Taxation in India and ITR-1 (Part 1)

By Eashaan Agrawal

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Taxation seems like a burdensome task and is often an issue that is left to be handled to CAs and Lawyers. However, it is always useful to know some basics about taxes and how the different provisions can be used to reduce one’s liability. In the next few articles, we will be discussing the basics of Taxation and try to understand the terms mentioned in the Income Tax Sahaj form or more commonly known as the ITR-1.

 

Before we start discussing the details under ITR-1 we will see the basic terms used in India’s taxation laws.

Heads of Income: The Income Tax covers 5 heads under which return has to be filed. These are namely:

1. Income from salary
2. Income from house
3. Income from other sources
4. Capital Gains
5. Profit from business or profession

These heads will be explained in due course.

Previous Year: The duration of 12 months for which the assessment is made and returns filed is called the previous year. In India, the period of assessment begins on 1^st April and ends on 31^st March. This means that if you are filing tax for the income earned from 1^st April 2018 till 31^st March 2019 the year 2018-2019 will be called the previous year.

Assessment Year: The assessment year is the year in which the returns for the previous year are filed. Thus, for the income earned between the previous year 2018-2019, the assessment year is 2019-2020.

Tax Deducted at Source (TDS): TDS is when the tax liable to be paid is collected at the source of income. This income can be from salary or other sources, for example, interest on bank deposits. The rate of the deduction depends on the income earned and the tax slabs specified by the government every year in the annual budget. The person who is making the payment is liable to deduct this tax and pay it to the government. Thus, in the case of salaried employees, the TDS is deducted by the employer.

Form 16 and 16A: Form 16 is the certificate issued by the employer to the employee for TDS for the salary. This form is only applicable in case the income of an individual is more than the basic exemption limit. Thus, Form16 is the acknowledgment that tax has been paid on the salary earned by the employer. Form 16A is the TDS certificate on the income other than salary. Thus, Form16 tells about the TDS in case of salary, Form 16A tells about the TDS in case of income other than salary.

Form 26AS: Form 26AS is like the tax passbook. It contains all the relevant details about the transactions made like tax collected at source and advance tax and self-assessment tax. Due to the recent amendment made by the Finance Act, the Form will also reflect details provided by banks and other institutions.

 

Now that we have understood some basic terms, we can see how tax can be filed.

 

Tax Filing – Eligibility

In India, the Income Tax Department has prescribed various forms which can be used to file taxes by different categories of people. For the purpose of this article, we will analyse ITR-1 or Sahaj Form (meaning easy) as it usually covers maximum salaried people.

 

As we can see, to be eligible to file returns a person must be meeting the following criteria,

1. The Person should be a resident of India
2. The total income should be not more than 50 lakh rupees, this income includes income from Salary, one house property and from other sources
3. The agricultural income should be not more than 5 thousand rupees.         

 

Further, the following people are not eligible to use ITR-1 for filing their taxes,

1. Individual who is a Director in a company
2. Has held any unlisted equity shares at any time during the previous year;
3. Has any asset (including financial interest in any entity) located outside India;
4. Has signing authority in any account located outside India; or
5. Has income from any source outside India
6. Further, if a person has made income through the following means he will not be eligible to file returns under ITR-1

a.      Profits from Business and profession

b.     Capital Gains

c.      Income from more than one property

d.     Income from winning lottery, racehorses

e.      Those liable under Section 115BBDA OR 115BBE (Income received from Dividends or Unexplained Investments, money expenditure, amount not disclosed in books of account or amount borrowed or repaid in Hundi and where the sum is credited  without satisfactory explanation as regards the source and the assessee is a company)

7. Further, if the deductions or claims of loss or relief have to be made of the following nature

a.      The loss brought forward under “Income from Property”

b.     Loss under “Income from other sources”

c.      Relief u/s 90 and/or 91

d.     Deduction u/s 57 ( this does not include deductions made under 57(iia) )

e.      Any claim of credit of tax deducted at source in the hands of any other person

 

Explanation

Profits from Business and Profession includes income generated as specified under Section 28 to Section 44. Capital Gains, on the other hand, includes the profit made by any investor after selling the capital assets. The capital assets include immovable property, vehicles, jewellery, machinery etc. 

Both sections 90 and 91 are related to Double Taxation Avoidance Agreement. These agreements are signed by Governments of different countries so that the income earned by a person that arose or accrued out of India is not taxed twice. Under section 90 a person is entitled to claim relief on double-taxed income outside India if India has an agreement with the specified nation. In case India does not have an agreement then in that case a person can claim relief under Section 91 of the Income Tax Act.

Section 57 of the Income Tax Act specifies the deductions that can be made from income from other sources. Section 57(iia) specifies that deduction can be made of up to 15 thousand rupees or 1/3^rd of income (whichever is less) in case the income is in the nature of family pension. Family Pension u/s 57(iia) means the amount paid by the employer to the family of an employee in case of the death of the employee. ITR-1 cannot be filed by those claiming deductions u/s 57 but this does not include deductions made under 57(iia).

Part 2 of this series further explains ITR-1 and looks at the salary/pension part of the form, deductions under Section 16, and allowances exempt from tax under Section 10.

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Eashaan is a 2^nd year law student at National Law University Delhi. A voracious reader, he loves to travel to new places and experience the culture of different places. His interests include Constitutional Law, Contracts and Law of Crimes.