What should you know before you file your income tax returns

Wednesday, April 29, 2009

What should you know before you file your income tax returns

Most of you probably think that tax planning is decidedly different from financial planning.

Therefore, you put all your energy only during the month of March to file your income tax return.

Those who are salaried are a little lucky as the corporate, and the public sector do cut income tax at the time of paying salaries to their employees. It keeps the employees relaxed as they do not have to worry about standing in a queue, or searching chartered accountants to file their returns.

Still, you need to know a lot to prepare your tax filing a bit easier.

You should know this income that are clubbed under the income tax scanner. What are those gains that are exempted from the income tax laws? What is the income limit for you to file your taxes? Who should pay taxes?

Income that requires you to pay taxes on it

• If you are a salaried person, then every penny that you receive from your employer is considered as a salary. Your payment includes your wages, gratuity, annuity, rent free accommodation, bonus, or any other incentive that you might receive.

You are allowed to deduct house rent allowance, medical grant, leave travel allowance and transportation allowance from your salary before you bring your tax returns.

• If you own a property and you had leased out your property on rent, the income you earn from your property would be treated as a tax liability.

You are entitled for tax deductions of 30% from your property- the house tax arising from your property and interest on a loan. If you had bought the property on loan, it would also be treated as a tax deduction.

• Gains that arise out of sold assets would be a tax liability. Capital gains such as profits from sold property, jewellery, share, mutual funds, car etc is considered as a capital gain.

Tax deductions are applicable keeping in mind the depreciation costs of your assets.

• A self-employed person’s net profit falls under the category of income and you need to file returns on it.

However, expenditure incurred for your business, any losses from previous years would be deducted from your income.

• Finally, any other sources of income such as lottery winnings, pension, gifts, and income earned under your minor child’s name, etc would be considered as income.

Income that is exempted from tax

Income such as agricultural income, interest earned from provident funds, profits earned from the sold mutual funds, or shares after one year of purchase, income from insurance policies, death or retirement gratuity, and any compensation received would be exempted from income tax.

Income barrier

You should also need to understand the income limits. A senior citizen above the age of 65 years had to pay taxes if his income exceeds rupees 1.95 lakh per annum. A female’s income below 1.8 lakh per annum would be exempted from tax returns. Men who earn anything above 1.5 lakh per annum are required to pay taxes.

You should remember that income limits might change each year. It solely depends upon the government's decision to follow a particular tax norm.


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