Filing your own income-tax return is really not as complicated as it is made out to be. And now, with effect from AY 98-99, the process has become simpler with the introduction of Form No. 2D, more popularly called SARAL. This form is essentially meant for individuals, more specifically, assessees other than companies and persons who are claiming exemption under Section 11.

Two copies of Saral have to be filed where one will be returned to the assessee duly acknowledged. The rationale for introducing Saral was that the earlier forms were in the very least, intimidating to the assessees. There was a need to simplify the entire return filing process and Saral is one of the efforts in this regard. Have a look at the form accompanying this booklet. The first part where you have to fill in your personal details such as name, address etc. is self explanatory. We shall start with the main body of the form, i.e. item no. 13 which requires you to disclose the details of your salary.

Income from salaries (Item no. 13) top

Form No. 16, furnished to you by your employer at the end of the financial year, is of great help in filing your tax returns. It is basically a summary of your income from all sources including salaries and the deductions that you are eligible for.

The gross amount of salary inclusive of taxable value of the perks is to be taken directly from Form 16. Also take care to include the deductions allowed. A salaried employee has to pay tax on the full amount of salary. He is not entitled to claim any expenses as a businessman can for his business. However, for this express purpose, there is an ad-hoc deduction allowed which is called Standard Deduction

For the entire salaried class, a deduction of 33.33% of the salary with a ceiling of Rs. 20,000 is available. Those with a salary up to Rs. 1 lakh enjoy a higher limit of Rs. 25,000. Unfortunately, employees having salary of more than Rs. 5 lakhs are not eligible for any standard deduction. This is hard. Such employees would stand to lose as much as Rs. 6,900 (34.5% of Rs. 20,000) from this year on.

In fact, the worse affected would be those whose salary is marginally over Rs. 1,00,000 or Rs. 5,00,000. Both should go to their employers with a request to — now, hold your breath — reduce their salary.

After the demise of an employee, many employers continue giving a pension to the spouse. This pension is usually a little less than what the employee used to earn. Since there is no employer-employee relationship between the spouse and the employer, normal standard deduction on the pension is not applicable. Therefore, a parallel provision u/s 57(iia) grants deduction of 33.33% with a ceiling of Rs. 15,000 on family pension. This is almost identical with the normal standard deduction with a lower ceiling. An assessee earning pension/salary and also getting a family pension can claim both the benefits separately.

The Professional tax that you pay is also deductible. This tax differs from state to state. The rates applicable for the FY 99-00 were :

These rates change from time to time and the rates applicable for next year would be different.

Take care to attach form no. 16 along with without which the return would be considered irregular.

Income from House Property (Item No. 14) top

The owner, or the deemed owner of a house property, inclusive of the appurtenant land, is taxed on the ‘annual value’ of the property under the head ‘income from house property’. Where the house property is used for carrying on any business or profession, the income is not treated as income from the house property, but as business income.

The annual value of a self-occupied property is to be taken as ‘nil’. Where there are more than one such self-occupied property, only one property, as per the choice of the assessee can be taken at nil value. All others will be treated as let out.

Where the annual value is taken as nil, all the deductions allowed on let-out property (dealt with a little later), other than the interest on borrowed capital, are not allowed.

Where there is more than one house or in the case of let-out property, the ‘gross annual value’ is the maximum of i) municipal ratable value ii) actual rent if the property is let out and iii) fair rent. The ‘net annual value’(NAV) is arrived at by deducting municipal taxes actually paid during the year.

From this NAV, the following deductions are permitted :

a) ¼th of NAV is deductible, for repairs and rent collection charges irrespective of the actual expenses incurred.

b)Expenses on i) Insurance premium ii) ground rent iii) annual charge, not being a capital charge and not being a voluntarily created one iv) land revenue v) irrecoverable rent and vi) State tax.

c)In the case of a let out property, vacancy allowance is deductible if it remains vacant during a part of the year. The amount deductible is that part of the NAV (not annual rent) on a pro-rata basis. Now comes a strange aspect. This deduction is not admissible if the property remains vacant throughout the fiscal year. It has to be let out for some part of the year, even for one day.

• Deductibility of Interest on Loans

If the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the interest payable is deductible. In the case of let out properties, the entire interest payable can be set off irrespective of the NAV. In the case of self-occupied property (annual value = nil) interest is deductible up to Rs. 75,000 but only on capital borrowed after 1.4.99 and if the acquisition or construction of the property is completed before 1.4.2001. This terminal date has been raised to 1.4.2003 and the amount of interest deductible to Rs. 1,00,000 by FA00.

Then again, this relief is allowed only when the income from house property becomes chargeable to tax. In other words, the construction should be complete, the flat should be ready for occupation and the municipal annual value is known.

Take care to disclose the address of the property, its nature - whether let out or self occupied, and the computation of net income by way of a separate annexure.

Income from Business or Profession (Item no. 15). top

Annexures stating the computation of income from the business or profession, the profit and loss account, balance sheet with the relevant enclosures, including auditor's certificate, wherever required ought to be attached along with the return.

Take care to suitably modify and adjust any disallowable expenses, claims, brought forward losses,depreciation etc., if any, to arrive at the accurate taxable profit or deductible loss if any.

Capital Gains (Item no. 16) top

Though only the net amount of capital gain is to be shown in the form, the calculation thereof and the details such as the description of the transferred asset, its cost of acquisition, the date of acquisition, date of transfer, value of consideration, adjustment of brought forward losses if any, etc., should be indicated in a separate annexure.

Short-term and long-term gains have to be seperately classified. A short-term asset is one which is held for 36 months or less immediately preceeding the date of transfer. Aassets held for more than 3 years are consequently long-term. However, equity shares, units of UTI/MFs and listed scrips, bonds, debentures etc. are considered as long-term assets if held for more than 12 months.

Let us understand the method of calculating the long-term capital gains and tax thereon.

First of all, for computation of long-term capital gains, the assesse has two options.The first one is to calculate the difference between the cost of acquisation and the sale price and tax the same at a flat rate of 10%.The other option requires the assessee to pay tax @20%. However, in that case, the cost of the asset sold can be adjusted for inflation. Starting with the base year as FY 81-82, the RBI notifies the ‘Cost Inflation Index’ every year as given in the following table.

Table-1 : Cost Inflation Index

An example will further clarify the principle involved.

Mr. Shroff has earned long-term capital gains on sale of his residential premises in FY 99-00. Following are the details :

Short-term capital gains has the nature of normal income. Hence is added to normal income for calculation of tax. However, long-term capital gains are taken as a separate block and charged to tax at a flat rate of 20%. On this, the assessee does not get any deduction u/s 80L, 80D etc., or the rebate u/s 88. However, tax rebate u/s 88B for senior citizens is certainly applicable.

The dates 15th September, 15th December, 15th March are basically the installments of advance tax payable ((discussed subsequently) in relation to capital gains. Therefore, gains arising in each period should be separately indicated in the given space.

Income from Other Sources (Item no. 17) top

Net income from other sources such as interest, income from UTI/MFs, interest on bank FDs etc. is to be shown here. This avenue has lost its teeth now as the most common income sources such as dividends from shares and MFs or even UTI are completely exempt from tax. In any case, details of such incomes should be laid out in a separate annexure to be attached with the return.

Income of any other person (item no. 18) top

Certain actions of assessees give rise to the clubbing provisions of the Act. For example income from investment gifted to spouse or minor children has to be included and taxed in the assessee’s own hands. Any such items have to be clearly stated and shown here.

Deductions under chapter VI-A (Item 20) top

There are several deductions from gross total income available to an assessee. Some of the more relevant ones applicable to the common person in daily life are discussed below. The aggregate amount of deductions should not, in any case, exceed the gross total income.

• Mediclaim : Sec. 80D

Deduction upto Rs. 10,000 is allowed in respect of medical insurance premiums paid by cheque by an individual. The premiums may be paid on the health of assessee herself, her spouse, dependent children or parents. The same benefit is also available to an HUF for its members. Mediclaim is available with a ceiling on target amount upto Rs. 3 lakhs to all individuals under 70 years of age.

For senior citizens, the deduction is raised to Rs. 15,000. Unfortunately, premiums paid by senior citizens for covering health of their children, dependent or otherwise, are not eligible for the deduction.

Mediclaim is beneficial to all, taxpayers or otherwise, rich or poor, in view of the high cost of hospitalisation. Note that a Mediclaim policy taken by a person going abroad, as a protection during her stay abroad, does not attract any tax deduction.

• Handicapped Dependent : Sec. 80DD

FA98 merged Sec. 80DDA with 80DD raising the total deductible amount from Rs. 35,000 to Rs. 40,000. Sec. 80DD stipulated that a resident individual or a member of HUF having a dependent relative who suffers from a permanent physical disability (including blindness) or mental retardation was entitled to a deduction of Rs. 20,000 in a year for medical treatment, training or rehabilitation.Payment to LIC’s ‘Jeevan Aadhar’ and UTI’s ‘Special Plan for the Handicapped’ specially designed for such persons was covered by Sec. 80DDA, offering a deduction of Rs. 15,000.

Deduction u/s 80DD is statutory in nature and is allowed in full, irrespective of the actual expenditure incurred on medical treatment.

• Sec. 80DDB

Exemption of Rs. 40,000 is allowed for expenditure on treatment of protracted diseases to an individual for herself or a dependent relative and to an HUF for any of its members. If the individual or the dependant is a senior citizen, this limit would be Rs. 60,000. However, any amount received by way of medical insurance has to be subtracted for arriving at the eligible deduction. Earlier it was not clear whether this deduction was of a statutory nature or not. It has now been made clear that it is necessary to incur the expenses for the claiming the exemption. The diseases are —

Cancer, AIDS, Chronic Renal Failure, Haemophilia and Thalassemia. Disability of 40% and above resulting from Neurological diseases such as Dementia, Dystonia Musculorum Deformans, Motor Neuron Diseases, Ataxia, Hemiballismus, Chorea, Aphasia and Parkinson’s Disease is also covered. A certificate (Form 10-I) from any post graduate doctor will have to be furnished.

• Loan for Higher Education : Sec. 80E

Repayment of loan as well as interest thereon by an individual taken from a bank, a notified financial institution or any approved charitable institution for higher education is deductible upto a ceiling of Rs. 25,000 (raised to Rs. 40,000 by FA00) per year for 8 successive years. Unfortunately, loans given by employers are not eligible. Higher education means studies for any graduate or post graduate course in engineering, medicine or management or a post- graduate course in applied or pure sciences, including mathematics and statistics.

How many such students are really taxpayers? Even if they are, who will dare give them a loan? It would have made some sense if this concession was offered to the parents of the students. Why do the authorities spend their valuable time and public money in creating such impotent provisions?

• Donations : Sec. 80G

An assessee is entitled to a deduction of 50% (and in some cases 100%) of donations made for approved charitable purposes. These donations must be in the form of money and not in kind, unless the donor is the manufacturer of the items donated (178ITR171 Saraswati Industrial Syndicate). Some of these funds have an aggregate ceiling of 10% of gross total income, as reduced by the standard deduction u/s 16(i) as well as professional tax u/s 16(iii) and also by other permissible deductions under Chapter VI-A.

• Reintroduction of Sec. 80GG

All assessees, including employees not getting HRA, paying rent for furnished or unfurnished accommodation in excess of 10% of their total income are entitled to a deduction of least of i) rent in excess of 10% of total income; ii) 25% of total income and iii) Rs. 2,000 per month. The deduction is not available if the accommodation is i) owned by the assessee or his spouse or minor child or the HUF of which he is a member at the place where he normally resides or has her office, employment, business or profession or ii) owned by him at any other place and occupied by him. The assessee is required to file a declaration in Form-10BA.

Now, the problem. The ‘total income’ means income arrived at after giving effect to all the deductions but before this particular deduction. Most of the deductions having a ceiling have similar stipulations. For instance, the amount deductible u/s 80G depends upon deduction u/s 80GG and the amount deductible u/s 80GG depends upon deduction u/s 80G! Even the best brain in the ministry of finance cannot break through this circular relationship.

• Interest and Dividend : Sec. 80L

Aggregate earnings from some specified sources are eligible for deduction upto of Rs. 15,000 from the taxable income out of which Rs. 3,000 was specially earmarked for government securities and UTI/MFs. However, now that UTI/MF income has become tax-free and since an individual would not normally go in for g-secs, this special limit will go abegging. The schemes are :

* Deposits with a) Banking Company or Co-operative Banks b) Co-operative Societies c) Approved financial corporations or public companies to provide long-term finance for industrial or agricultural development or for construction or purchase of residential houses; it may be noted that the ‘Home Loan Account Scheme’ of National Housing Bank is not covered by Sec. 80L but it enjoys the benefit of tax rebate u/s 88 d) Industrial Development Bank of India and e) Housing Boards.

* Small Savings Schemes —- a) National Savings Certificates VIIIth issue b) Post Office Time and Recurring Deposits c) National Savings Scheme, 1992 and d) Post Office Monthly Income Scheme.

* Notified debentures of co-operative societies or institutions or public sector companies.

• Physically Handicapped Person : Sec. 80U

A resident, who, at the end of the previous year, suffered from a permanent physical disability (including blindness) or was mentally retarded, which had the effect of reducing substantially her capacity to engage in gainful employment or occupation is entitled to an ad hoc deduction of Rs. 40,000. This deduction can be claimed, irrespective of the expenditure on the treatment or the duration of the disability. All that is required is to furnish a certificate, procured from practitioners working in government hospitals or specified associations for handicapped persons, in support of the claim in the first year for which the deduction is claimed.

Tax Rebate (Item No. 25) top

Rebate is a deduction from tax payable. Since these are the best tax-slashing devices, it is absolutely essential to have a clear, concise and complete insight into these.

• Tax Rebate under section 88

Contributions out of income chargeable to income tax by an individual or HUF to some specific schemes (see Table) qualify for deductions from tax payable at a flat rate of 20% of the contributions made. The aggregate contribution to all these schemes qualifying for deduction is subject to a ceiling of Rs. 60,000.

Schemes Eligible for Rebate u/s 88

Note : The last three schemes attract extra ceiling of Rs. 10,000.

A higher qualifying limit of Rs. 70,000 (raised to Rs. 80,000 by FA00) in place of Rs. 60,000 is applicable to infrastructure-related instruments. The Tax-saving Bonds of ICICI/IDBI with a lock-in of as low as 3 years serve the best. If you invest, say Rs. 50,000 in other eligible avenues and Rs. 20,000 in this new avenue, you can knock off from your tax liability Rs. 14,000 in place of Rs. 12,000. On the other hand, if Rs. 68,000 is invested in other avenues and only Rs. 5,000 is subscribed to infrastructure, the rebate of Rs. 13,000 can be claimed only on Rs. 65,000.

Contributions to i) LIC for life cover ii) LIC deferred annuity iii) PPF iv) ULIP and Dhanaraksha in the name of spouse and all children, major or minor, married or otherwise, (including married daughters) are also eligible for the tax rebate. Similarly, contributions made by HUF to all the items mentioned above, except LIC deferred annuity in the name of any member of the family are also eligible.

For an individual who is an author, playwright, artist, musician, actor, sportsman or athlete, the qualifying ceiling is higher at Rs. 70,000 and so is the rate of tax rebate at 25%. The only condition for applicability of the extra concession is that the income from profession should be more than 25% of his total income. Unfortunately capital gain is taken as a part and parcel of the total income. This is so, in spite of treating it as a separate block of income. This is illogical, inconsiderate, unjustifiable and very harsh on an assessee who has earned long-term capital gains.

• Sec. 88 and House Property

Any payment made by an individual or HUF towards cost of purchase or construction of a residential house, (not necessarily self-occupied) qualifies for the deduction up to Rs. 10,000 (raised to Rs. 20,000 by FA00) subject to the overall monetary limit of Rs. 60,000 (this is not infrastructure related).

Such a house is required to be held for a minimum period of 5 years from the end of the FY in which its possession was taken. If the house is sold earlier, aggregate rebate claimed shall be added to the tax liability on normal income of the assessee for the year during which the house is sold.

• Rebate for Senior Citizens : Sec. 88B

Senior citizens, are individuals who are over 65 years of age at the end of the financial year. This means that even an individual whose 65th birthday falls during the year is considered as a senior citizen. All such persons are entitled to claim 100% tax rebate or Rs. 10,000 (raised thankfully to Rs. 15,000 by FA00), whichever is lower.

• Rebate for Junior Women : Sec. 88C

FA00 has introduced this new privilege to any women, resident in India, below the age of 65 years to claim a rebate of Rs. 5,000. Once she becomes a senior citizen, she will lose this concession but will enjoy the senior citizens rebate of Rs. 15,000. Do note that this is a new provision introduced by FA00. Ergo, it is not applicable for the current filing.

Agicultural income (Item 22)

Agricultural income is not taxable. However, where an assessee has other income, it will be aggregated only for the rate purpose. To illustrate, let us take the instance depicted alongside. If there were no agricultural income, the tax, would have been Rs. 700 on an income of Rs. 57,000 and no surcharge. Agricultural income pushes the tax up by Rs. 840.

Rs.

Salary 63,000

Other income 27,000

Gross Income 90,000

Less:: Std. Deduction(1/3rd) 21,000

u/s 80L 12,000

Taxable 57,000

Add : Agri income 20,000

     Total 77,000

Tax & Surcharge 4,840

Agri. Income 20,000

Basic Exemption 50,000

70,000

Tax & Surcharge 3,300

Tax Payable 1,540

Tax on Total Income (Item No. 24) top

It is said, death and taxes are inevitable. And hence we come to the (inevitable) tax payable. How much do you actually pay?

Surcharge @10% on tax computed after taking into account deductions and rebates will be levied if the net total income is over Rs. 60,000. Marginal relief would be provided to ensure that the total tax payable along with the surcharge, on excess of income over Rs. 60,000 is limited to the amount by which the income exceeds Rs. 60,000. For instance, if the total income is Rs. 60,050 the basic tax is Rs. 1,010 and though the surcharge @10% works out at Rs. 101, it will be limited to Rs. 40. Therefore, the total tax payable works comes to Rs. 1050.

No surcharge is payable by NRIs.

Surcharge is applicable to i) normal tax ii) advance tax iii) tax on long-term capital gains ii) Tax Deduction at Source (TDS) and iii) the dividend tax payable directly to the exchequer before dividend is paid by the companies to their shareholders and by the MFs to their unitholders.

Income Tax Rates - Individuals & HUFs

*Note that for FY 2000-01, additional surcharge is payable but the same is ignored as its not relevant for FY 1999-00.

Advance Tax (Item No. 28) top

All taxpayers are required to pay advance tax in spite of the fact that most income is subject to TDS or is tax-free.

If the tax payable for the year is Rs. 5,000 or more, advance tax is payable in 3 instalments during each financial year as follows :

On or before 15th September : 30% of estimated tax.

15th December : 60% less tax already paid.

15th March : 100% less tax already paid.

In the case of shortfalls of the first two instalments of advance tax, simple interest @1.5% per month is charged for 3 months (when the next instalment falls due) on the amount of shortfall of 30% or 60%. Even if the delay is just by one single day, the interest is payable for 3 months.

• Unanticipated Income and Capital Gains

The provisions encompassing advance tax on long-term capital gains were so complicated and unreasonable that even experts failed to have a clear perception. However, in time, the dust has cleared. Accordingly, no interest would be charged in respect of any income, which was neither anticipated nor contemplated, received after the date of first or subsequent installment of advance tax. However, it would be necessary to pay advance tax on such income at the next due date for advance tax.

For instance, if the assessee earns capital gains on October 25th, he should pay 60% tax on or before December 15th and 40% additional tax on or before March 15th, unless of course, he takes shelter under the various exemptions.

To Sum

Now that every relevant item has been more or less covered, we hope the filing of returns is that much more easy for you. Remember, even if you do not have taxable income, you are legally required to file your returns.

In the case of wilful failure to furnish return of income in the prescribed time, Sec. 276CC comes into effect. Where, as a result of failure to file the return, the tax evasion exceeds Rs. 1 lakh, the penalty is a fine and imprisonment that could vary in term between 6 months to 7 years. In other cases, it could be a fine and imprisonment of 3 months to 3 years.

Over and above this, Sec. 271F imposes a penalty of Rs. 1,000 for late furnishing of returns in normal cases and Rs. 500 for those under the 1-by-6 criterion.

Last but not the least, if the income under business, profession, capital gains or house property is a loss, the return must be filed within the prescribed time limit. Otherwise the benefit of carry forward of loss is not admissible.