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.
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