Calculation of Income Tax Payable and Filing of Tax Returns for Assessment Year 2012-13

by Gopal Gidwani on July 21, 2012 · 2 comments

in Financial Planning,Taxation,Uncategorized

Introduction
The process of e-filing of income tax returns is very easy to use and should be the preferred route for salaried individuals and other individuals. Infact filing income tax returns electronically (e-filing) has been made mandatory from Assessment Year 2012-13 for individuals / HUFs who have income of more than Rs. 10 lakhs.

In this article we will discuss step-by-step how to file tax returns for Assessment Year 2012-13. For income earned between 1st April 2011 to 31st March 2012 (Previous Year), the income tax returns will have to be filed in Assessment Year 2012-13, the deadline being 31st July 2012.

We will look at the following important things in this article:
a) Calculation of taxable income after applying exemptions and deductions
b) Income slabs, applicable tax rates and the tax payable
c) Filing of income tax returns

Let us look at these steps in detail

Calculation of taxable income after applying exemptions and deductions
For filing income tax returns you first need to learn to calculate your taxable income.
(Important Tip: Keep your Form 16 in front of you while reading this article. It will make understanding things very easy for you)

Let us understand the process of calculating taxable income with the help of an example.
Naresh Malhotra is a salaried employee. His hometown is Chennai, but due to his job location he is currently staying with his family in a rented apartment in Mumbai. His monthly house rent is Rs. 15,000.

Total Annual Income – Rs. 15,00,000
Basic PayRs. 4,00,000
Dearness AllowanceRs. 80,000
House Rent Allowance (HRA)Rs. 2,00,000
Transport AllowanceRs. 24,000
Professional Tax paidRs. 2,500
EPF ContributionRs. 48,000

Naresh bought a house in Chennai 2 years back. He is paying an EMI of Rs. 20,000. Out of the annual amount paid as EMI (Rs. 2,40,000) the interest component is Rs. 2,00,000 and the principal component is Rs. 40,000.

  • Naresh deposits Rs 60,000 in his PPF Account every year.
  • Naresh has bought a term life insurance policy for which the annual premium is Rs. 9,000.
  • Naresh pays medical insurance premium of Rs. 16,000 for self, spouse and his 2 children.

Now let us understand the process of calculating taxable income.
Step 1: Gross Salary: As a first step you need to calculate your gross salary. This includes your:

  • salary,
  • value of perquisites,
  • profit in lieu of salary.

This information can be found in your Form 16 if you are a salaried employee.

Step 2: Allowances: Once you know your gross salary you need to deduct allowances from this amount, to the extent exempt under Section 10. The most common deductible allowances include:

House Rent Allowance: The amount allowed as HRA deduction is lower of the below 3 amounts:
a) Actual HRA received by the individual
b) 50% of Salary (Basic Pay and Dearness Allowance) in a metro city and 40% of Salary in other towns
c) Rent paid – 10% of Salary

In Naresh’s case the HRA exemption will be taken as the lower of the 3 amounts:
a) Actual HRA received by Naresh: Rs. 2,00,000
b) 50% of Salary (Basic + DA): Rs. 2,00,000 + Rs. 40,000 = Rs. 2,40,000
c) Rent paid – 10% of Salary (Basic + DA) = Rs. 1,80,000 – Rs. 48,000 = Rs. 1,32,000

The lowest of the 3 is Rs. 1,32,000. So Naresh will be allowed an HRA exemption of Rs. 1,32,000 from his salary. The remaining HRA Amount of Rs. 68,000 will be a part of taxable income.

Transport Allowance: A maximum of Rs. 800 per month (Rs. 9,600 pa) is allowed as deduction

Naresh gets a Transport Allowance of Rs. 24,000 pa (Rs. 2,000 per month). But as per Income Tax rules he will be allowed a maximum Transport Allowance exemption of Rs. 9,600 only. The remaining Transport Allowance amount of Rs. 14,400 will be included in taxable income.

So let us reduce HRA exemption (Rs. 1,32,000) and Transport Allowance (Rs. 9,600) from the Gross Salary (Rs. 15,00,000). The income will get reduced to Rs. 13,58,400.
This is how it will look in your Form 16.

House Rent Allowance Travel Allowance

Another common allowance you will find in this section is Leave Travel Allowance (LTA)

Step 3: Deductions: As a next step you need to subtract the deductions from your gross salary. This section includes the Tax on Employment (Professional Tax). This is a maximum of Rs. 2,500 pa.

In case of Naresh this amount will be Rs. 2,500. So after deducting the Tax on Employment, the income will get reduced to Rs. 13,55,900.

Step 4: Income chargeable under the head ‘Salaries’: Once you deduct the Allowances and Deductions from Gross Salary you arrive at Income chargeable under the head ‘Salaries’. In case of Naresh the income chargeable will be Rs. 13,55,900.

Step 5: Any other income reported by the employee: As a next step, to the salary income you need to add any other income that the individual may have earned apart from salary.

The most common entry that you will find in this section is the ‘Income from House Property’. Under Section 24 of the Income Tax Act, an individual can avail deduction from taxable income upto Rs. 1,50,000 in a financial year for interest paid on a home loan (please check the terms and conditions). The interest paid on a home loan is shown as negative and thereby reduces the taxable income.

Any other income earned by an individual like professional fees or business income or any other income is added to the salary.

In case of Naresh the interest paid on the home loan is Rs. 2,00,000. But under Section 24 of the Income Tax Act the maximum deduction that can be availed will be Rs. 1,50,000. So the income will get reduced to Rs. 12,05,900.

Step 6: Gross Total Income: In this step you add the previous two steps: Step 4 (Income chargeable under the head ‘Salaries’) + Step 5 (Any other income reported by the employee) and arrive at the Gross Total Income. In case of Naresh the Gross Total Income will be Rs. 12,05,900.
This is how it will look in your Form 16

Professional Tax Income From House Property

Step 7: Deductions under Chapter VIA: Under Section 80 of the Income Tax Act, an individual is allowed various deductions, the benefit of which can be availed under Step 7. Let us look at some of these deductions:

a) Section 80C: Under this Section an individual can avail a deduction of upto Rs. 1,00,000 in a financial year for investments in specified financial products. Some of these include

  • Employee Provident Fund (EPF),
  • Public Provident Fund (PPF),
  • National Savings Certificate (NSC),
  • Home Loan Principal Repayment,
  • Life Insurance,
  • Pension Plans,
  • Five Years Fixed Deposit,
  • Senior Citizens Savings Scheme (SCSS),
  • Equity Linked Savings Scheme (ELSS)

This list is not exhaustive. The list is reviewed from time to time.

b) Section 80D: Under this Section an individual can avail a deduction of upto Rs. 15,000 for health insurance premium paid for self, spouse and children. A separate deduction of Rs. 15,000 is allowed for parents if they are not senior citizens (Rs. 20,000 for senior citizens).

c) Section 80E: Under this Section an individual can avail deduction for interest paid on higher education loan (check the terms and conditions).

d) Section 80G: Under this Section an individual can avail deduction for donations (check the terms and conditions).

e) Section 80CCF: Under this Section an individual can avail deduction upto Rs. 20,000 in a financial year for investments made in specified infrastructure bonds. There is no mention of this for Assessment Year 2013-14.

In case of Naresh, the following deductions can be availed
Home loan principal repayment – Rs. 40,000
PPF deposit – Rs. 60,000
Life insurance premium – Rs. 9,000
Health insurance premium – Rs 16,000

Naresh’s total investments that qualify for deduction under Section 80C are home loan principal (Rs. 40,000), PPF (Rs. 60,000) and life insurance premium (Rs. 90,000) totaling Rs. 1,09,000. But the maximum deduction that can be availed under Section 80C is Rs. 1,00,000.

Naresh pay health insurance premium of Rs. 16,000. But under Section 80D, the maximum deduction that can be availed is Rs. 15,000.

Step 8: Total Income: In this step we need to take the total of ‘Deductions under Chapter VI’ in Step 7 and deduct this amount from ‘Gross Total Income’ in Step 6. This will bring us to the ‘Total Income’ on which income tax will be calculated.

In case of Naresh the Total Income will be Rs. 12,05,900 less deductions of Section 80C (Rs. 1,00,000) and Section 80D (Rs. 15,000). So the total income left after deductions will be Rs. 10,90,900.
This is how it will look in the Form 16

Section 80C Section 80D

Income slabs, applicable tax rates and the tax payable
Now that we know the taxable income we need to apply the tax slabs and tax rates to arrive at the ‘Tax on Total Income’.

Income Tax Slabs for Assessment Year 2012-13
Income that has been earned between 1st April 2011 – 31st March 2012, the income-tax on that will have to be paid in Assessment Year 2012-13. The last date for the same is 31st July 2012.

Let us see how the income tax will be calculated in case of Naresh with a total taxable income of Rs. 10,90,900 after availing all exemptions and deductions.

Male below 60 years

Income Slab

Tax Rate

Taxable Income

Tax Payable

Total Tax Payable

Up to Rs. 1,80,000NilNilNilNil
Rs. 1,80,001 – Rs. 5,00,00010%Rs. 3,20,000Rs. 32,000Rs. 32,000
Rs. 5,00,001 – Rs. 8,00,00020%Rs. 3,00,000Rs. 60,000Rs. 32,000 + Rs. 60,000 = Rs. 92,000
Rs. 8,00,001 and Above (In this case Rs. 8,00,001 – Rs. 10,90,900)30%Rs. 2,90,900Rs. 87,270Rs. 32,000 + Rs. 60,000 + Rs. 76,770 = Rs. 1,79,270
The education cess is 3% on the tax payable amount

Let us see how the income tax will be calculated in case of a female with a total taxable income of Rs. 12,00,000 after availing all exemptions and deductions.

Female below 60 years

Income Slab

Tax Rate

Taxable Income

Tax Payable

Total Tax Payable

Up to Rs. 1,90,000NilNilNilNil
Rs. 1,90,001 – Rs. 5,00,00010%Rs. 3,10,000Rs. 31,000Rs. 31,000
Rs. 5,00,001 – Rs. 8,00,00020%Rs. 3,00,000Rs. 60,000Rs. 31,000 + Rs. 60,000 = Rs. 91,000
Rs. 8,00,001 and Above (In this case Rs. 8,00,001 – Rs. 12,00,000)30%Rs. 4,00,000Rs. 1,20,000Rs. 31,000 + Rs. 60,000 + Rs. 1,20,000 = Rs. 2,11,000
The education cess is 3% on the tax payable amount

Let us see how the income tax will be calculated in case of an individual who is 68 years old with a total taxable income of Rs. 12,00,000 after availing all exemptions and deductions

Senior Citizen of 60 years and above but less than 80 years

Income Slab

Tax Rate

Taxable Income

Tax Payable

Total Tax Payable

Up to Rs. 2,50,000NilNilNilNil
Rs. 2,50,001 – Rs. 5,00,00010%Rs. 2,50,000Rs. 25,000Rs. 25,000
Rs. 5,00,001 – Rs. 8,00,00020%Rs. 3,00,000Rs. 60,000Rs. 25,000 + Rs. 60,000 = Rs. 85,000
Rs. 8,00,001 and Above (In this case Rs. 8,00,001 – Rs. 12,00,000)30%Rs. 4,00,000Rs. 1,20,000Rs. 25,000 + Rs. 60,000 + Rs. 1,20,000 = Rs. 2,05,000
The education cess is 3% on the tax payable amount

 

So now that you know how to calculate your tax payable amount, file your tax returns before the last date i.e. 31st July 2012.

Filing of income tax returns
You can file your income tax returns either offline or online.
a) Offline filing of income tax returns: If you are filing your income tax returns offline, then you need to take a print out of respective ITR Form and Acknowledgement Form and submit it to the Income Tax Officer. Offline filing of income tax returns can also be done through intermediaries such as CA or Tax Consultants.

b) E-filing of income tax returns: E-filing is the term used for the process of filing income tax return through the internet. You can e-file your income tax returns in any of the following 2 ways:

1) Through intermediary websites: There are various websites / portals like taxspanner.com, taxsmile.com, taxyogi.com etc, authorised by the Income Tax Department. These portals file the IT returns on your behalf for a fee.

2) Directly through income tax website: You can also choose to file your IT returns online by directly visiting the income tax filing website: ‘www.incometaxindiaefiling.gov.in’. Filing of income tax returns through this website is free of cost. You can e-file the returns with or without digital signature.

E-filing of income tax returns
Now let us have a look at the process of E-filing of income tax returns in detail:

Step 1: Login to the income tax website: www.incometaxindiaefiling.gov.in and register yourself. Your PAN number will be your user id.

Step 2: Once registered, login to the website and download the respective ITR (Income Tax Return) Form applicable to you.

The ITR-1 (SAHAJ) Form is applicable for individuals who have income from Salary, Pension, Interest Income, Family Pension.

The ITR-2 Form will be applicable for individuals who have income from Salary, Pension, Interest Income, Family Pension, Income/Loss from Other Sources, Income/Loss from House Property, Capital Gains/Loss.

Step 3: ITR-1 Form can be filled using Form 16 that is provided by employer.

Step 4: Once the form is filled click on ‘Calculate Tax’ button. This will tell you the net tax amount and the tax status. The status can be one of the 3: the required amount is already paid through TDS deducted by the employer, some tax amount is required to be paid, excess tax has been paid that needs to be refunded. Click on validate button to verify whether the form has been filled correctly or not.

Step 5: If some tax amount is required to be paid then you can login to the website incometaxindia.gov.in and pay the tax due amount online. Once the tax is paid, a challan is generated. The challan details have to be mentioned in the ITR excel form.

Step 6: Once the ITR Form has been validated; generate the XML version of the form by clicking on ‘Generate XML’ button on top right corner of the Form.

Step 7: Login to the income tax efiling website and choose the relevant Assessment Year. (Pls note that the Assessment Year that we are talking about in this article is 2012-13). Choose the relevant form and click on ‘Submit Return’ and upload the XML file on the website.

Step 8: If you have obtained a digital signature, then you can digitally sign the file and ‘Acknowledgement’ is generated. You can take a print out of it for record purpose. The process of e-filing of returns will end here.

Step 9: If you do not have a digital signature, then an ‘Acknowledgement cum Verification’ Form (ITR-V) is generated and emailed to your registered e-mail id. Download this form and take out a print out of the form. Sign the form and send it by Ordinary Post or Speed Post within 120 days to the following address:
CPC – Income Tax Department,
Post Bag No – 1,
Electronic City Post Office,
Bengaluru – 560100
Karnataka

Do not send the form by Registered Post or Courier as it will not be accepted.

The ITR–V Form should reach Income Tax Department within 120 days of uploading the XML file. In case your form does not reach income tax office within 120 days, then it will be deemed that returns have not been filed by you. To know whether the ITR-V Form has reached the Income Tax Department or not, you can call the E-Filing Call Center at 080-26982000. For queries you can call the CPC Call Center at Toll Free number: 1800-425-2229

Step 10: Once the ITR–V form reaches the Income Tax Department, the e-filing process completes. You can check the status on the Income Tax E-filing website.

Conclusion
So let us quickly summarise once again the 3 important things we learnt about in this article:

a) Calculation of taxable income after applying exemptions and deductions: You can reduce your taxable income by availing various Allowances (HRA, Transport Allowance) and Deductions (Section 80C, 80D, 80E, 80G)

b) Income slabs, applicable tax rates and the tax payable: Once you calculate your taxable income, you need to check which income slab you fall in and accordingly apply the tax rates and calculate the tax payable.

c) Filing of income tax returns: Once you know the tax payable, you can proceed to file your income tax returns.

Follow the above mentioned simple steps and e-file your income tax returns from this year onwards as it a very convenient tool. The best thing is that income tax returns can be e-filed from anywhere. You only have to send ITR-V Form to Income Tax Department, Bengaluru

For any comments please comment in the section below or email us at gopal_gidwani@yahoo.com

{ 2 comments… read them below or add one }

Praveen February 3, 2013 at 8:35 pm

v good information

Reply

agrawal August 11, 2013 at 3:51 am

sir verry good

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