Who should file returns and why?

Filing a tax return is always time consuming and involves mind boggling paperwork. Most of us, especially the salaried employees, can’t figure out why we must declare our income, then submit proof of investment, bear the brunt of tax on our salaries and then again file returns. Is it not sufficient that we pay tax to the country through our employers?

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The short answer to all of the above is unfortunately a No. A longish explanation is that anyone who earns income must file income tax returns. But before we go into why the tax returns must be filed, here’s a brief on what it is all about.

What is IT return?
It is a self declaration made by you stating all the income you have earned in that given year. When filing returns you can also include any losses you’ve incurred. This doesn’t just apply to businessmen, even a regular salaried employee who has suffered a loss, for instance in stock market, can include it

Why you need to file returns
According to the law, if you earn anything more than Rs50,000 a year, you need to file income tax returns (Cruel, yes, but necessary).
This includes salaried employees as well, even though your tax has already been deducted. But this doesn’t’ mean that earning below Rs 50,000 lets you off the hook. The income tax has a One-by –Six scheme for the below Rs 50,000 earners

Here are the six types:

• Owns a motor vehicle. So if you have a motorbike or a scooter (or even a Scooty) you should file returns.

• Owns immovable property. You may not earn Rs 50,000 a year, but if you own a house or a piece of land in some distant part of the country, then that makes you eligible to file returns.

• Foreign travel. If you happened to take a trip abroad, welcome to IT returns

• Holds a credit card. The taxmen spot the splurgers, they reckon if you have a credit card, then you’ve got enough to be filing returns for. Note though, here the credit card does not imply an add-on one.

• Member of a club with an entrance fee over Rs 25,000. Can’t blame the taxmen, if you are a member of such a club, they are bound to be convinced you’ve got enough to file returns.

• Has a cellular phone. Super tough one this. Have to hand it to the taxmen, if the other five didn’t catch you, there’s no way you escape this one.
So, the long and short of this is, that irrespective of whatever income you earn, you must file your income tax returns.

When do you file returns?
For a salaried employee, the last date for filing returns is July 31, which is a clear six months after you’ve submitted proof of your investments at your workplace. Under regular circumstances, this is sufficient time to gather all your receipts, documents for the returns.

If you fall under the One-By-Six (inescapable) Scheme, the date is October 31.

Now, to the next important question, what if you missed the date for filing returns?

Here’s an analogy that might help. Think about what it cost you when you forgot your partner’s birthday or your anniversary. Suffered a certain amount of monetary damage no doubt! That’s exactly what happens here too. You miss the date, you pay the penalty. The penalty amount is Rs 5,000 and interest for delay in filing returns is 1% per month. (This interest is levied on next tax payable after advance tax and TDS). Total the amount, and it will pile up to a tidy sum, and you will know that life could have been much better.

Here’s another oft-asked doubt. What if you haven’t earned anything in a particular year?

Ideally, it should be that if you don’t earn you don’t file returns. But income tax is far from ideal (or fair); the rule here is once an assessee, always an assessee.
This isn’t only from a tax perspective, but also because almost all agencies these days request for your IT returns. So if you have any intentions of applying for a loan (home, car or personal) you will mostly be asked to produce IT acknowledgement for the last couple of years. So, it’s best you don’t break the habit.

It’s painful no doubt, but from a practical perspective it’s very sensible to be up-to-date with you tax returns. Besides, if you don’t have the time, you can always get a consultant/accountant accountant to deal with the messy computing. They will even suggest ways to do it efficiently and help reduce your tax burden too.
A small step from you will be to keep track of all your receipts, bank statements, investment proofs.