What is Income Tax Return (ITR) ?

Income tax return is the form in which assesses file information about his/her income and tax thereon to Income Tax Department. Various forms are ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7.

Who should file ITR?

ØPerson whose Gross Total Income [before claiming exemption under any section of series 54] exceeds basic exemption limit.

ØCompany or Firm ( Including LLP): Mandatory

ØTrust: If Total Income before exemption u/s 11 exceeds basic exemption limit

ØPolitical Party: If Total Income before exemption u/s 13A exceeds basic exemption limit

ØTrade Unions, Institutions etc: If Total Income before exemption u/s 10 exceeds basic exemption limit

ØResearch Institutes: Mandatory

ØBusiness Trust: Mandatory

ØInvestment Fund: Mandatory

Specific Circumstances:

1. Even if your income falls below the basic exemption limit, it is mandatory to file ITR if you meet any of these conditions:

v If you have deposited a total of Rs. 1 crore or more in one or more current accounts with a bank. However, no such requirement has been specified for deposits made in with post office current accounts.

v If you have deposited more than Rs 50 lakhs in your ‘savings’ bank accounts.

v If you have spent more than Rs 2 lakhs on foreign travel whether for yourself or any other person.

v If the yearly electricity expenditure is more than Rs 1 lakh.

v If your tax is withheld in form of TDS/TCS is more than Rs 25,000. In the case of a senior citizen (above 60 years), this limit is Rs 50,000.

v Your business turnover is more than Rs 60 lakhs.

v Income from your profession is more than Rs 10 lakhs. 

2. If you want to claim an income tax refund

3. If you have earned from or have invested in foreign assets during the FY.

4. If you wish to apply for a visa or a loan

5. If you have loss from business/profession or under capital gains head, you will not be allowed to carry them forward to the next years unless you file the return before the due date.

ITR for NRI’s ?

Irrespective of residential status, any individual whose income exceeds Rs 2.5 lakhs is required to file an income tax return in India. The limit is the same for all NRIs. There is no higher threshold limit for senior or super-senior citizens.

Note that for an NRI, income earned or accrued in India is taxable.

There is one more exception for the NRI taxpayers. Unlike the resident Indians, if there is a long-term or short-term capital gain, the non-residents are not eligible to benefit from the basic exemption limit.

Penalties for Non-Filing Income Tax Return?

Non filing of ITR by 31st July will result in a penalty of Rs 5,000. However, if your income is below Rs 5 lakhs, then the penalty be reduced to Rs 1,000.

Points to be considered @ filing of ITR

1. Choose correct Income Tax Form

2. Verify the ITR after E-filing

3. Report all your Incomes

It is mandatory to report the interest income received from savings or fixed deposit accounts. Banks deducts TDS @ rate of 10%, while the assessee earns interest of more than Rs. 10,000. Hence it becomes imperative that you declare the income from interest in order to avoid notices.

Not reporting exempt income: Many people make the mistake of not reporting income exempt from taxes. It is now mandatory to declare income exempt from Income Tax too, such as PPF Interest, gifts, dividends and Long-Term Capital Gains from listed securities in your tax return.

4. Report correct details

5. Pay all taxes in time

Failing to pay Advance Tax/Self-Assessment Tax: It is mandatory for individual taxpayers to estimate their tax liability and pay advance tax/self-assessment tax before the end of the Financial Year in order to avoid penalty @ 1% per month starting from the end of the relevant quarter. This is required only if your tax liability exceeds Rs. 10,000/- in the Financial Year.

6. Get Organized

If you are an employee and your employer deducts TDS from your salary, the Form 16 that the employer issues to you can be a good starting point since it lists down all details of tax that you have already paid to the Government in the form of Tax Deducted at Source (TDS), your salary components and your Tax Liability.

In case you have not received your Form 16 from your employer, you can look for Form 26AS which lists down the TDS that has been deducted from your salary and been deposited to the Government’s account.

Also, you can keep the following documents handy:

§Pay slips

§CTC Breakup (To claim eligibility under various tax-free income components like HRA, LTA etc)

§TDS Certificates from Bank

§Tax Saving Investment Proofs (To avail deduction under various sections)

§Home and Education Loan & Certificates (if any, in order to avail deductions under Section 80, 80E and 24)

§Bank Statements (required for interest income, gifts received in the relevant Financial Year and dividend income if any)

§HRA Receipts, LTA Expenses and Reimbursement slips

7. Decide how to file

You can file using the Income Tax Department’s public portal online or you can also get Tax Experts to file it for you.

8. Avail Tax Deductions

9. Keep track of TDS. Don’t pay tax twice!

10. Don’t procrastinate and Don’t hurry!

11. And last but not the least, keep the following handy:

ØBank Account details

ØForm 16

ØPAN Number

ØIncome tax e-filing password

ØInvestment Details

ØHome Loan details

ØOther income details

ØAddress

Due dates for filing of return:

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In India, salary structures can often seem like a labyrinth of acronyms and figures, leaving many employees scratching their heads when they receive their pay stubs. However, breaking down these components can provide clarity and empower individuals to make more informed financial decisions. Let’s unravel the mystery by exploring the 11 common salary components in India.

1. Basic Salary:

The foundation of every salary package, the basic salary constitutes the fixed portion of an employee’s compensation. It serves as the benchmark for other components and is subject to statutory deductions like Provident Fund (PF) and Professional Tax.

2. House Rent Allowance (HRA):

Designed to assist employees with their rental expenses, HRA is a component of the salary package that varies based on the employee’s location and actual rent paid. It offers tax benefits under certain conditions, making it a valuable part of the salary structure.

3. Dearness Allowance (DA):

DA is a cost-of-living adjustment allowance that aims to offset the impact of inflation. It is calculated as a percentage of the basic salary and is subject to periodic revisions by the government.

4. Conveyance Allowance:

This allowance covers expenses related to commuting between the employee’s residence and workplace. While it may seem nominal, conveyance allowance can provide some relief from transportation costs.

5. Leave Travel Allowance (LTA):

LTA is provided to employees to cover expenses incurred during domestic travel for vacation purposes. It is eligible for tax exemption if the employee fulfills certain criteria outlined by the Income Tax Act.

6. Medical Allowance:

Medical allowance reimburses employees for medical expenses incurred for themselves and their dependents. While it is a part of the salary package, it is often subject to reimbursement against actual bills.

7. Special Allowance:

Special allowance is a flexible component of the salary structure that employers can use to customize compensation based on individual employee needs and performance. It is fully taxable.

8. Bonus:

Bonuses are additional payments made to employees as a reward for their performance or as an incentive to achieve specific goals. They can be performance-based, profit-sharing, or discretionary, and are subject to tax deductions.

9. Provident Fund (PF):

PF is a retirement savings scheme mandated by the government, wherein both the employer and the employee contribute a percentage of the employee’s basic salary and DA. The accumulated amount is payable to the employee upon retirement or resignation.

10. Gratuity:

Gratuity is a lump sum payment made by the employer to employees as a token of appreciation for their service upon retirement, resignation, or death. It is calculated based on the employee’s tenure and last drawn salary.

11. Employee Provident Fund Organization (EPFO) and Employee State Insurance (ESI):

EPFO and ESI are statutory bodies that manage social security schemes for employees. Employers deduct contributions towards EPF and ESI from employees’ salaries and deposit them with the respective authorities for benefits like retirement savings, disability benefits, medical care, and more.

Understanding these 11 salary components can empower employees to make informed decisions about their finances, tax planning, and overall compensation negotiation. By demystifying the intricacies of salary structures, individuals can maximize their earnings and secure their financial well-being in the long run.

In the intricate dance of business transactions, legal due diligence serves as the sturdy foundation upon which ventures thrive or falter. With myriad complexities to navigate, a streamlined checklist can be the beacon guiding businesses through the maze of legal intricacies. Let’s distill the essential components into a concise yet comprehensive legal due diligence checklist:

1. Corporate Structure and Governance: Confirm adherence to corporate governance standards, reviewing key documents like articles of incorporation and shareholder agreements.
2. Contracts and Agreements: Identify critical contracts and agreements, focusing on provisions impacting the transaction’s viability.
3. Intellectual Property Rights (IPR): Assess the ownership and status of intellectual property assets, flagging any disputes or infringement risks.
4. Regulatory Compliance: Ensure compliance with industry regulations and licensing requirements, with a spotlight on potential liabilities.
5. Litigation and Legal Proceedings: Investigate ongoing legal disputes and their potential impact on the business’s financial health and reputation.
6. Employment Matters: Review employment contracts and HR policies, identifying any labor-related risks or pending claims.
7. Financial Records: Scrutinize financial statements and tax records for accuracy, uncovering any hidden liabilities or irregularities.
8. Real Estate Assets: Verify ownership or lease agreements for properties, assessing associated environmental and legal risks.
9. Insurance Coverage: Evaluate insurance policies to mitigate risks and ensure adequate coverage for potential liabilities.
10. Data Privacy and Security: Assess compliance with data protection laws and cybersecurity measures to safeguard sensitive information.
11. Anti-corruption Compliance: Confirm adherence to anti-corruption laws, scrutinizing business practices for any ethical or legal breaches.
12. Due Diligence on Partners and Suppliers: Conduct background checks on key partners and suppliers to mitigate risks associated with business relationships.

By condensing the legal due diligence process into a succinct checklist, businesses can navigate the complexities of transactions with agility and confidence, ensuring robust risk management and informed decision-making.

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Tax planning is a vital aspect of financial management that individuals and businesses must undertake to optimize their tax liabilities while remaining compliant with legal requirements. In this article, we’ll delve into the meaning, objectives, and mechanisms of tax planning, shedding light on how it can benefit you or your business.

What is Tax Planning?

Tax planning is the process of organizing your finances in a way that minimizes your tax liability. It involves various strategies and techniques aimed at legally reducing the amount of taxes owed without violating tax laws. Effective tax planning requires careful consideration of financial decisions throughout the year to maximize tax efficiency.

Objectives of Tax Planning:

Minimization of Tax Liability: The primary objective of tax planning is to reduce the amount of taxes payable by taking advantage of available deductions, credits, exemptions, and other tax-saving opportunities.

Ensuring Compliance: While minimizing taxes is important, tax planning also aims to ensure compliance with tax laws and regulations. By staying abreast of tax laws, individuals and businesses can structure their transactions and operations in a manner that is both tax-efficient and legally sound.

Optimizing h Flow: Strategic tax planning can help optimize cash flow by timing income and expenses to minimize tax obligations in any given year. By managing cash flow effectively, individuals and businesses can improve their financial stability and reinvest savings into growth opportunities.

Wealth Preservation: Tax planning plays a crucial role in wealth preservation by implementing strategies that protect assets and minimize the erosion of wealth due to excessive taxation. This includes estate planning strategies aimed at minimizing estate taxes and facilitating the smooth transfer of assets to heirs.

How Tax Planning Works:

Tax planning involves a variety of strategies tailored to individual circumstances and financial objectives. Some common techniques include:

Income Deferral: Deferring income to future years can lower your current tax liability, especially if you expect to be in a lower tax bracket in the future.

Expense Acceleration: Conversely, accelerating deductible expenses into the current tax year can help reduce taxable income and lower your tax bill.

Investment Planning: Investing in tax-advantaged accounts such as IRAs, 401(k)s, or 529 plans can provide tax benefits while helping you build wealth for retirement, education, or other goals.

Strategic Use of Deductions and Credits: Maximizing deductions and credits, such as those for charitable contributions, mortgage interest, education expenses, and business expenses, can significantly reduce your tax liability.

Business Structure Optimization: For businesses, choosing the right legal structure, such as a corporation, partnership, or limited liability company (LLC), can have significant tax implications. Structuring business transactions and operations in a tax-efficient manner can lead to substantial savings.

Tax planning is an essential component of financial management that can help individuals and businesses minimize their tax burden while achieving their financial goals. By understanding the objectives and strategies of tax planning, you can make informed decisions that optimize your tax situation and preserve your wealth.

At Cogent Professionals, we specialize in helping individuals and businesses navigate the complexities of tax planning. Contact us today to learn how our expert tax advisors can assist you in developing a customized tax strategy tailored to your unique needs and objectives.

Maximize your tax savings and secure your financial future with our professional tax planning services. Contact us now for a consultation!