We are fast approaching the end of the financial year. After March will arrive the tax return filing frenzy. Though from the end of March to the end of July, we have almost four whole months to prepare and file our tax return, one can predict almost with a fair degree of accuracy that like every year, a familiar story will be played out. Most taxpayers tend to wake up in the last month. Some will even wait till the last week. And remember, this is only the act of handing over the files and other miscellaneous papers. The actual work of sorting these and capturing the relevant figures yet remains to be done. Then there arises a demand for an extension of the due date. The government of course will not relent. And the end result will often be sub-optimal, neither benefiting the taxpayer nor his or her CA — and due to the sheer paucity of time, often one may end up underpaying or dare we say it — actually paying more tax than what was actually due.
The ironical thing is that the solution to the problem is ridiculously simple. Though we visit this topic every year with our readers (through this column), we find that taxpayers, in general, simply do not comply. This time, once again we are going to point out what you can do to help yourself streamline and simplify the entire tax return preparation activity. Like mentioned earlier, this is not anything new, and is in fact something we have mentioned in our columns before – however a reiteration we think is important to brush up on these basic but important pointers.
Maintain Your Own Bank Pass Book
Your bank pass book is the back bone of your tax return. The deposits and withdrawals contained therein largely determine your tax liability. Some incomes are taxable whereas some are specifically exempted and yet others are capital receipts that are not to be taxed at all. In terms of expenses, depending upon your category (whether salaried or a businessman or professional etc.), certain expenses are allowable and certain others are not. Payments eligible for specific tax benefits can also be picked up from the pass book. Even capital gains can be computed based on the entries in the passbook.
That being said, the precise nature of the amount is difficult to decipher based only on the description given in the pass book. Let us give you a specific example pertaining to last year’s tax filing. In the case of one client there was a deposit entry dated 21st September, 2013 cryptically disclosed as “ECS CR REF”. Now in the month of July 2014, especially since so much time had elapsed, the client had absolutely no idea what it meant and eventually we ended up including it as miscellaneous income and due tax was paid thereon. Now, a day after the return was filed, the client managed to dig up the relevant pay-in-slip and discovered that the “REF” stood for “Refund” and that it was a part refund of an IPO application, which should never have counted as income in the first place. However, a lack of proper record keeping and the fast approaching deadline cost him in terms of the additional tax paid.
A simple way out is to maintain a parallel pass book. At the end of each month, get the passbook updated and duplicate the same at your end. Make sure that each amount is accompanied with a brief explanation of what it actually represents — determining the taxability thereof is your CA’s job. As soon as the financial year ends, just hand this over to your CA and be assured that the return will be filed in no time.
This is the other area of inefficiency. TDS is like tax paid in advance — the amount of TDS has to be reduced from your final tax liability and only the net balance is payable. However, this cannot be done if you do not have proof of the same. In other words, without the TDS certificate, you will end up subjecting yourself to double taxation. Though the new ITR forms do not require the TDS certificate itself to be attached, the payment wise details contained therein along with the deductor’s TAN (Tax Deduction Account Number etc.) has to be provided. Now, without the relevant certificate, you cannot get this information. So, the thing to do is to determine on an ongoing basis which particular income or incomes are subjected to TDS and as soon as the fiscal is over, start following up on obtaining the certificates from the organization or entity that has deducted the tax.
These simple measures go a long way in not only simplifying the tax return filing process, not to mention making it error free. Sometimes, especially in the case of a scrutiny, ITOs are known to go into the details of certain transactions. If one has full information about various receipts and payments made during the year, one is that much better prepared for this eventuality. Or as they say, a stitch in time saves nine.