FBT A.Y 2009 - 2010

T D S A .Y 2009 - 10

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FAQ

FAQ :-

A detailed approach to help you understand your taxes better.

Chapter Includes :-

1.Basics of Income Tax 2.Salary 3.House Property 4.Capital Gains 5.Income from Other Sources 6.Tax Payments 7.Deductions

8.Clubbing of Income 9.Filing your Returns 10.Payment

1) What is Income Tax?

Income Tax is a tax imposed by the Government of India on

persons who have earned income in India. When your Income

exceeds a prescribed limit, you will have to pay tax

2) How much of my income goes towards taxes?

Taxes are charged based on your income. In India, there are

slabs within which tax rates are defined:

If you earn less than 1,50,000 yearly - 0%

If you earn between 1,50,001 & 3,00,000 yearly - 10%

If you earn between 3,00,001 & 5,00,000 yearly - 20%

If you earn above 5,00,001 yearly - 30%

If you are a women taxpayer, income up to 1,80,000 is tax free

If you are more than 65 years of age, income up to 2,25,000 is

tax free

3) How do I pay income-tax?

Income tax is normally paid in the following ways:

Salaried Employee: Your employer would have deducted tax on

a monthly basis from your salary. You can get the information in

your Form 16 and from your Salary slips.

Other income: For income received other than from salary, the

person from whom you received the income would have

deducted tax. This is known as Tax Deducted at Source (TDS).

You can get the details of this information from Form 16A, given

by the person who deducted tax.

Advance Tax: Normally taxes are paid as Advance Tax.

Advance Tax is paid in three installments: on 15th September,

15th December and 15th March. If there is still a shortfall, you

can pay it before 31st March. You can also pay the shortfall in tax

while filing your income tax return.

4) What are the consequences if I do not pay income-tax?

If you fail to pay income tax due, you will be charged interest @

1% per month from 1st April following the financial year, until you

pay your tax.

5) What happens if I pay excess tax by mistake? Can I recover

it?

Yes. If you paid more tax than necessary, you will be refunded

the amount. The refund will be processed after your return is

reviewed by the Income Tax Department.

6) What are the ways in which I can get my refund?

You can get your refund in 2 ways:

1.By cheque

2.By the amount directly credited to your bank account.

7) What is an income tax return (Return of Income)?

An income tax return is a prescribed form in which details of your

income from 1st April to 31st March and taxes paid on such

income are declared to the Income Tax Department.

8) Why should I file an income tax return? / Does everyone

need to file income tax return?

You need to file an income tax return if your annual income

exceeds the exemption limit.

9) What is a PAN?

A Permanent Account Number, or PAN for short, is a unique

identification number allotted to every tax-payer by the Income

Tax Department.

10) Why is a PAN required?

Having a PAN is compulsory for all taxpayers.

A PAN needs to be mentioned in tax returns, Challan’s for

income tax payment and all other communication done with the

Income Tax Department.

11) What if I enter an incorrect PAN?

The penalty for quoting an incorrect PAN is Rs.10000.

12) Is Income Tax return filing mandatory if I have a PAN

number?

A PAN Card is mandatory to file an Income Tax Return.

Nowadays for several transactions you are required to quote your

PAN. However, if your income is below the basic exemption limit,

you do not need to file an Income Tax Return simply because

you have a PAN.

13) What if I have more than one Permanent Account Number?

It is illegal to have more than one Permanent Account Number

(PAN). In case you have been allotted multiple PANs by the

Income Tax Department, surrender the additional PANs to the

Department.

14) What documents do I need to keep handy before I begin

preparing my return?

Some of the most common documents that are required for

preparing income tax return are:

a. Copy of PAN Card / PAN Allotment letter

b. Last year’s Income Tax Return Acknowledgement

c. Form No. 16

d. Housing Loan Repayment Certificate

e. Rent Receipts

f. Shares Sale Bill / Contract Note & details of corresponding

purchases

g. Bank Statement / Pass Book

h. Copy of tax-saving investments (not declared in Form 16),

like

i. Life insurance Premium Receipt

ii. PPF Challan’s

iii. NSC Certificate

iv. ULIP Statement

v. ELSS Statement

vi. Tuition Fees Receipt

vii. Medical Insurance Premium Receipt

viii. Donation Receipts

i. Medical Bills and LTA proofs not declared to your employer

j. Form No. 16A (TDS Certificate)

k. Tax Payment Challan’s

l. Bank Account Information

15) What is a Form 16?

It is a certificate issued by your employer giving the following

details:

Salary

income from other sources declared by you

deductions claimed by you

tax deducted from your salary and paid to the income tax

department

16) What If I have more than one employer and I want to file my

return?

Add up the income from all the employers and enter details of

taxes deducted from your salaries, while preparing your return. If

you still have any tax payable, pay it before you file your return.

17) What if my employer has deducted excess tax?

If your employer has deducted excess tax, you may be entitled to

a refund. While preparing your tax return, Taxsmile calculates the

final tax amount that is payable by you or the refund that is due to

you. You can claim the same by filing the tax return.

18) I have my Form 16. Do I still need to file an Income Tax

Return?

Form 16 covers only Salary income you have received from your

employer. It also certifies that a certain amount of tax has been

deducted from your salary income and paid to Central

Government on your behalf. Remember that it is only a certificate

and not a return.

So even if no tax is payable by you in addition to that deducted

from your salary, you must still file an income tax return.

19) Do I need to declare all my properties in the return?

Yes, even if the property is being used by you or your family.

20) I own more than one property. I have given one of them on

rent. How will it affect my taxable income?

The rent earned on the property will be taxable.

21) I own more than one property, but they are vacant. How do I

declare these in my return?

One property of your choice will be treated as tax-free. The rest

will be treated as if they were rented out.

22) Do I get any tax benefits if I have taken a loan for

construction of property for my residence?

Yes, in the following manner if used for construction.

Interest paid will become deductible only after you have

received possession of Property

The interest paid till the date of possession is called Pre

construction interest and you can claim a 20% deduction each

year, for 5 consecutive years, starting from the year in which

you get the possession of the house.

23) Can I claim the entire interest paid on my Housing loan?

If the property is used by you or your family then the maximum

deductible amount is Rs.150000/-. For other properties the entire

amount is deductible.

24) Can I consider my entire EMI as a tax benefit?

Your housing loan repayment is done through monthly EMI. This

has got 2 components - Interest and Principal. Both are

deductible, but separately.

Interest can be claimed as deduction, irrespective of the source of

the loan. The maximum interest you can claim as a deduction is

Rs.1, 50,000/-, if the property is not rented out. The principal

repayment can be claimed as deduction only when the loan has

been taken from Banks or Financial Institutions. This deduction is

available in section 80C within the overall limit of Rs.1, 00,000/-.

25) Will I get tax benefits if I have missed my EMI payments

towards the principal and interest?

You will be eligible for Interest payable, but to claim principal you

have to make payment.

26) Will I get tax benefits if I have taken a loan to purchase a

piece of land?

There are no tax benefits for loan taken for a piece of land.

27) Can I claim interest on Housing Loan as a tax deduction, even

if I have not paid it?

Yes you can, provided the interest you have to pay should be for

the loan exclusively used for the purchase / construction of the

house.

28) Are Stamp Duty, Registration Fees etc. also eligible for tax

deduction?

Yes. Stamp Duty, Registration Fees and other expenses incurred

by you is eligible for deduction under section 80C, subject to an

overall limit of Rs.1,00,000/-.

29) If I am loan a co-applicant to the loan but the property is not

owned by me but the other co-applicant, who can claim

deduction?

Tax benefits can be claimed only by the applicant who owns the

property.

30) Is there a limit on Home loan interest, if I have rented your

property?

Interest Limit of Rs.1, 50,000 does not apply to rented property. It

is the actual interest you paid that gets deducted, even if it is more

than Rs.1, 50,000.

31) What is Capital Gain?

Gain on sale of following investment/assets is known as Capital

Gain:

Shares

Units of a mutual fund

Bonds/debentures

Immovable property

Jewellery, paintings etc

32) What is Long term and Short Term Capital Gain?

When investments are held for more than 36 months, such gains

are termed as Long Term Capital Gain. However, for shares,

mutual funds, listed bonds & debentures, zero coupon bonds, the

period is 12 months.

When investments held for less than36 months, such gains are

termed as Short Term Capital Gain. However, for shares, mutual

funds, listed bonds & debentures, zero coupon bonds, the period

is 12 months.

33) Am I required to pay any tax if I sell my shares after holding

them for more than 1 year?

When you hold shares for more than 1 year, they become Long

Term Capital Assets. Any profit earned is exempt from income tax,

if the following conditions are fulfilled:

1. Such shares are sold through a recognized stock exchange.

2. Securities Transaction Tax (STT) has been paid on the sale of

such shares.

34) Can I save paying tax when I sell my Residential House?

Yes, provided you hold Residential Property for more than 3 years

and you comply with the following

a) You have either purchased another residential house, one

year before the Date of Sale or

b) You plan to purchase another residential house within two

years from the date of sale; or

c) You plan to construct another residential house within three

years from the date of sale.

In case of (b) or (c), you need to deposit the amount of Capital

Gain in a Capital Gain Account Scheme before the due date of

filing your income tax return.

35) What is the relevant date for sale of shares - Date of Sale or

Date of Transfer from Demat Account?

The Date of Sale is relevant for calculating Long Term or Short

Term Capital Gain.

36) What is STT?

STT stands for Securities Transaction Tax. It is a tax paid for

transactions made on a recognized stock exchange.

37) Is STT borne by the buyer or seller?

STT is levied on both buy as well as sell transactions. Hence it

has to be borne both by the buyer and the seller.

38) Do I get deduction for STT paid?

No, you cannot claim STT as an expense while calculating Capital

Gains. It is only relevant while determining the tax rate of your

Long Term or Short Term Capital Gain.

39) Do I have to declare sale of assets even if it is at No profit no

loss?

Yes. It is relevant for transactions where STT is not paid and for

claiming indexation benefit.

40) What is Fair Market Value?

It is the market value of the investment / asset as on 1st April

1981. This value is relevant for Capital Gains, when the

investment/asset has been purchased before 1st April, 1981.

41) What all costs should be covered under Improvement Cost?

All the expenses paid towards major repairs of the property, for its

maintenance and enhancing its life add up to form the

Improvement Cost.

42) What are the components of income from other sources?

The following are examples of income from other sources:

Dividend from shares/units of mutual funds

Interest from Fixed Deposits, Debentures, Loans etc.

Gifts received from relatives

Family Pension, Royalty, Agriculture etc.

Rental income from plant, machinery etc.

43) Am I required to also disclose tax-free income while filing my

income tax return?

Yes, you are required to enter data of all income earned by you

during the year. Thus, irrespective of whether such income is

taxable or exempt from tax, you should disclose it in your return.

44) Is Interest earned on my Savings Bank account taxable?

Yes. Saving Bank interest - however small the amount is - is your

income and is taxable. Many taxpayers, usually employees, tend

to miss this income while filing income tax return.

45) When do I declare interest from Fixed Deposit?

There are 2 options to declare the interest:

At the time of maturity of the Fixed Deposit or

Every year, on the basis of accrual i.e., interest earned but not

yet received

46) Is withdrawal from Public Provident Fund to be declared?

No, since withdrawal from Public Provident Fund is not an income.

47) What is Tax Deducted at Source (TDS)?

Tax deducted by the person at the time of paying any income is

called Tax Deducted at Source (TDS).

Examples:

Employer deducting tax before paying salary

Bank deducting tax before paying you interest on fixed

deposits

48) What should I do to claim credit for TDS?

You need to obtain a certificate of Tax Deduction from the

person who deducted your tax.

Enter the income and deduction details from the certificate in

your tax return.

49) From where can I check details of tax already paid by me

before filing my return?

You can view online, the details of tax paid by you and the tax

deducted at source on your income. You need to register on

NSDL's website www.tin-nsdl.com.

50) What tax benefits can I claim in my return?

Certain investments or expenditure made by you can be deducted

from your taxable income.

Examples:

Investments like…

Equity Linked Saving Scheme (ELSS)

Deposits in Public Provident Funds

Investments in Bank or Postal Tax Saving Deposits

National Savings Certificates etc.

Expenditure like…

Premium paid for Insurance Policies (e.g., LIC)

Premium paid on medical insurance

Principal repayment of home loan

Interest paid on higher education loan

Charitable contribution etc.

51) Can I claim a tax benefit of life insurance premium paid for

my spouse's policy?

Yes. You can claim payment of premium on life insurance policies

of your spouse, children, and yourself.

52) Is Accident policy premium eligible for any tax deduction?

No, not all types of insurance premium you pay are eligible for tax

deduction. Life insurance premium paid is eligible for deduction

under section 80C and Medical Insurance premium paid is eligible

for deduction u/s 80D. However when it comes to Accident

Insurance premium, it does not carry a tax benefit.

53) Is interest earned on the PPF account of a minor child be

taxed at maturity?

Interest earned on a minor child's PPF account is exempt from

tax.

54) What are the other deductible investments I can make for my

spouse or child?

You can claim a deduction for investments in PPF, ULIP and

premium for Deferred Annuity Plan.

55) What is the advantage in declaring interest on the NSC every

year?

By declaring the interest every year, your tax liability is spread

out, else you will be taxed on the whole interest on maturity

loosing the below advantage.

Declaring interest in the first 5 years is also deductible along

with Life insurance premium, PPF deposits etc.

56) Can I claim deduction if I forgot to submit proof of my tax-

saving investments to my employer?

Form 16 is not the end of the story! You can declare such

investments in your income tax return. You need to recalculate tax

and claim a refund from the Income Tax Department. This is true

even for certain allowances like House Rent Allowance, Leave

travel Allowance

57) Can I claim medical insurance premium paid both for me and

my dependent parents also?

Yes. Starting from 1st April 2008 you can claim the benefit of

premium paid on both medical policies.

58) Can I get any tax benefit if I have taken a Personal Loan?

A personal loan does not give you any tax benefit, neither for

interest payment nor for principal repayment. Only a housing loan

is eligible for tax benefits on interest payment and principal

repayment.

59) What do I need in order to claim charitable contributions

(donations)?

The charitable institution must have a valid certificate under

section 80G from the income tax department. You also need their

PAN.

60) Can I claim contributions made to Child Rights and You

(CRY)?

Yes, you can claim it.

61) What do I need in order to claim tax concessions based on

physical disability?

You need a certificate in Form No. 10-I from a government

recognized medical doctor.

62) If I gift money or property to my spouse or daughter-in-law, is

it taxable?

There is no tax on the gift. However, income earned by them from

the gifted money or property will be added to your taxable income.

Filing your Return

63) What are the different methods of filing an Income Tax

Return?

You can obtain a copy of the appropriate Income Tax Return (ITR)

form, calculate your tax, fill in the relevant information and sign the

form. Submit the ITR form at the income tax office.

You also have the option to prepare and file it online.

64) If I have not filed my return by the due date, can I still file it?

You can file a return after the due date.

65) Is any interest charged for delayed filing?

Yes. If any tax is payable, you will have to pay penal interest for

delayed filing @ 1% per month from the due date of filing till the

date you actually file.

66) If I do not file my ITR-V (efiling acknowledgement) within 15

days of efiling, does it make my efiling invalid?

E-filing your return without a digital signature requires you to file

ITR-V within 15 days. If you miss filing within 15 days, the date of

filing your ITR-V will be considered as the date of filing your

Income Tax Return.

67) I have not declared my other income to my employer. When

do I pay the tax due on it?

You have to calculate the tax on all your income. After reducing

the TDS, pay the balance tax. If it exceeds Rs.5000, then pay the

tax in advance as under:

30% by 15th September of the financial year

30% by 15th December of the financial year

The balance 40% by 15th March of the financial year

Even if you miss all these dates and pay by 31st March, it will still

be considered as Advance Tax payment. You can pay tax after

these dates also. However in that case you will have to pay

additional interest also.

68) I want to pay income tax. How do I pay it?

You can pay the tax by filling up a form called "Challan No.280"

and submit it to any Nationalized Bank or pay it online through the

website https://onlineservices.tin.nsdl.com/etaxnew/tdsnontds.jsp.

69) I forgot to pay advance tax before 31st March, what should I

do?

You can still pay the tax before you file your tax return. You will be

charged some interest for late payment.

70) I have wrongly paid some Advance Tax / excess tax has been

deducted. What should I do?

Prepare and submit your tax return. The excess tax will be

refunded to you by the tax department.