the assessment year. If the return is not filed even after the end of the assessment
year, penalty may also be levied.
56. Can a return be filed after the due date?
Yes. It may be furnished at any time before the expiry of two years from the end
of the financial year in which the income was earned. For example, in case of income
earned during FY 2006-07, the belated return can be filed before 31
st
March 2009.
57. So far I have never paid any tax. If I file a return this
year will the IT department ask me about my earlier years income?
It is never too late to start honoring your constitutional obligations for payment
of tax. The department may ask you to file return of income for earlier years if
it finds that you had taxable income in those years.
58. If I have paid excess tax how and when will it be refunded?
The excess tax can be claimed as refund by filing your income tax return. It will
be refunded by issue of cheque or by crediting to your bank account. The department
has been making efforts to settle refund claims within four months from the month
of filing return.
59. If I have committed any mistake in my original return,
am I permitted to file a corrected return?
Yes, provided the original return has been filed before the due date and provided
the department has not completed assessment. However it is expected that the mistake
in the original return is of a genuine and bona fide nature.
60. How many times can I revise the return?
Theoretically a return can be revised any number of times before the expiry of one
year from the end of the assessment year or before assessment by the department
is completed; whichever event takes place earlier.
61. Am I required to keep a copy of the return filed as proof
and for how long?
Yes. Since legal proceedings under the income tax act can be initiated up to six
years prior to the current financial year, you must maintain such documents at least
for this period.
62. There are various deductions that have not been reflected
in the Form 16 issued by my employer. Can I claim them in my return?
Yes.
63. Why is return filing mandatory even though all my taxes
and interests have been paid and there is no refund due to me?
Amounts paid as advance tax and withheld in the form of TDS or collected in the
form of TCS will take the character of your tax due only on completion of self-assessment
of your income. This self-assessment is intimated to the department by way of filing
of return. Only then does the government acquire rights over the prepaid taxes as
its own revenue. Filing of return is critical for this process and, hence, has been
made mandatory. Failure will attract levy of penalty.
64. Am I liable for any criminal prosecution [arrest/imprisonment
etc] if I dont file my income tax return even though my income is taxable?
Non-payment of tax attracts interests, penalty and prosecution. The prosecution
can lead to rigorous imprisonment from 6 months to 7 years and fine.
E. PAN
65. What are the benefits of obtaining a Permanent Account
Number [PAN] and PAN Card?
A PAN number has been made compulsory for every transaction with the Income Tax
department. It is also mandatory for numerous other financial transactions such
as opening of bank accounts, availing institutional financial credits, purchase
of high-end consumer item, foreign travel, transaction of immovable properties,
dealing in securities etc. A PAN card is a valuable means of photo identification
accepted by all government and non-government institutions in the country.
66. I have lost my PAN card but remember my number. Do I necessarily
need to get a fresh card?
With your PAN you can continue to transact with the Income Tax department. However,
in respect of other agencies you may encounter constraints without a PAN card since
it doubles as a photo identity card.
67. I have been allotted two PANs. Which number should I use?
You may retain any one of the numbers and surrender the other through a letter addressed
to your jurisdictional Assessing Officer.
68. If I do not surrender the additional PAN number, is there
any problem?
Yes. It is illegal to have two PANs and the penalty for such offence is Rs.10,000/-
69. By mistake I have been using different PANs for different
purpose like one for my demat account and another for filing my Income Tax return
and payment of taxes. How do I set this right?
It is advisable to retain only one PAN, preferably the one used for Income Tax purpose
and surrender the other number immediately. The institutions where the latter number
has been quoted should be informed of the correct PAN.
70. Is it mandatory to file return of income after getting
PAN?
No. Return is to be filed only if you have taxable income.
F. Salary Income
71. What is considered as Salary income?
Whatever is received by an employee from an employer in cash, kind or as a facility
[perquisite] is considered as Salary.
72. What is meant by an employer-employee relationship?
If a person has the right/power to hire and fire another, then he is an employer
of the latter.
73. What are allowances? Are all allowances taxable?
Allowances are fixed amounts, apart from salary, which are paid by an employer for
the purpose of meeting some particular requirements of the employee. There are generally
three types of allowances for the purpose of income tax- taxable, fully exempted
and partially exempted.
74. I am always on tour and my employer gives me substantial
daily allowance, most of which is saved. Will this saving be treated as income?
Yes.
75. My employer reimburses all my expenses on grocery and
childrens education. Would this be considered as income?
Yes. These are in the nature of perquisite.
76. During the year, I had worked with three different employers
and none of them deducted any tax from salary paid to me. If all these amounts are
clubbed, my income will exceed the minimum exemption limit. Do I have to pay taxes
on my own?
Yes. You will have to pay self-assessment tax and file the return.
77. Even if no taxes have been deducted from salary, is there
any need for my employer to issue Form-16 to me?
Form-16 is a certificate of TDS and in your case it will not apply. However your
employer must issue a salary statement.
78. Is pension income considered as salary?
Yes. However pension received from the United Nation is exempt.
79. Is Family pension considered as salary?
No. It is taxable under other sources.
80. If I am receiving my pension through a bank who will issue
Form-16 or pension statement to me- the bank or my former employer?
The bank.
81. Are retirement benefits such as PF and Gratuity taxable?
No. They are exempt subject to conditions and limits laid down in the Income Tax
Act.
82. Are arrears of salary taxable?
Yes. However certain benefit of spread over of income to the years to which it relates
can be availed for lower incidence of tax. This is called relief u/s 89(1) of Income-tax
Act.
83. Can my employer consider relief u/s 89(1) for the purposes
of calculating my tax liability?
Yes.
84. My income from let out house property is negative. Can
I ask my employer to consider this loss against my salary income while computing
my tax liability?
Yes.
85. Is leave encashment taxable as salary?
It is taxable if received while in service. Received as retirement benefit, however
it is exempt subject to certain conditions.
86. Life insurance amount received on maturity along with
bonus - is it taxable?
No.
G. Income from House property
87. What do you mean by Income from House Property?
Unlike the other heads of income, Income from house property is a notional income
based on a concept called Annual value. This is the value a property is expected
to fetch if it is let out. It may be more than the actual rent being received if
let out. If it is not let out the expected market/fair rent will be considered as
annual value for the purpose of taxation. Property includes the building and the
land surrounding it.
88. If a property is not a residential house, can its income
still be considered as income from house property?
Yes, provided the property is not used for business purpose.
89. What are the conditions for taxing income from a property
under this head?
The person should own the property.
90. Can interest paid on hand loans taken from friends and
relatives be claimed as deduction while calculating house property income?
Yes.
91. I have two houses. One is a farmhouse that I visit on
weekends and the other is in the city that I use on weekdays. Is it correct to treat
both these residences as self occupied?
No. You can claim any one as self occupied. Incomes from buildings situated in or
near agricultural farm are considered exempt provided they are used for dwelling
of the farm owner/cultivator or for related purposes of storage etc.
92. I own two houses both of which are occupied by my family
and me. Is there any tax implication?
Yes. As already mentioned in the answer to Q.No: 87, income from house property
is a notional income and only in respect of one residential unit, if self occupied,
it will be considered as nil. In case of the other residential unit, marketable
rental value will have to be offered for tax.
93. My spouse and I are joint owners of a house constructed
by availing housing loan separately. Are we both individually/separately entitled
for deduction of the maximum interest payable of Rs.1.5 lakh?
No. The net taxable income from the property must be calculated first and then apportioned
between the co-owners. In this process of calculation maximum interest payable of
Rs.1.5 lakh can be considered only once.
94. My spouse and I jointly own a house for construction of
which both of us have invested equally out of independent sources. Can the rental
income received be split between us and taxed in the individual hands?
Yes.
95. I have 5 separate let out properties. Should I calculate
the house property income separately for each individual property or by clubbing
all the rental receipts in one calculation?
The calculation will have to be made separately for the various properties.
H. Income from business and Profession
96. What does Profession mean?
Profession means exploitation of ones skills and knowledge independently. Profession
includes vocation. Some examples are legal, medical, engineering, architecture,
accountancy, technical consultancy, interior decoration, artists, writers, etc.
97. I have a large piece of land which I sold by dividing
into smaller plots. However I am not in the real estate business. Would this one
time activity still be considered as business activity?
Yes. Under the income tax Act even a solitary activity of this nature will be considered
as an adventure in the nature of trade and taxed as business income.
98. What books of account have been prescribed to be maintained
by a person carrying on business under the Income tax Act?
The Act does not prescribe any specific books of account for business. However you
are expected to maintain your accounts in such a fashion that the net profit of
the business can reasonably and easily be arrived at by the department. For companies
the books of account are prescribed under the Companies Act. Further the Institute
of Charted Accountants has prescribed certain accounting standards for business
that are required to be audited by them. The Income Tax department accepts the books
of account maintained under these standards.
99. Are professionals required to maintain any books of account
under the Income tax Act?
Yes. The following books and documents are to be maintained mandatory:
a. Cash book b. Journal in case of mercantile system of accounting c. Ledger d.
Carbon copies or counter foils of all bills issued, being serially numbered e. Original
copies of all expenditure bills. Signed vouchers where bills not available for less
than Rs.50.
100. I am a small time trader. Do I need to maintain any
accounts?
Any business or profession that has an annual turnover/gross receipts exceeding
rupees ten lakh and net profit of rupees one lakh twenty thousand, must maintain
such books of account and documents from which its income can be reasonably ascertained
by the department.
101. Where should the books of account of my business be
kept and for how long?
All the books of account and related documents should be kept at the main place
of business ie where the business or profession is generally carried on. These should
be preserved for a minimum of six years.
102. Do I have to keep an accountant to maintain my account?
This depends upon your ability and need. You may even prefer to use the accounting
software available in the market. However, you should remember that in case of turnover
exceeding rupees forty lakh per annum in a business and gross receipts exceeding
rupees ten lakh per annum in a profession, a professional charted accountant must
audit your accounts. [Section 44AB]
103. What is meant by audit of the books of account?
Auditing means checking the correctness and genuineness of your accounts and verifying
whether accounting principles and standards have been properly followed in conduct
of your business and preparation of accounts. Under Income Tax Act, this verification
will have to be carried out by an independent Chartered Accountant.
104. In my business it is impossible to issue bills for every
transaction. How can I be expected to maintain proper accounts?
There can be no excuse for not maintaining the bill books. However, if you are a
smalltime retail trader with your annual turnover less than Rs.40 lakh, then you
are permitted to declare your income on presumption at 5% of your actual sales.
[U/s 44AF]. In that event no books of account need be maintained. Similarly, the
benefit of non-maintenance of books of account is available for civil contractors
[u/s 44AD] in case 8% of the turnover is disclosed as profits. Transporters owning
less than 10 goods carriage can also avail the benefit of presumptive income scheme
without maintenance of books of account. However, if you declare your income below
the minimum level/percentage provided under the scheme, you will necessarily have
to maintain the books and get them audited.
105. I am a medical practitioner. Do I need to maintain any
accounts?
Yes. All the books and document prescribed for professional [refer question no:
99] need to be maintained. Additionally, a daily case register in prescribed form
no.3C and an inventory of drugs, consumables and other stocks also need to be maintained.
106. Can an electric contractor also avail the benefit of
deemed income provision?
No. These provisions are specifically for civil contractors.
107. I own 7 cars that are let out on hire to various organizations.
Am I also eligible to declare presumptive income without maintaining any books?
No. The scheme is applicable to owners of goods carriages.
108. What are the expenses that I can deduct from my business
receipt while calculating the business profit?
Only those revenue expenses that are directly related to the earning of your business
receipt can be claimed as business expenditure. Personal expenses are not allowed
to be deducted.
109. What do you mean by revenue expenditure?
Revenue expenditures are those that are routine, recurring, and periodical with
no enduring value beyond the financial year in which they are incurred. On the contrary
capital expenditures are those that are spent on assets from which income is generated.
These are normally enduring in nature.
110. In what form can I claim deductions for capital expenses
incurred in my business?
The Income tax Act allows you to claim depreciation on your movable tangible and
intangible assets. The rates of depreciation are different for different assets.
111. I am engaged in wholesale business and also have a commission
agency. My turnover from wholesale business this year is Rs.38 lakh while my commission
income is Rs.5 lakh. Do I have to get my accounts audited since the total is exceeding
Rs.40 lakh?
Yes, auditing of accounts is compulsory where gross receipt of a person exceeds
Rs.40 lakh.
112. I am an Insurance agent. I incur substantial expense
on travel and also meet the first few insurance premia of my customers. However
I have no documents to prove these expenses. How can I claim them?
If your commission earning is more than rupees sixty thousand a year, then you will
have to maintain books of account and proof of expenditure. No claim for the premia
payment will be allowed if the customer has claimed the same as his own expenditure.
I. Capital Gains
113. I have sold a house for Rs.5 lakh, which had been purchased
by me 5 years ago for Rs.2 lakh. Am I required to pay any tax on the profit of Rs.3
lakh earned by me?
Yes. This profit, which is called capital gain, is taxable subject to certain conditions.
114. Sale of what kind of assets attracts capital gains?
All transfer of capital assets attracts capital gains. Capital assets are those
properties that have an enduring value and they are not consumable.
115. What does transfer mean?
Transfer means giving up your right on an asset. It includes sale, exchange, compulsory
acquisition under any law, relinquishment etc
116. Does the capital gain tax differ according to my period
of holding an asset?
Yes. If assets are held for more than 36 continuous calendar months prior to transfer
they are called long-term assets and their transfer results in long-term capital
gain that is taxed at the rate of 20%. The only exception to this general rule is
in respect of securities for which the period of holding prior to transfer is 12
months to be considered as long-term capital asset and the rate of tax is nil, provided
securities transaction tax has been paid. Any transfer of assets held for lesser
than these periods would result in short-term capital gain. This is taxed at normal
rates in respect of all assets except securities. For securities the rate of tax
is 10% along with payment of securities transaction tax.
117. Can I get any benefit for erosion in the value of money
over the years while alculating my gain on sale of asset?
Yes. To neutralize the erosion of value of money over the years the cost index for
the year of sale is factored in while calculating the cost of investment so that
the impact of inflation is neutralized and only the actual gain to the seller is
brought to tax.
118. I have sold a property and made profit. If the sale
amount is reinvested in purchase of a site, is my profit exempt from tax?
No. For getting exemption the nature of property sold is relevant. If you have sold
a residential property, the gain received on sale should be reinvested in another
residential property [which may include land and building] to qualify for exemption
[section 54]. Even if you have sold a property other than a residential property,
you will qualify for exemption only if the net consideration is reinvested in a
residential property which may include land and building [section 54F].
119. If I sell my land will I be taxed?
Gain from sale of non-agriculture land is taxable as capital gain. Gain from sale
of agriculture land is taxable only if it is located within 8 kilometers from the
urban limits.
J. Tax Deduction at Source
120. What is TDS?
TDS means Tax Deducted at Source. It is the amount withheld from payments of various
kinds such as salary, contract payment, commission etc. This withheld amount can
be adjusted against your tax due.
121. Is TDS relevant for me as a businessman?
Yes. Payments may be made to you after TDS. You can adjust this against your final
tax liability. You are also required to effect TDS while making business payments.
Failure to do so will result in the entire of expenditure being disallowed as your
business expenditure and taxed as income.
122. I have made some deposits with a bank on which annual
interest is around Rs.15000. My income is below taxable limit. The banker wants
to deduct tax. What do I do?
You can file a self-declaration to the banker in form 15H stating that your income
is below taxable limit. The form is available with your banker, the local Income-Tax
office and can be downloaded from the website
http://www.incometaxindia.gov.in/. This form should be filed before the
interests begin to accrue in the fixed deposit account, since the declaration has
no retrospective effect.
123. I have let out a property for Rs.20,000 per month. The
tenant is deducting tax that is more than my tax liability. What can I do under
this circumstance?
If you compute your tax liability and find it to be lower than the tax being deducted,
you may approach your assessing officer by filing Form 13. He will issue a certificate
directing the tenant to make TDS at a lesser rate. This form is available with the
local Income tax office or can be downloaded from the website www.incometaxindia.gov.in.
124. I have deducted tax from payments disbursed but used
the same for some urgent financial needs. What are the consequences?
It is an offence to misuse the tax deducted at source. It should have been remitted
to government account within the time allowed. The failure attracts tax, interest,
penalty and also rigorous imprisonment up to seven years
125. What can I do if I am unable to get the TDS certificate
[form-16 or 16A]?
It is the duty of every person deducting tax to issue TDS certificate. In spite
of your asking if you are denied the certificate then there is a chance that the
tax deducted has not been deposited by the deductor to the government account. Please
inform the department [PRO or TDS section] which will then do the needful.
126. I have not received TDS certificate from my employer.
Can I claim TDS deducted from my salary?
Yes. The claim can be made in your return. Department however will raise a demand
which will not be enforced on you but on your employer.
127. If the employer does not deduct tax and employee also
does not pay his due tax, who will be held responsible for tax payment?
The ultimate responsibility to pay tax rests on the person who has earned income.
If the employee deposits such tax then the employer will be liable for interest
and penalty for failure to deduct tax.
128. I am buying a property from a person residing in USA.
Should I deduct tax while making payment?
Yes u/s 195. In case you have any doubt regarding the amount on which TDS is to
be made, you may file an application with the officer handling non-resident taxation
who will pass an order determining the TDS to be made. Alternatively, if the recipient
feels that the TDS is more he may file an application with his Assessing officer
for non-deduction.
129. Can I use PAN to pay the TDS deducted into government
account?
No. You are required to take a separate Tax Deduction Account Number [TAN] by making
an application in form 49B with the Tin facilitation center of NSDL.
130. In case the deductee comes back stating that the original
TDS certificate is lost, whether a duplicate certificate can be issued?
Yes. The deductor will have to issue the certificate in a plain paper giving necessary
details of deduction and remittance.
K. Assessment
131. What is the mechanism by which the department checks
the correctness of my return of income? Would I be given an opportunity to present
my views during the course of such verification?
Based on information available with the department a small percentage of returns
are picked up for verification. This process is called scrutiny. You will be given
full opportunity to put forth views and evidences to support your claims.
132. What recourse is available to me if I am unhappy with
the order passed by my Assessing officer?
The Income tax Act has provided for filing appeals in such cases. The first appellate
authority is the Commissioner (Appeals). Subsequently the matter can be taken to
the Income Tax Appellate Tribunal, then to the High Court and Supreme Court.
133. Some demand has been raised by my Assessing officer
after assessment. Can I pay this demand in installments or seek time till my appeal
is settled?
Yes. You may approach your Assessing officer within 30 days of receipt of demand
notice for installments or stay or seek time for payment. However you are liable
to pay interest for delay in payment of demanded tax.