “we never get taught these important things in school”. As necessary as knowing the process of filing taxes is, can you imagine sitting through a class about it?
Thinking about filing taxes led me to my source of financial support, my father. “Don’t worry we can have the CA look at it, it’ll be done.” Convenient, right?
But, what exactly is the chartered accountant doing with the little money I’ve managed to earn after shedding a fair share of blood, sweat and lots of tears at my first job?
I had to get to the bottom of it. And Googling it didn’t make it any easier. What you get then is a slew of finance terms that make as much sense as the 13th zodiac.
To start with, the date for filing your income tax returns (ITR) for the financial year 2019-20 has been extended to November 30, 2020, from July 31, 2020.
Sitting down with chartered accountants and tax experts, I unloaded a whole slew of questions about how a single working professional, like myself, would go about filing taxes.
*Please note: this process largely applies to individual salaried professionals. There will be differences for owners of big and small businesses.
An expert guide to figuring out your finances and filing taxes
What are the documents you need to gather?
Tax consultant Gaurav Maru explains that the documents you require can differ depending on whether you have any investments, insurance, properties and loans. But generally speaking, these are the documents to hunt/call your dad for:
– Pan card
– Aadhar card
– Bank statements and credit card statements for the year
– Form 16 (Part A and Part B) for those with a salaried income. This is provided to you by your employer.
– Form 16A for people with business income.
– Investment details and receipts, for example of LIC, public provident fund, equity linked savings scheme, mutual funds etc.
– Interest certificate if you have a fixed deposit
– Receipts of any donation you’ve made that fall under Section 80G of the Indian Income Tax Act, showing PAN details and address of the donee.
– Home loan interest certificate.
– Capital gain statement for mutual funds and shares.
– Property agreement, if any property sold or purchased.
– Income tax challans, if advance/other tax paid has been paid.
What is the process for filing your taxes?
Head on over to the government’s income tax e-filing website (click here) and follow the instructions to register yourself. Once you’ve registered, click on the ‘income tax returns’ tab to see the forms available for e-filing. You may be asked to download an ITR return preparation software.
Maru explains what to do next:
1. Select the assessment year. “If the financial year (FY) is 2019-20, then the assessment year will be 2020-21,” says Maru.
2. Click on the ITR form number that applies to you.
Maru says, “ITR no. 1 is for individuals who have a monthly income from salaries, one house property, other sources (like interest etc.) and having a total income of up to ₹50 lakh.
ITR no. 2 is for individuals and Hindu United Family (HUF) not carrying out business or professions under any proprietorship i.e. those having income from capital gain, meaning a loss or profit on the sale of capital assets such as shares, property etc.” He adds that this is best assessed and handled by a professional like a chartered accountant.
“ITR no. 3 applies to individuals and HUFs having income from a proprietary business or profession, that is, individual professionals and proprietorship business income.”
Download the ITR form. You can use Java or Excel. Here, we are opting for the Excel Utility.
3. Extract the file and open Excel Utility.
4. Go to File/Options/Trust Center/Trust Settings/Macro Enable Settings. “Make sure ‘Enable all Macros’ is selected.”
For ITR no. 1, the most commonly used form, start by filling the tabs one by one.
– General details as per instruction
– Salary/pension details: as per Form 16. If anything is missing in the form, we can fill that information in ITR.
– House/property details: fill only interest borrowed on loan as per the interest certificate from the bank. “The maximum allowed is ₹2 lakh, as this is a self-occupied property.”
– Income from other sources: this refers to any interest received from the bank, dividend on shares
Deductions: Individuals are allowed deductions under different sections of the Income Tax Act. There are also certain allowances which can be made exempt from taxation.
– Section 80C: Life insurance premium, deferred annuity, contributions to a provident fund
– Section 80CCD (1B): If an amount is being paid to a government pension plan
– Section 80C: Mediclaim premium
– Section 80TTA – A maximum ₹10,000 deduction on interest income received from the bank, available to an individual and HUF.
TDS tab: Fill up the tab according to details given in Form 16, along with details of advance tax and self-assessed tax payment.
Verification tab: General information to be filled in according to instructions provided.
80G tab: If applicable, fill up the tab with information as given on donation receipt. Contact the donee in case anything is missing.
5. Your forms are now filled. Click to the Income Details tab and select ‘Validate’.
6. Once validated, click on the ‘Calculate Tax’ button.
7. On the ‘Verification’ tab, you will be shown the amount payable or refund, if any.
8. If payable, then you can make an online payment of your self-assessment tax.
9. Fill the details of this payment on the TDS Tab, again validate and calculate tax as previously done.
10. Then, click on ‘Generate XML’.
11. Log in to the income tax website where we started and login with your ID and password. Go to the ‘file tax’ tab, select the assessment year and the XML file using the browse option.
12. Once completed, print out the acknowledgement page, sign it and mail it to the CPC Bengaluru address as mentioned in the acknowledgement copy. You can also do an e-verification using your Aadhar ID through an OTP and net banking.
What does a chartered accountant even do for you?
If that breakdown also gave you a headache, the next best thing would be to seek the counsel of a chartered accountant. “But it’s not a requirement for an individual. Anyone can file income tax returns,” reiterates Maru.
A CA is required more for various audits, depending on the tax slab that you fall under.
Chartered accountant Shubhra Mukherjee says that a CA can guide you towards choosing a tax regime that suits you best and also supervise different investments that help you save on income tax.
Is there a different tax bracket for women?
There’s no longer a different exemption limit based on gender. Women used to have a higher tax exemption limit. Since 2012-2013, this was done away with and common tax slabs were created considering only your income and age.
Why do only some people get tax refund and others don’t?
It was sometime late last year, at the end of a long day that I came home to a whole array of Amazon packages and other boxes. I wondered if my sister had secretly entered a lottery, but it turned out she had received her tax refund.
Sulking at my lack of funds, I waited for the day mine came through. They didn’t.
“Those whose TDS and advance tax paid is more than the actual tax liability, they are the ones who get a refund of the excess amount automatically to their bank accounts. This is the account that you select for tax purposes under the verification tab while filing your income tax,” says Maru.
What if I make a mistake while filing taxes?
Staring at the government-made portal, even for just the purposes of this story, was giving me mild anxiety. Maybe it was all the financial terms or just the tiny font, but I already felt like I had done something wrong.
But luckily, even if something does go wrong, you don’t have to run away and change your name to avoid the wrath of the tax man.
In an interview, Abhishek Soni, CEO, tax2win.in, a tax-return filing company, said, “If you have discovered the mistake after filing your income tax return, you can rectify your mistake as allowed under the current tax laws. Section 139(5) of the Income-Tax Act allows taxpayers to rectify their mistake by filing a revised income tax return.”
One of the most common mistakes people make is not declaring income from a previous employer while changing jobs. “Most of the time, the new employer doesn’t take this into account and deducts less tax,” says Mukherjee. You then end up paying the tax when filing the return, paying interest and a penalty for late payment.
Like diving with sharks or fending off rishta aunties at your cousin’s wedding, filing taxes seems daunting but once you’ve got the hang of it, the only thing you have to worry about is falling asleep while entering all that information.
A small price to pay for being the boss of your own money.