Revenue tax: The Income Tax Return (ITR) filing season kicks off from July and continues till Septemeber. Filing your ITR during this time is mandatory for everyone who falls under the tax bracket. However, that doesn’t mean it’s difficult. In fact, you can file your ITR in just 5 minutes if you have these downloadable documents ready as well as a registered e-mail address in the tax website. Although it is not compulsory to use a CA to file your taxes, an accountant will ease your burden once you get audited by the IT department since they are experts in this field. If you understand these four points, you can complete and submit your return with ease:
The 5-Minute Guide to Income Tax
The Income Tax Return (ITR) is probably one of the most-feared documents for taxpayers. The annual exercise of filing it and keeping track of tax implications throughout the year can be quite cumbersome for common individuals. However, this does not mean that you cannot understand your tax implications and take informed decisions to optimize your savings from tax benefits. With the implementation of Goods and Services Tax (GST), there are several changes that you need to take note of when filing your ITR. Here’s a quick guide on how to file your income tax return (ITR) in accordance with these new changes:
What’s new with the GST?
The implementation of the GST has brought about many changes in the income tax return. While there are a few changes that will impact your tax liability, there are also some other changes that will impact the way you have to keep a track of your expenses and make adjustments accordingly. Let’s take a quick look at them: -Changes in tax liability- -Standard deduction- -Standard deduction for senior citizens- -Education and health Insurance deductions- -Medical expenses- -House Rent allowance- -Changes in the way you keep a track of your expenses- -Income from Salary- -Stock Options- -Bank interest- -Contribution to Pension- -Income from Capital gains- -Income from Business or Profession- -Changes in the way you make adjustments- -Bad Debts- -Suspense Cash Account- -Allowances- -Expenses related to Joint Property- -Expenses related to Tax Saving Investments- -Health insurance- -Loan/ Credit card interest- -Rental income from house property-
Step 1: Review your tax liability
The first step to prepare your ITR is to determine the amount of tax you have to pay. You can either use the Income Tax Calculator to estimate your tax liability or manually calculate it. As the name suggests, the Basic Tax Liability is the minimum amount that you have to pay as tax. To calculate your Basic Tax Liability, you will have to add up all your Income (we’ll go into the different types of income in a while) and then apply any applicable deductions. Note: The Income Tax Calculator is not a substitute for your accountant or tax advisor, but can be a helpful tool to estimate your tax liability and take informed decisions.
Step 2: Record your Transactions for the year
Unlike the old tax regime, where you had to keep a track of all the expenses that you incurred, the new ITR mandates a different approach. In the new tax regime, you have to keep a track of all the income you receive, whether in cash or in kind. This is a very important step, as it will help you make adjustments and claim deductions against your total income to reduce your taxable income. For example, let’s say you earned $50,000 in salary this year, but you also received $10,000 worth of gifts from your relatives. In such a case, you can claim these gifts as income and make appropriate adjustments against your salary income. One important note to remember here is that you have to maintain consecutive records for all your income and expenses for the entire year. So, if you received a gift from your uncle on the last day of the year, you cannot claim it as income for the year.
Step 3: Deductions and Adjustments
Deductions are any expenses that can be subtracted from your total income and reduce your taxable amount. You can make adjustments by increasing the total of your income by a certain percentage. There are no changes in the list of deductions, but there have been some important clarifications that you need to keep in mind when filing your ITR: -Bad Debts: Bad debts are usually loans that are written off as uncollectible. It is important to keep track of these to avoid the risk of a scrutiny by the Income Tax authorities. -Suspense Cash Account: This is an account where you keep a track of your cash expenses, like car repairs, medical expenses, gifts, groceries, etc. This account is applicable for individuals with a cash-based business. -Allowances: There are certain allowances that can be subtracted from your total income and make your taxable income lower. These allowances include the House Rent Allowance, travel allowances, and allowances from your employer. -Expenses related to Joint Property: You can deduct expenses related to joint property from the income of your spouse to reduce your taxable income. -Expenses related to Tax Saving Investments: If you have invested in any of the prescribed investments, you can deduct the amount invested from your income to reduce your taxable income.
Step 4: GST Deductions and Adjustments
The GST impact will largely depend on your business or profession. If you are a GST practitioner, you will have to add GST on your total income and then make adjustments against your total income by deducting the expenses incurred. If you are an employee, then you need to keep a track of the GST paid on your business-related purchases and make adjustments against your total income by deducting the GST paid on your purchases. You can use the online GST tax calculator to estimate your GST tax and make necessary adjustments in your tax return.
Step 5: Net Taxable Income
Once you have accounted for all your income and expenses, you can finally arrive at your taxable income. Now that you have an idea of the different steps involved in filing your ITR for the year, let’s get into the actual ITR filing process. The income tax return has to be filed online and the last date for filing the ITR for the FY19 is 31st July 2019. If you are an individual, you will have to file your income tax return based on the income you earn from all sources, including salary, gifts, capital gains from the sale of assets, business income or any other source. There are two ways you can file your income tax return: through an online portal or by downloading the form and filing it offline. If you are filing a paper return, you will have to send the physical copy of the ITR to your authority, whereas if you file online, it will be sent to the authority electronically.
The Income Tax Return is probably one of the most-feared documents for taxpayers. The annual exercise of filing it and keeping track of tax implications throughout the year can be quite cumbersome for common individuals. However, this does not mean that you cannot understand your tax implications and take informed decisions to optimize your savings from tax benefits. With the implementation of Goods and Services Tax (GST), there are several changes that you need to take note of when filing your ITR. Here’s a quick guide on how to file your income tax return (ITR) in accordance with these new changes: – Review your tax liability – Record your Transactions for the year – Deductions and Adjustments – GST Deductions and Adjustments – Net Taxable Income – Conclusion The above article is a simplified version of what needs to be done to file your ITR. For those who wish to go deeper into the process, we’ve provided more details below.