In 2010, the Indian government declared July 24 the National Income Tax Day. This is just six days before July 31, which is the last date for filing an income tax return (ITR) which is mandatory for anybody earning over Rs 250,000 annually. On an average, an urban professional falls under the tax bracket right from the beginning of his/her career. Taxes and returns are a critical part of responsible financial management, and hence it is imperative to file a tax return before the due date.
How does an ITR help? Filing an ITR legitimises one's earnings, and in case of excess tax paid to the government, one can always claim a refund. Even though it is not compulsory to file a return if the total income is below taxable limit, it is beneficial to do so. An ITR is the best document of proof of income. The process also makes one eligible for loans, since the ITR of the three years gone is what banks require to judge the pay-back capacity of the loan seeker.
Absence of an ITR can also reduce the chances of getting a visa to travel abroad. ITR also becomes imperative to obtain a high life cover insurance policy or high-limit credit card. With just about a week to go before the last date, it is best to file the return timely to avoid tax troubles.
Technical jargon and excessive paperwork can make filing an ITR seem tedious, but this is now easier than ever before and merely a few clicks away. To begin with, you need to have a few documents in place - PAN card, bank account details, Form 16, Form 26AS and proof of investments, which are useful for tax filing. All one needs to do is register on the income-tax website and follow guidelines. After filing ITR successfully, any excess tax paid will be credited to the bank account in approximately three to four months.
Common errors people make, and guarding against them:
* One must do tax planning from the beginning of the FY to grow wealth as well as save taxes averting last minute lapses.
* The first thing to be cautious about is selecting the correct ITR form and assessment year. Avoid last-minute filing since the hurry could cause lapses. Filling in personal details correctly is imperative and these should match those on the PAN.
* It is also important to mention the correct bank account number and IFSC. This will ensure smoother ITR processing.
* One common mistake is not declaring the income earned from various investments. To avoid tax trouble, make sure to disclose all forms of income.
* In case of a job change within the financial year, one may miss mentioning the earnings from the previous job.
* Once an ITR is filed online, it needs to be e-verified either through Aadhaar authentication or by sending a signed acknowledgement copy to the IT Office.
Tax saving tools: Multiple tools can be used to save income tax every year. For those living away from home, the rent receipt is your biggest tax saver since part of house rent is tax exempt. The other tax saving instruments are:
* Equity Linked Savings Scheme (ELSS). Investments in tax saving equity mutual funds will serve two purposes -- wealth creation and tax savings fund (EPF).
* Investment in Public Provident Fund (PPF)/EPF/NSC/KVP.
* Investment in tax saving FD (5 years).
* Investment in New Pension Scheme (NPS) gives additional deduction of Rs 50,000.
* Buying life insurance will ensure that one's retirement corpus does not deplete, but is also a tools to save taxes.