Tax: 12 common queries
- How does FY differ from CY?
Financial year (FY) refers to the 12-month period from April 1 to March 31. Calendar year (CY) starts on January 1 and ends on December 31.
- What is an assessment year?
Assessment year (AY) is the year in which you file your returns for the Income earned for the financial year, which had just ended. AY is the year in which the income of a previous financial year is taken up for assessment by the income tax authorities.
If you are a salaried individual, Form 16 will be handed over by your employer and will cover virtually all ground. It contains all the information regarding your total income, taxable income, tax-saving investments made and amount of tax deducted. In other words, Form 16 is the proof for your income and tax paid to the government before you file your returns.
Proof of supporting deductions like investments in equity linked savings schemes (ELSS) and public provident fund (PPF), premium paid towards life insurance etc would have been submitted by you to your payroll department.
- Will charitable donations be included in Form 16?
No. Charitable donations will not be included in Form 16. Donations to charities approved under Section 80G of the Income Tax Act obtain a tax exemption but need to be claimed separately at the time of filing returns.
- How does ITR-1 differ from ITR-2?
ITR-1 (SAHAJ) is for individuals who have income from specific sources:
- salary
- pension
- income from one house property, excluding loss brought forward from previous years
- income from other sources, barring winnings from lottery or income from race horses
For ITR-2 includes Hindu Undivided Families (HUF). So an HUF will not be able to use form ITR-1. All individuals and HUFs who have income from a business or profession will have to use this form.
An individual who does have an income from salary or pension but meets other criteria mentioned below will have to use ITR-2.
- The individual has income from house property and has brought forward loss from previous years
- The individual has income from house property and owns more than one house property
- Earnings in the form of winnings from lottery and race horses
- How does ITR-3 differ from ITR-4?
Form ITR-3 is for individuals and HUFs who are partners in firms but not carrying out business or profession under any proprietorship. Form ITR-4 is a business income tax return for individuals and HUFs who do have income from a proprietory business or profession.
Once you successfully file your returns online, an ITR-Verification (ITR-V) form will be sent to your registered e-mail ID (if you do not have a digital signature). You will have to print ITR-V, sign it and send it by ordinary/ speed post to the Income Tax Department-CPC, Post Bag No 1, Electronic City Post Office, Bengaluru, Karnataka 560100. You should do this within 120 days of filing your returns on-line.
- What is a digital signature?
A digital signature authenticates electronic documents in the same way a handwritten signature authenticates printed documents. This signature cannot be forged and it asserts that a named person wrote or otherwise agreed to the document to which the signature is attached.
The signer of a document cannot later disown it by claiming that the signature was forged. In other words, digital signatures enable the “authentication” and “non-repudiation” of digital messages, assuring the recipient of a digital message of both the identity of the sender and the integrity of the message.
- Is it compulsory to have a digital signature to file returns?
Not at all. You can file your returns whether or not you have a digital signature.
- What does the Income Tax Department classify as income?
For employees, all that is provided by an employer in cash, kind or as a facility is considered as income. For businessmen, net profits constitute income. Income may also flow from investments in the form of interest, dividend or commissions.
Basically, the gross total income is the sum of all sources of income that an individual has or the total income he earns in a financial year.
All income is classified into 5 different heads:
- Income from salary
- Income from house property
- Income from business or profession
- Income from capital gains
- Income from other sources.
Profits arising from the transfer of a capital asset is taxable as capital gains. There are three aspects to this:
- Existence of a capital asset
- Transfer of a capital asset
- Profit or gains arising from such a transfer. Incidentally, any loss arising out of sale or transfer of capital assets is termed a capital loss.
An asset held for less than 36 months before its transfer is subject to short-term capital gain (STCG) while an asset held for 36 months or more before its transfer is subject to long-term capital gain (LTCG). In the case of certain assets, the period of 36 months is reduced to 12 months: equity/ preference shares, debentures, government securities listed on recognised stock exchanges, units of mutual funds and zero coupon bonds.
Assessee is the person who is liable to pay tax. The Income Tax Act 1961 defines 'assessee' as a person by whom any tax or any other sum of money is payable under this Act. ‘Person’ further refers to an individual, a HUF, a company, a partnership firm and an association of persons or a body of individuals whether incorporated or not.
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