11 things to know to file your Income Tax Returns correctly in 2018

While some of you would have already begun the process for filing your returns, there are many who wake up to it only a few days before 31st July, which is the last date to file income tax returns. However, filing of returns can be a complex process and it is always advisable to do so ahead of time so that it can be done in an efficient and timely manner in order to avoid any goof ups later.

Here are top 11 things you need to know about filing your income tax returns in 2018:

1. Who needs to file income tax returns?

Filing of returns is mandatory for all individuals if the gross taxable income exceeds the basic exemption limit. The exemption limit is Rs. 2,50,000 for regular taxpayers, Rs. 3,00,000 for senior citizens (60 years and above) and Rs. 5,00,000 for super senior citizens (80 years and above).
So, even if your tax liability is zero or your employer has cut TDS and/or you have paid all your taxes, you are still liable to file income tax returns if your gross total income is above the basic exemption limit.

So, depending upon the age and income there are different income tax slabs and rates are as under:

Income Slabs General      Senior Citizen
(above 60 yrs)
Super senior citizens
(above 80 years)
Upto Rs. 2,50,000 Nil Nil Nil
Rs. 2,50,000- Rs. 3,00,000 5% Nil Nil
Rs. 3,00,000- Rs. 5,00,000 5% 5% Nil
Rs. 5,00,000-Rs. 10,00,000 20% 20% 20%
Above Rs. 10,00,000 30% 30% 30%
** There is an overall 3% cess

2. Difference between financial year and assessment year

At the time of filing returns it is extremely important to understand the difference between financial year and assessment year. Financial year is the year in which you earned the income and assessment year is the year following the financial year in which the assessment is made. Thus, for income earned from April 1st, 2017 to March 31st, 2018 the financial year is 2017-18 and the assessment year is 2018-19.

3. Tax Deductions

To calculate taxable income, Income Tax Deductions are deducted from the Gross Income and then tax is calculated.

Section Deduction On Deduction Limit
80C ELSS (Tax Saver) Mutual Funds
Investment in PPF
Employee’s share of PF contribution
Life Insurance Premium payment
Children’s Tuition Fee
Principal Repayment of home loan
Investment in Sukanya Samridhi Account
Premium payment towards ULIPS
Sum paid to purchase deferred annuity
Five year fixed deposit scheme from Banks or PO
Senior Citizens savings scheme
Subscription to notified securities/notified deposits scheme
Contribution to notified Pension Fund set up by Mutual Fund or UTI.
Subscription to Home Loan Account scheme of the National Housing Bank
Subscription to deposit scheme of a public sector or company engaged in providing housing finance
Contribution to notified annuity Plan of LIC
Subscription to equity shares/debentures of an approved eligible issue
Subscription to notified bonds of NABARD
Employee’s contribution to NPS account (u/s 80CCD(1))
Rs. 1,50,000
80CCD(2) Employer’s contribution to NPS account Maximum up to 10% of salary
80CCD(1B) Additional contribution to NPS Rs. 50,000
80TTA Interest Income from Savings account Maximum up to Rs. 10,000
80TTB Exemption of interest from banks, post office, etc. Applicable only to senior citizens Maximum up to Rs. 50,000
80GG For rent paid when HRA is not received from employer Least of: Rent paid minus 10% of total income, or
Rs. 5000/- per month, or
25% of total income
80E Interest on education loan Interest paid for a period of 8 years
80EE Interest on home loan for first time home owners Rs 50,000
80D Medical Insurance – Self, spouse, children Rs 25,000
80D Medical Insurance – Parents more than 60 years old or (from FY 2015-16) uninsured parents more than 80 years old Rs 50,000
80GGC Contribution by individuals to political parties Amount contributed (not allowed if paid in cash)

4.Changes pertaining to ITR forms for assessment year 2018-19

The new ITR forms have been notified by the government and are available on the official income tax website. While the one page Sahaj form, introduced in the last assessment year, has been retained, here are some of the important changes in the new ITR forms-

  • Salaried employees now need to give a detailed break-up of the salary such as various deductions, allowances not exempt from tax, perquisites, etc.

  • For all those who have income from house property detailed information such as gross rent received, annual value of the property, and interest on borrowed capital for the house purchase, tax paid to local authority for the property, etc. needs to be submitted.

  • All those having presumptive income from business or profession need to give your GST registration number in the form.
    (Under section 44AA of the Income Tax Act 1962, each and every person who is engaged in any profession or business needs to maintain his book of accounts. However, in order to provide Income Tax relief to very small taxpayers and new businesses, they can opt for taxation under presumptive income and are exempt from maintaining books of accounts under section 44AD and section 44AE.)

  • NRIs, who could earlier share details of only those bank account held in India, can now claim credits and refunds in foreign accounts also.

  • Also, NRIs will now have to file returns in ITR-2 instead of ITR-1 form. ITR-1 is now only for residents.

  • All ITR forms need to be filled in electronically through the Income Tax portal (http://incometaxindiaefiling.gov.in/), with the only exceptions being individuals above 80 years of age, and individuals or HUF with an annual income of less than Rs. 5 lakhs and who are not claiming any refund.

5. Report all assets in case your income is above 50 lakh

For anyone who has an annual income above Rs 50 lakhs, it is mandatory to give details of all movable assets such as jewelry, cash, gold and immovable assets such as land. The actual cost of these assets can be checked from the document of purchase.

6. Include Interest Income

One of the most common mistakes committed by taxpayers is forgetting to include interest income earned on various fixed deposits and post office accounts. The general theory behind this is that TDS is deducted @10% on such accounts and hence such income need not be reported. However, TDS is deducted at 10% and the amount of tax liable will depend upon your income tax slab.
Hence, it is mandatory to report interest income, including the interest earned on savings account, at the time of filing returns even if TDS is deducted.

7. Report foreign income and assets

For all those who own foreign assets it is mandatory to file income tax returns even if you have no taxable income in India. Thus, if you have foreign assets in the form of stocks, bank accounts or properties outside India, you have to file a tax return and report the same.

8. Include Capital Gains Income

Just like interest income, income from capital gains also needs to be disclosed at the time of filing your returns. If you have capital gains in addition to salary income you need to fill form ITR2. The capital gains taxes have to be then calculated accurately based on the tenure of investment, type of investment, etc.

Capital Gains can either be long-term or short-term based on the tenure of investment, type of investment, etc. and thus taxed differently. Here is a quick table of Capital Gains Taxation in India.

Capital Gains Taxation for Mutual Funds/Stocks Individual/HUF/NRI
For Equity Oriented Schemes LTCG is >=12 months and STCG is <12 months
Long Term Capital Gains (LTCG) Taxation Nil for FY 2017-18 (10% without indexation for Capital Gains > Rs 1 lakh p.a. from FY 2018-19 onwards)
Short Term Capital Gains (LTCG) Taxation 15%
For Non-Equity Oriented Schemes LTCG is >=36 months and STCG is <36 months
Long Term Capital Gains (LTCG) Taxation 20% after indexation
Short Term Capital Gains (LTCG) Taxation According to your Income Tax Bracket

Read All your need to know about Mutual Fund Capital Gains Taxation to know more.

For Property LTCG is >=24 months and STCG is <24 months
Capital Gains Taxation for Property Individual/HUF/NRI
Long Term Capital Gains (LTCG) Taxation 20% after indexation
Short Term Capital Gains (LTCG) Taxation According to your Income Tax Bracket

9. Verification of tax details in Form 26AS and Income Tax Returns

Form 26AS is a consolidated annual statement which contains all information pertaining to all taxes paid by you (or on your behalf) by way of TDS or advance tax etc in that year and can be accessed from the income tax website by entering your PAN details.

If your overall tax liability is more than the amount of tax paid so far, then you will have to pay the remainder via a challan. If tax paid is more than your actual tax liability then you can claim a refund in your return. So, it is important to check and verify all TDS deductions etc. in Form 26AS so that there is no ambiguity at the time of income tax filing in terms of overpaying or under-paying of taxes.

Also, Income Tax Verification is the last step in the process of filing returns and failing to e-verify for returns is equivalent to not filing your returns. You can verify your returns either manually by mailing ITR-V to CPC Bangalore or do it electronically.

10. Documents required

Even though you do not have to submit any documents at the time of filing returns, it is advisable to keep a copy of all the important documents such as investment receipts, interest income, housing loan etc. handy, just in case if the need arises in future.

11. How to calculate your tax liability?

On filling your details in the ITR tool in the Income Tax website (https://www.incometaxindia.gov.in/pages/tools/income-tax-calculator.aspx) you will get your income tax liability. Details that you need to fill in are assessment year, accurate income details, deductions, capital gains, etc. and your actual tax liability would be calculated, along with interest on tax that is not paid on time. Based on this calculation, you can file your IT returns.

The same calculations will also be automatically done when you file the returns using the Excel or Java utility by the IT department.

So, if all these points are kept in mind, there should be no concerns whatsoever about enquiries, refunds etc. in the future.

Disclaimer: The information related to tax filing presented in this blog post is general in nature. Please consult your tax advisor or CA for accurate tax filing advice related to your particular situation.