Friday, July 8, 2011

Exemption-Can't avail

The exemption to file return for income up to Rs. 5 lakh looks good on paper, but nobody will be able to fulfil the condtions. 

The Central Board of Direct Taxes (CBDT) has made millions of Indians smile by announcing that salaried taxpayers with an annual income of up to Rs. 5 Lakh need not file their returns. Or so they think. Given the stiff conditions, it's unlikely that anyone will be able to avail of the concession. Here's why the CBDT's proposal is just a clever play, a theoretical relief that nobody will get.

According to the notification issued on 24th June,2011 a salaried person is exempt from filing his return if he fulfills the following conditions:
  • Total income after allowable deductions is up to Rs. 5 Lakh
  •  Income is only from salary and savings bank interest
  • Salary is from one employer
  • Savings bank interest is below Rs.10,000
  • Tax due on savings bank interest has been paid and included in Form 16.
The announcement comes at a time when Form 16s have already been prepared and issued to taxpayers. Will it possible to make the necessary changes in the Form 16 at this late stage? The second requirement, that the income should be only from salary and savings bank interest, is patently illogical. How many people who earn more than Rs 3-4 lakh a year will not have income from fixed deposits, mutual funds. stock trading, gold and property? If you invested in fixed deposits or NSCs to save tax or received dividend from your ELSS fund during the year, you don't make the cut for the exemption. Have you given your house on rent for even one month? Sorry, you will have to file returns. Only a person who has no tax-saving investment and lets all his money idle in a saving bank will be eligible.

Let us assume that there is indeed somebody who has no such investments and, therefore, no income other than from his salary and the interest on the bank account. Even then, he may not be able to fulfill the conditions for exemption. The notification says that the tax due on the interest income should have been paid and the income and the tax should be mentioned in Form 16 from the employer. The interest on bank account is credited on quarterly or half yearly basis. The interest from January-March or October-March gets credited after 31st March. You need to be a financial expert to correctly estimate the tax due on this income and pay the right amount. That's not all. You also need to provide these details to your employer in time for the accounts division to mention in your Form 16.

A taxpayer's quest for filing nirvana doesn't end here. If he has changed jobs during the year, a taxpayer won't be exempt from filing his tax returns. Given the high employee turnover rate in certain industries, such as software and IT-enabled services, very few people in these sectors will be able to claim exemption.

If you have managed to fulfill all the conditions, hats off to you.Given the plethora of paper work required to avail of the exemption and the possible repercussions of not filing your return, it seems that spending 30-40 minutes online is a far simpler option.

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