Do you have to pay tax?

That depends on how much you earn and under what heads. Some salary components such as the basic salary, dearness allowance, special allowance and bonuses are taxable. Others such as house rent allowance, conveyance and other reimbursements are exempt subject to rules.
But apart from the income from your employer, you may also earn interest on fixed deposits, bonds and on the balance in your savings bank account. If you invest in stocks or funds, there may be dividend income and capital gains as well. If you own property, there may be rental income coming in.

If the income you earned in a financial year (1 April to 31 March) exceeds the basic exemption limit of 1.8 lakh ( 1.9 lakh for females), you have to pay tax on it.

Tax deduction at source

Your employer calculates the tax payable and deducts it from your salary. But since tax is payable on the combined total income, the TDS by your employer may not suffice unless your income from other sources has been factored in. If you changed jobs during the year, you must report the income from the previous employer as well. If you don't do that, you will end up availing the basic exemption twice, which will lead to a big tax outstanding at the end of the year.

Before your employer deducts tax, you are asked if you have made any tax saving investments or are eligible for any other deduction or exemption. You can invest up to 1 lakh in any option under Sec 80C. Some of these are automatic-your contribution to the PF, for instance. The other options are PPF, NSCs, tax saving FDs, ELSS mutual funds, life insurance policies and pension plans. There are other deductions too. Medical insurance policies for yourself or your parents are eligible for deduction under Sec 80D. If you submitted documentary proof of all these investments to your employer within the stipulated time, the TDS will be low.

Do you have to file your return?

The CBDT has exempted taxpayers with an income of less than 5 lakh from filing their tax return. However, you can avail of this exemption only if you have income from salary and bank interest. Also, this interest should not exceed 10,000 in a year and you should have paid the tax due on it. You should also not have any tax refund due.

If you have paid more tax than due, the only way you can get it back is by filing your return. Don't look at filing your tax return as a painful exercise. Instead, think of it as sending a bill to the Income Tax Department demanding a refund of the amount you overpaid in taxes during the previous year. The sooner you do it, the better it is for you because the faster your tax refund reaches you.

Understanding your Form 16

Your employer must have given you a Form 16, which is a certificate of the TDS from your salary. For most salaried individuals, the Form 16 has nearly all the details they need to put in their tax return form. But if they have other investments as well, the details need to be filled in the tax return form.

A refund is not the only reason to file your tax return. Your return is a declaration of your income and will come handy when you are seeking a loan, buying property, going abroad or even taking a large insurance cover. Banks want to see your income details before they extend a loan. Many countries want to know if you are financially stable before they issue you a visa. Insur ance companies want to know if the cover you want is commensurate with your income. The income tax return is your single sheet answer to all these queries.

Not filing your return can have serious reper cussions. You can be slapped with a penalty of up to 5,000 even though all your taxes are paid Besides, it will unnecessarily raise suspicion and the income tax department may scrutinise your finances further.

How to file your return

You can file your return online or offline, by your self or with the help of a tax professional. It is advisable to take the help of a tax professional at least for the first time. A chartered account ant will be able to guide you on how to fill up the form and choose the ITR form that is applicable to your case. Once you get the hang of it, you can start filing your return by yourself. Online fil ing is very simple and doesn't require too much effort. There are websites that guide you at every step of the process. They even choose the cor rect ITR form for you based on your income so there is zero chances of you going wrong. For as little as 200-250, some portals even cross check your return before it is filed to ensure it is error free. It is a small fee to pay for peace of mind.

The deadline for filing income tax returns is (July 31) fast approaching. While many may be filing returns through their chartered accountant, filing e-returns (electronic returns) is the fastest and more convenient. E-returns can be filed either through the Income Tax Department's website or through the website of e-returns intermediaries (ERIs) like Tax Spanner, etaxmentor, TaxSmile and so on. While the I-T department offers this facility free of cost, the ERIs charge a small fee for the same. Many chartered accountants also file your returns online.

While filing e-returns is not very difficult, you need to ensure that you file it properly, that is, primarily know all your income-liability details and some basics of taxation. Here's how

Step 1: Know your situation

Determine all your sources of income. Does your income comprises of only salary and interest on savings bank account? Or you also earn rental income, capital gains and / or income from any other source? Considering the following aspects may help.

If you have more than one house and the other house is not rented out, you will still require to pay tax on notional rental income. If you took a loan to buy or construct such house, actual interest on borrowed capital is also deductible. And there is no restriction of ~1.50 lakh for interest repayment on housing loan in case of self occupied second property.

If you received any gifts from your friends (other than relatives) in the form of money or property exceeding a total of ~50,000 annually, you need to pay tax on the same. Here property means, immovable property, shares, jewellery, bullion, archaeological collections, drawings, painting, sculptures and any work of art. Gifts received on the occasions of marriage or through a Will or inheritance are not taxable.

Did you make any investments in the name of your spouse or minor children. You need to include interest income from such investments in your income before calculating tax liability. For minor child's income you may avail a deduction of ~1,500 per child.

Step 2: Compile details of income and taxes

Tally your details in Form 16 and Form 16A with the details contained in Form 26AS available on the income tax website. You get tax credit withheld, as in Form 26AS. In case of any discrepancy, get in touch with the income payer to get the details rectified else you may get a tax notice when your return is being processed.

You need to pay taxes if you fall in the 20 or 30 per cent bracket as the withholding tax calculated by the payer (other than employer) is generally lower than your actual liability. If the taxes due are more than ~10,000 you would also need to pay interest under Section 234 B and 234C if you haven't paid advance taxes. Also register your PAN on the I-T department's website.

Step 3: Select the right form

If you have any assets or signing powers for account(s) overseas, you would need to use ITR 2, although you can use form ITR 1.

Do not forget to report exempt income like dividends, interest on PPF, long term capital gains and so on. Fill your bank account details and MICR code carefully to avoid any difficulty in receiving the refund.

After e-filing, you should send the Income Tax Return Verification form (ITR-V) in 120 days of filing the e-returns only by ordinary post or speed post. Do check the status of your ITR-V, that is, if it has reached the I-T Department's Bangalore office. If not, re-send the same immediately lest the 120 days deadline gets over.

Finally, have a look at your assets to check if or not you have any wealth tax obligation. If you do have, you need to file the wealth tax return before July 31. Wealth tax is payable at one per cent on net taxable wealth exceeding ~30 lakh held on the last day of the tax year, like March 31, 2012 for the assessment year 2012-13.

Any building or land, motor car, jewellery, bullion, furniture, utensil made of precious metal (wholly or partly), cash in excess of ~50,000 and so on, is considered taxable wealth. But deposits in banks, shares and the likes, are not considered one. Further, a residential property or a piece of land (not exceeding 500 square meter), house rented out for more than 300 days is also exempted from wealth tax. If you took any loan to acquire taxable assets, the same is deductible while computing the net taxable wealth.

If you are permanently coming back to India (being person of Indian origin or a citizen residing abroad), you are exempted to pay wealth tax for a period of 7 years for the money and/or assets bought into India from abroad. The exemption will also apply to the assets which you acquired in the last one year of your return or acquire any time thereafter from the money you bought from abroad into India.

Step 4: Maintain documents after e-filing

Always maintain your bank statements, Form 16 and 16As, proof of other income and/or of exemption claimed and so on even after you've finished e filing and got a receipt for tax return.

You may be required to produce these documents before the ITauthorities if your return is selected for an audit. In case of change in your address, immediately get the same changed in your PAN.

ITR – 1 (SAHAJ) Salaries House Property(one house property) Other Sources (except income from lottery or horse race)

ITR – 2 Not applicable for income from business and profession

ITR – 3 Partners not carrying out business / profession as a proprietorship concern

ITR – 4 Proprietary business or profession

ITR – 4S (SUGAM) Business / profession and opted for taxation on presumptive basis under Sections 44AD and 44AE