The process can be quite cumbersome in the absence of efficient financial planning, and any negligence on the tax payer's part can lead to undue payment of tax
As the last date for filing income tax return approaches, most tax payers would be busy collating various information required to file their returns.
The process can be quite cumbersome in the absence of efficient financial planning, and any negligence on the tax payer's part can lead to undue payment of tax.
Detailed below are some of the biggest challenges that one may face while filing his or her income tax return.
Challenge 1: Computation of taxable income
Before filing your income tax return, it is vital for you to identify and compute your taxable income.
Apart from a review and analysis of your bank account statements, identifying your sources of income and segregating them into 5 sections -- income from salary (including basic salary, commissions and bonuses, and allowances), income from house or property, income from businesses or profession, income from capital gains, and income from other sources -- is also important.
To ensure that you do not miss out on any income received, download form 26AS from the tax department's website. The form will reflect all income received by you and tax so deducted. Also, reporting your exempt income while filing your return would help reduce the possibility of a demand notice from the tax department.
Challenge 2: Not knowing the available tax reliefs
Tax laws keep changing from time to time and so it is imperative for you to keep yourself informed and updated about such changes. While computing your taxable income, you must be aware of various tax reliefs and deductions available.
For instance, standard deduction of Rs 40,000 per annum has now replaced exemption of Rs 15,000 for medical reimbursements and transport allowance of Rs 1,600 per month for salaried individuals. You can reduce your tax liability and outgo substantially by being aware of such changes in tax laws.
Apart from the common deductions under section 80C of the Income Tax Act, there are a few tax reliefs that aren't known to many. These include deductions on interest paid on education loan (under section 80E), deduction of up to Rs 1.25 lakh for medical expenditure of severely disabled dependent (section 80DD), deduction of up to Rs 50,000 deduction medical insurance premium of senior citizen parents (under section 80D), etc.
Challenge 3: Timely declaration of required tax proofs to employer
Salaried individuals must submit tax-related proofs to their employer on time. Exemptions and deductions that you may be entitled to would be provided by your employer through Form 16 and you can claim these deductions at the time of e-filing.
Do not file an incomplete or incorrect report as it may lead to higher tax outgo. Also, remember that failure on your part to submit all documents on time to your employer would result in excess TDS payout. You can, however, claim it back while filing your return.
Challenge 4: Failure to file returns and pay advance taxes timely
Individual tax payers aged below 60 years have to pay advance tax in quarterly installments if adequate tax payable hasn't been withheld and your tax liability after TDS deduction exceeds Rs 10,000. Failure to pay your advance taxes on time would make you liable to pay interest at 1 percent per month (under section 234B).
Also, non-filing of income tax returns before the due date would attract a penalty that could be as high as Rs 10,000.The writer is CEO& Co-founder of Paisabazaar.comYou can now invest in mutual funds with moneycontrol. Download moneycontrol transact app. A dedicated app to explore, research and buy mutual funds.