Don’t file Income Tax return if your income is upto 5 Lakhs!

The Central Board of Direct Taxes (CBDT) has exempted salaried employees with an income up to 5 lakhs from filing income tax returns this year. They have announced this last year also with lot of conditions. The conditions are such that almost nobody can avail the exemption.

Let us see who will be exempted from filing IT returns. You have to fulfill all the below conditions to be exempted from filing the returns.

1. Your total income should not exceed 5 Lakhs.
2. Your income should be only from salary and interest income from savings bank account.
3. The bank interest should be reported to the employer and tax should be deducted on it.
4. The interest income should not be more than 10,000.
5. Permanent account number (PAN) should be notified to the employer and the Form.16 from the employer should mention PAN, income and TDS details.
6. There should not be any more tax to be payable by you and there should not be any amount to be refunded from IT department.
7. You should have received salary from only one employer in the year.

You should not invest anywhere, if you want this exemption

Even if you have a fixed deposit of 50,000/- which earns around 9% interest of Rs.4500/- in the year will disqualify you from the above exemption! To save tax, if you have invested in NSC, that interest income also will disqualify you. Only if you keep all your money in savings account and don’t invest even in tax savings schemes will make you eligible for this! Even if you have a house which is lying vacant, you will have a notional income for tax purpose and this will disqualify you from the above exemption.

Still you cannot get that exemption

Even if you satisfy all the above conditions, there is a catch. Your bank will credit the interest in the savings bank account for the second half year of 2011-12 to your account after 31^st March 2012. But you are liable to pay tax on it in this year. As per the CBDT circular, you should declare the interest income to the employer and tax should be deducted on this by the employer. If you want this exemption, you have to estimate the interest income and report this to the employer and tax should be deducted on it! This is easier said than done.

There is good news for this in the recent budget which allows interest income upto 10,000 from Savings Bank account exempted from paying tax. But it is applicable from the financial year 2012-13.

Is filing of returns that difficult?

Instead of meeting all the stiff conditions of CBDT, it is easy to spend some time and file the IT return before 31^st July. 2012. Online filing is an easy option, if you are tech savy. It is very simple to file returns either through the I T department portal or through many other portals offering these services. Otherwise, you can do it offline and it is very simple. Still you find it difficult, you can do it with the help of auditors who will do it for a nominal fee.

Form 16 is not comprehensive

Most employers will not take into account your income from other sources, while deducting tax at source. Form 16 will contain deduction towards Sec 80C, 80 D and 80 CCF, if you have submitted proof of investment to the employer in time. But if you are eligible for tax deduction for any donation under Sec. 80 G, you have to file the IT returns and claim refund.

I T Returns will be of much help at times

Income Tax Return is the most accepted proof of income for all major financial transactions in India. Most banks and other financial institutions will look at your IT returns while deciding the eligibility for any loan. When you are applying for a visa, some countries are keen to know, how much you are earning. Though Form 16 is a valid document, Income Tax return is a widely accepted document.

Some Tax facts

Despite more than 10 crore people having PAN Card, only 4 Crores people filed IT returns in the country for financial year 2010-11. Of these, one crore opted for online filing of returns. These figures are not decent for a country like India which is home to over four per cent of the world’s billionaires.

Our view

For salary class, it is better to file the Income Tax returns with proper disclosures before 31^st July of every year. So file your return for the financial 2011-12 before 31^st July 2012. This will help you in case there is a refund or in case you want to revise the return later.

But if you have not filed the returns for 2010-11, still you can file it without any penalty before 31^st March. 2012, if you have paid all taxes in time.