What is ITR

As part of the Union Budget 2020, the Government of India has introduced new tax measures for banks and other financial institutions, thereby providing pan India tax residents the leeway of either subscribing to the new tax regime with lower income tax rates but no most of the deductions and exemptions or the old tax methods of exemptions and deductions. With that said, lets analyze the clear divergences, pros and cons as well as what demographic of taxpayers may find each regime preferable.

Key Differences Between New and Old Tax Regimes

1. Tax Rates and Slabs

   • Old Tax Regime
     • Up to ₹2.5 lakh: Nil
     • ₹2.5 lakh to ₹5 lakh: 5%
     • ₹5 lakh to ₹10 lakh: 20%
     • Above ₹10 lakh: 30%
   • New Tax Regime:
     • Up to ₹2.5 lakh: Nil
     • ₹2.5 lakh to ₹5 lakh: 5%
     • ₹5 lakh to ₹7.5 lakh: 10%
     • ₹7.5 lakh to ₹10 lakh: 15%
     • ₹10 lakh to ₹12.5 lakh: 20%
     • ₹12.5 lakh to ₹15 lakh: 25%
     • Above ₹15 lakh: 30%

2. Deductions and Exemptions:

   • Old Tax Regime: Allows various deductions and exemptions such as:
     • Section 80C: Up to ₹1.5 lakh
     • House Rent Allowance (HRA)
     • Leave Travel Allowance (LTA)
     • Standard Deduction: ₹50,000
     • Section 80D: Medical Insurance
     • Home Loan Interest: Up to ₹2 lakh
   • New Tax Regime: Most deductions and exemptions are not available.

1. For an Individual with an Income of ₹10 Lakh:

   • Old Tax Regime:
     • Gross Income: ₹10,00,000
     • Less: Standard Deduction: ₹50,000
     • Less: Section 80C Deduction: ₹1,50,000
     • Taxable Income: ₹8,00,000
     • Tax Calculation:
       • Up to ₹2.5 lakh: Nil
       • ₹2.5 lakh to ₹5 lakh: 5% of ₹2.5 lakh = ₹12,500
       • ₹5 lakh to ₹8 lakh: 20% of ₹3 lakh = ₹60,000
       • Total Tax: ₹12,500 + ₹60,000 = ₹72,500
     • Less: Rebate under Section 87A (if applicable): ₹12,500
     • Total Tax Payable: ₹72,500
   • New Tax Regime:
     • Gross Income: ₹10,00,000
     • No Deductions
     • Taxable Income: ₹10,00,000
     • Tax Calculation:
       • Up to ₹2.5 lakh: Nil
       • ₹2.5 lakh to ₹5 lakh: 5% of ₹2.5 lakh = ₹12,500
       • ₹5 lakh to ₹7.5 lakh: 10% of ₹2.5 lakh = ₹25,000
       • ₹7.5 lakh to ₹10 lakh: 15% of ₹2.5 lakh = ₹37,500
       • Total Tax: ₹12,500 + ₹25,000 + ₹37,500 = ₹75,000
     • ₹10 lakh to ₹12.5 lakh: 20%
     • ₹12.5 lakh to ₹15 lakh: 25%
     • Above ₹15 lakh: 30%

2. For an Individual with an Income of ₹15 Lakh:

   • Old Tax Regime:
     • Gross Income: ₹15,00,000
     • Less: Standard Deduction: ₹50,000
     • Less: Section 80C Deduction: ₹1,50,000
     • Less: Home Loan Interest: ₹2,00,000
     • Taxable Income: ₹11,00,000
     • Tax Calculation:
       • Up to ₹2.5 lakh: Nil
       • ₹2.5 lakh to ₹5 lakh: 5% of ₹2.5 lakh = ₹12,500
       • ₹5 lakh to ₹10 lakh: 20% of ₹5 lakh = ₹1,00,000
       • ₹10 lakh to ₹11 lakh: 30% of ₹1 lakh = ₹30,000
       • Total Tax: ₹12,500 + ₹1,00,000 + ₹30,000 = ₹1,42,500
   • New Tax Regime:
     • Gross Income: ₹15,00,000
     • No Deductions
     • Taxable Income: ₹15,00,000
     • Tax Calculation:
       • Up to ₹2.5 lakh: Nil
       • ₹2.5 lakh to ₹5 lakh: 5% of ₹2.5 lakh = ₹12,500
       • ₹5 lakh to ₹7.5 lakh: 10% of ₹2.5 lakh = ₹25,000
       • ₹7.5 lakh to ₹10 lakh: 15% of ₹2.5 lakh = ₹37,500
       • ₹10 lakh to ₹12.5 lakh: 20% of ₹2.5 lakh = ₹50,000
       • ₹12.5 lakh to ₹15 lakh: 25% of ₹2.5 lakh = ₹62,500
       • Total Tax: ₹12,500 + ₹25,000 + ₹37,500 + ₹50,000 + ₹62,500 = ₹1,87,500

Which Tax Regime is Better?

• Old Tax Regime:
  • Better for individuals who have significant investments and expenses that qualify for deductions.
  • Suitable for those who can maximize exemptions under sections like 80C, 80D, HRA, and others.
  • Beneficial if you are paying home loan interest or have high medical insurance premiums.
• New Tax Regime:
  • Better for individuals who do not have many investments or qualifying expenses.
  • Suitable for those who prefer a simpler tax filing process without needing to claim various deductions.
  • May be beneficial for younger taxpayers or those with straightforward financial situations.

• Investment in Tax-Saving Instruments: If you regularly invest in tax-saving instruments like PPF, ELSS, insurance, etc., the old regime might be more beneficial.
• Expense Patterns: Consider if you have expenses like home loan EMIs, children's tuition fees, medical insurance, etc.
• Ease of Filing: The new regime offers a simpler tax calculation and filing process.

1. Incentives for Startups India (Sec 80-IAC):

The provisions of Section 80-IAC of the Income Tax Act allow eligible start-ups to avail of tax exemption on 100% of profits for three consecutive financial years, out of ten years since the date of commencement of business.

Qualifying Conditions:

The Start up must apply through the Start up India website and must submit the Form 10CCB signed by the Chartered Accountant within the timelines specified for it.

2. Angel Tax Regulations (Section 56(2)(viib))

Any amenable share premium above the fair market value is taxable as ‘angel tax’ when a startup raises funding from angel investors. However, there is an exception for DPIIT certified startups if they:

• Provide a declaration to be registered with the DPIIT.
• Maintain aggregate paid up capital and share premium below ₹25 crore (with the exclusion of funding from select funds.)

Such exemption is provided in order to not only invite investment but also minimize revenue erosion.

3. Presumptive Taxation Programs:

To facilitate small scale enterprises and professionals:

• Section 44AD: This is applicable for business turnover to a business which marginally does a turnover of upto ₹2 crore allowing it to opt for 6% to 8% of turnover as income liable for tax.
• Section 44ADA: This one is applicable to professionals with a gross earning of 50 lakh declarable 50% of the gross earnings as income liable to tax.

TDS is a method of earning tax initiated by the income tax department India for the purpose of ensuring tax collection at the stage when the income is received. The saver deducts some part of the amount payable to a person and pays the respective amount to the government on his behalf. It applies to payments such as: salary, rent, loan interest, and professional charges among many others.

Key Features:

• Applicability: TDS rates vary based on the type of payment and are withheld at the rates specified in the Income Tax Act.
• Thresholds: Certain payments require TDS only when their amount is above a certain threshold (for instance, rent payments exceeding SD 2,50,000 under Section 194I).
• Deposit Deadlines: TDS withheld and deducted at the source has to be transferred to the government by the seventh day of the month following that in which it was deducted.

TDS Rates (Examples):

• Salary: Based on tax income slab applicable to the employee.
• Rent (194I): 2% on plant and machinery and 10% on buildings and or land.
• Professional Fees (194J): 10%.
• Interest on Bank Deposits (194A): 10% subject to the limit prescribed by the authority.

Forms and Compliance:

• Form 26AS: TDS appears on this tax statement as part of consolidated taxes paid statement.
• Form 16/16A: Certificates issued to the individuals or entities who claim TDS against their income.
• Consequences of Non-Compliance: Non-complainants face amongst other penalties late penalties on declarations made and non affirmation of TDS deductions results in disallowance of expenses for the traders.

Form 16 is a document outputted by the employer to its employee and contains all necessary tax deductions on income provision and a TDS certificate to the employee on salary basis. It enables the workers to check their liabilities and file an income tax return (ITR).

Structure of Form 16:

• Part A:
  • Employer and employee details, including PAN and TAN.
  • Summary of TDS deposited.
  • Quarterly details of tax deducted and deposited.
• Part B:
  • Detailed salary breakup (basic, allowances, perquisites, etc.).
  • Taxable income after exemptions (e.g., HRA, LTA) and deductions (under Chapter VI-A like Section 80C, 80D).
  • Computation of tax payable, rebates, and total tax deducted.

Uses of Form 16:

• Filing Income Tax Returns (ITR).
• Verifying tax liability and claiming refunds.
• Proof of income for financial purposes (e.g., loan applications).

Issuance Timeline:

• Employers must issue Form 16 by June 15 of the following financial year.

Relevance for Employees:

• Ensures transparency in tax deductions.
• Helps avoid discrepancies between TDS deducted and actual tax liability.
• Serves as a key document during tax scrutiny or assessment.

1. Form 26AS

Form 26AS is a consolidated tax statement issued by the Income Tax Department of India. It provides a comprehensive overview of taxes deposited and credited to a taxpayer's account during a financial year. It helps taxpayers verify the tax credits available to them before filing their Income Tax Return (ITR).

1. Contents of Form 26AS:

   • TDS (Tax Deducted at Source):
     • Details of TDS deducted by employers, banks, or other deductors.
     • Covers salary, interest, rent, and other sources of income.
   • TCS (Tax Collected at Source):
     • Tax collected at source on specified transactions like the sale of goods.
   • Advance Tax and Self-Assessment Tax:
     • Details of taxes paid by the taxpayer directly.
   • Refund Information:
     • Shows income tax refunds credited to the taxpayer.
   • Specified Financial Transactions (SFTs):
     • Includes high-value transactions like property purchases, mutual fund investments, etc.
   • Defaults in TDS Payment:
     • Information on defaults or discrepancies in TDS.

2. Uses of Form 26AS:

   • Verifying TDS and advance tax payments.
   • Identifying any discrepancies before filing ITR.
   • Tracking refund statuses and high-value transactions.

3. How to Access Form 26AS:

   • Log in to the Income Tax e-filing portal.
   • Navigate to "View Form 26AS" under the “My Account” section.
   • Access the form through the TRACES website.

2. AIS (Annual Information Statement)

AIS is a comprehensive statement introduced to provide an extended view of a taxpayer's financial transactions. It complements Form 26AS by including additional data, making it a more detailed and holistic record of a taxpayer's activities.

1. Contents of AIS:

   • Income Sources:
     • Salary, pension, interest, dividends, and capital gains.
     • Incomes subject to TDS and those not covered by it.
   • Investments:
     • Interest from savings accounts, fixed deposits, and recurring deposits.
     • Details of mutual funds, bonds, and securities.
   • Transactions:
     • High-value cash deposits or withdrawals.
     • Credit card payments, property purchases, and shares trading.
   • GST Data:
     • Turnover reported in GST returns for businesses.
   • TDS and TCS Details:
     • Similar to Form 26AS but includes more granular reporting.

2. How to Access AIS:

   • Log in to the Income Tax e-filing portal.
   • Go to the "Services" tab and select "Annual Information Statement (AIS)."
   • Download the AIS report.

1. Filing Process for Employees

1. Step 1: Gather Necessary Documents

   • Form 16: Provided by the employer, detailing salary income and TDS deducted.
   • Form 26AS: Download from the Income Tax portal to verify tax credits.
   • Annual Information Statement (AIS): Review all income sources, including bank interest, investments, and high-value transactions.
   • Bank Statements: For income from other sources like fixed deposits or savings accounts.
   • Investment Proofs: Proofs for deductions under Chapter VI-A (e.g., Section 80C for PPF, ELSS, etc.).
   • Rent Receipts/Lease Agreement: For HRA exemption.

2. Step 2: Choose the Appropriate ITR Form

   • ITR-1 (Sahaj): For individuals earning up to ₹50 lakh from salary, pension, or other income sources like interest.
   • ITR-2: If income includes capital gains or foreign income.
   • ITR-3: If income includes business/professional income alongside salary.

3. Step 3: Log in to the Income Tax Portal

   • Visit Income Tax Portal.
   • Register/log in using your PAN, Aadhar, or e-filing credentials.

4. Step 4: Pre-Fill and Verify Data

   • Use the Pre-Fill Data option to auto-populate details from Form 26AS and AIS.
   • Verify:
     • Salary income matches Form 16.
     • TDS details align with Form 26AS.
     • Investment details reflect correctly.

5. Step 5: Claim Deductions

   • Declare deductions under Section 80C (e.g., LIC, PPF), 80D (health insurance), and other applicable sections.
   • Claim HRA exemptions and capital gains exemptions (if applicable).

6. Step 6: Validate and Submit

   • Calculate the total tax liability and ensure all taxes are paid.
   • Pay any remaining tax via Challan 280 and include details in the return.
   • Validate the return and submit.

7. Step 7: E-Verification

   • Verify the return using Aadhaar OTP, Net Banking, or sending a signed ITR-V to CPC, Bengaluru.

2. Filing Process for Employers

1. Step 1: Maintain Employee Records

   • Ensure accurate payroll records, including salary structure, TDS deductions, and proof of investments.

2. Step 2: Generate and Issue Form 16

   • Consolidate salary details, deductions, and TDS for each employee.
   • Generate Form 16 using TRACES (Tax Deduction and Collection Account Number portal).
   • Issue Form 16 to employees before June 15 of the assessment year.

3. Step 3: File TDS Returns

   • File quarterly TDS returns (Form 24Q for salaries).
   • Verify and reconcile TDS with Form 26AS.

4. Step 4: Provide Assistance to Employees

   • Educate employees on:
     • Using Form 16 for ITR filing.
     • Verifying tax credits in Form 26AS and AIS.

5. Step 5: File Employer ITR

   • Choose the Correct ITR Form:
     • ITR-6: For companies not claiming exemptions under Section 11.
     • ITR-7: For charitable trusts or organizations.
   • Log in to the Income Tax portal and pre-fill company details.
   • Include:
     • Profit & Loss Account.
     • Balance Sheet.
     • TDS deposited and refunds claimed.
   • Validate and submit the return.