Aug 12,2020 | 06 min read

10 Taxation Laws That You Should Know About Before Filing Your Taxes In India

By Sonali Sinha

Taxes must be paid by everyone as it is a source of revenue for the government. The citizens are duty-bound to pay taxes. They cannot evade from their liability or else they would have to suffer extreme penalties and charges.

To avoid such heavy penalties or charges, one must comply with some of the basic 10 taxation laws that one should know before filing the taxes:

  1. Filing of return of income exceeds a basic limit: 

Filing their income tax return is necessary for every taxpayer. There is a misconception among people that if their income has been deducted at source then they do not need to file a tax return. But the truth is the law says that everyone whose gross total income exceeds a basic limit prescribed by the law needs to file a return. The income slab provides that the basic limit for the general taxpayer is Rs. 2.5 lakhs, Rs. 3 lakhs for senior citizens, and 5 lakhs for very senior citizens.

It is said that even if the tax amounts to Rs. 0 you need to file a return if your income exceeds basic limits. 

  1. Verify TDS details in Form 26AS:

After filing the return the next step involves verification of TDS details in Form 26AS. The taxpayer must check whether the amount debited on his behalf has been credited to the PAN. Form 16 shows the tax deducted by the employer but the taxpayer must check his Form 26AS to confirm that other taxes are also credited to his PAN.

Well, this is the exclusive proof that you have paid taxes. Any discrepancy must be reported to the deduct it and get it rectified. The tax authorities match the return filed with Form 26AS and if these two mismatches then a taxpayer may except a notice in this regard.

  1. Select Right Form: Selection of right form for the tax return is very crucial.

  2. ITR 1:

The return in ITR 1 can be filed when an individual's total income is up to Rs. 50 lakhs arising from sources like salary, one house property, or other incomes like dividends or interest. Even an individual having agricultural income up to Rs. 5000 can file a return in ITR 1 form.

This form is not relevant if filed on:

  • The director of the company,

  • Any investor of an unlisted company, 

  • If the TDS on income is deducted in another person's hand.

  • A standard deduction of Rs. 50,000 is provided in the ITR1 form.

  1. ITR 2:

ITR 2 form is used by an individual or HUF not receiving income under the head “Profits and Gains from Business or Profession”. It means it must be filed by an individual or a HUF not involved in any kind of business is entitled to file return in this form.

Even any individual or a director of a company having investment in the unlisted equity shares of a company is bound to file a return in ITR 2.

  1. ITR 3: 

It is filed by an Individual or HUF having income through “Profits and Gains from Business or Profession”. It also includes the income from House property, Salary/Pension, capital gains and Income from other sources

  1. ITR 4:

It is applicable on those who have the presumptive income scheme according to Section 44AD and 44AE of the Income Tax Act, 1961.

  1. Interest and other income shall be included in return:

Most of the Taxpayers are having the misconception that the interest arising from the tax-saving fix deposition is tax free but they don’t know the fact that this kind of deposit will help them in saving the tax provided under section 80C whereas the interest is taxable. 

Till the previous two years ago, TDS were kicked in where the interest income arising from deposits made to banks exceeded the net threshold of Rs 10,000 in a financial year. Investors avoid TDS by dividing their deposits into different branches. But in the current scenario TDS will apply on combining all the branches which exceed the set parameter.

It is to keep in mind that no person can get away from tax by not reporting the interest income. Once the TDS kicks in, the details of your PAN reaches to the Tax Department and is noted in the Form 26AS. Further, in case of any default on not paying the Tax, the department will send a notice to that person.

  1. Your AADHAR should be mentioned in the Tax Return:

The clarity on the Aadhaar has come after so many legal and political battles. All the individuals who have their aadhaar car shall have to mention it in the Tax return whereas the individual who doesn’t have Aadhaar is exempted under this.

If you don’t mention the Aadhaar number in the tax return, the return will be accepted at that point but in future, you may get a legal notice for not mentioning the information required in the return.

The Tax authority has the power to grant fine or to prosecute someone for giving a false statement in verification under the section of 227 of the Income-tax Act, 1961. If one has aadhaar, he must have to link it with his PAN before filing a Tax return.

  1. Income From The Previous Employer shall not be ignored:

A drastic change in their tax outgo can be seen at the time when people change jobs and the new employer lacks in taking into account the income earned from the previous job. Therefore the tax is deducted on the thinking that the income from remaining months is the only income of the year. But at the time of filing the tax return, this mistake is captured. Actually, at that point in time, the incomes from two employers are added and the deduction and exemption are made accordingly.

Further, it is best to inform your new employer about the income from the previous employer so that the deduction of TDS can be made accordingly. 

Webliography:

  1. ITR-1 Form, (28 July 2020), Retrieved from https://cleartax.in/s/itr1

  2. ITR-2 Form, (28 July 2020), Retrieved from https://cleartax.in/s/itr2

  3. ITR-3 Form, (4 August 2020), Retrieved from https://cleartax.in/s/itr3

  4. ITR-4 Form, (27 July 2020), Retrieved from https://cleartax.in/s/itr4

10 rules you must follow while filing Income Tax return, (12 July 2018), Retrieved from https://www.google.com/amp/s/m.economictimes.com/wealth/tax/ten-rules-you-must-follow-while-filing-income-tax-return/amp_articleshow/59296048.cms


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Lawyered Team

Lawyered Team

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