As a new financial year begins, the time to file your taxes for the previous fiscal year draws near. The timely filing of your Income Tax returns is not the only thing that you need to keep in mind before submitting the Income Tax Returns. There are in fact quite a few additional factors that one needs to keep in mind before filing his/her tax returns for the previous fiscal. Here is a short list of eight key tax filing related considerations and precautions that would help you in ensuring the accurate filing of your taxes in for the Assessment Year 2018-19.
I. File Previous Returns/Corrected Returns by March 31, 2018
If you have not managed to get around to filing your income tax returns for the Assessment Year 2016-2017 or 207-18, you must get it done on or before March 31 this year. Otherwise, there is a strong possibility that you might end up receiving an Income Tax notice. Will you dare to face the risk?
II. Get your Form 16 before filing taxes
Make sure that you receive your Form 16 either in the digital format or as a physical copy before you file your taxes. You might receive multiple Form 16s if you have changed jobs during the Financial Year 2017-18. In such a case, make sure that details on the forms are collated accurately. Form 16 contains all details of your earnings, tax saving investment information and tax deducted at source, which can come in quite handy in case you are not very financially inclined. Do remember that you will receive a Form 16 only if you are a salaried individual as Form 16 is not applicable to self-employed individuals.
III. Check and Verify Form 26AS
Form 26AS contains details of the Tax Deducted at Source (TDS) paid by your employer on your behalf for the applicable fiscal. Ideally, the TDS details on Form 26AS should match with the details of the tax paid as shown on your Form 16. In case of a mismatch, do get in touch with your employer and applicable tax authorities in order to get the discrepancy resolved at the earliest. You can download your Form 26AS from the TRACES website or through the registered internet banking interface of most leading banks.
IV. Ensure You Compute all Short Term Gains
In case you have been investing or trading in mutual funds or shares/bonds and making profits in the form of short-term capital gains, you will need to accurately calculate those. Short-term capital gains in case of equity funds require the sale of the mutual fund units/shares prior to the completion of one year from the date of allotment. In case of non-equity schemes, this period is three years or less. As per the existing rules, short-term gains are not subjected to TDS and this will make your life a little bit tougher as you have to calculate the applicable taxes yourself. Good news is that you can just download your mutual fund capital gains statements from individual fund houses and add it all up to get the applicable short-term gains information and calculate the tax payable.
V. Know Which Returns Form to Fill Out
Depending on your source of income, you have to determine which Income Tax Return (ITR) form to fill out. If you are a salaried individual you have to fill out the ITR-1 form also called Sahaj. However, if your income from salary exceeds Rs. 50 lakhs annually, you have to fill out the ITR-2 form. If you are a self-employed individual and professional, you have to fill out the ITR-3 and so on. There are other forms too, such as ITR-4, ITR-5, ITR-6 and ITR-7 that are applicable for a variety of income generating entities including but not limited to LLPs, Firms, companies incorporated under various laws, etc. Make sure you know which form is applicable to you and only then fill it out as filing using the wrong form is a sure-shot way to get a tax notice at a later date.
VI. Keep Documentation of Tax Saving Investments and Expenses Handy
Whether you are filing taxes on the basis of your Form 16 or not, having your tax saving investments handy would definitely help in ensuring the accuracy of your returns. What’s more, make sure you keep those tax saving information handy for at least five years after the applicable fiscal in case you are audited at a later date for any reason whatsoever. In case you are filing as a self-employed individual, you will need to keep the tax saving investment/expense information handy in order to ensure the accuracy of your filings as you do not have the convenience of copying the information of a Form 16. Additionally, keeping the information handy also ensures that you don’t miss any information that might help save you money in the form of lower tax payouts or higher tax refunds.
VII. No Long-Term Capital Gains on Equity Investments
The new Long Term Capital Gains (LTCG) rules for equity schemes announced in Budget 2018 are applicable from AY 2019-20 onwards. For AY 2018-19, tax on equity gains made after holding your investments for one year or more is still tax-free. So make sure you don’t include LTCG tax computations into your Income Tax Returns for AY 2018-19 and end up paying extra tax on your income.
VIII. Statutory Deduction not applicable for AY 2018-19
There have been many discussions and write-ups about the new statutory deduction rule introduced in Budget 2018. But for FY 2017-18, the tax-free limit on transportation allowance will be Rs. 1800 per month and health care reimbursement will be Rs. 15,000 annually. Thus your tax for AY 2018-19 will be calculated accordingly for filing your Income Tax returns this time around. Make sure you check that your tax computations correspond to the old rule that is currently applicable instead of the new rule that will come into effect from AY 2018-19 onwards.
The above mentioned precautionary measures are by no means exhaustive, as there are additional precautionary directives one has to follow to ensure a hassle-free Income Tax Returns filing experience. But these eight key points will definitely serve as a starting point for filing your taxes accurately for the Assessment Year 2017-18.