Question

12. A taxpayer who is required to report income in one year but must repay the income in a subsequent year is granted special tax relief. If the taxpayer is in a lower marginal tax bracket in the year the income is repaid than in the year it was received, the deduction reduces the tax for the year of repayment by using the higher tax rate that applied to the income when it was received. In contrast, if a taxpayer takes a deduction in one year and receives a refund of the amount giving rise to the deduction in a subsequent year, the refund is taxed at the marginal tax rate in the year of refund. This is true even though the taxpayer’s marginal tax rate in the year of receipt is higher than that in the year of the deduction. Should both adjustments to income and adjustments to deductions receive the same tax relief? Or should neither situation be granted special relief?

Answer 1

When are tax returns due? That is, what is the tax return due date?

An individual’s tax return must be filed by 31 July immediately following the end of the tax year. An individual, whose total income includes business income and where the accounts are required to be audited, has to file the return by 31 October following the tax year.
There is no concept of extended return in India. However, belated return (i.e. after due date) can be filed. From Tax Year (TY) 2016-17 onwards, belated tax return can be filed at any time before1 year from the end of TY or before the completion of assessment (audit of India tax return), whichever is earlier.

Where a taxpayer files a return after the due date, interest is levied at 1 percent per month (or part thereof) for each month of delay on the balance tax payable. Further, where a person fails to file India Tax Return within the time prescribed, late filing fees shall be charged as follow:

• INR5,000, if the return is furnished on or before 31 December of the assessment year*
• INR10,000 in any other case*

*Further, if the total income of the person does not exceed INR500,000, the fee payable for late filing of India Tax Return shall not exceed INR1,000.

What is the tax year end?

The TY begins on 1 April and ends on 31 March of the immediate following year. The income earned during a year is taxable in the relevant year. The year in which income is earned is known as the previous year or tax year or financial year. From a tax perspective, the 12-month period subsequent to the tax year is known as the assessment year.

What are the compliance requirements for tax returns in India?

An individual is required to obtain a registration with the tax authorities [i.e. a Permanent Account Number (PAN)]. PAN is a unique ten-digit identification number given by the Indian tax authorities. PAN is required to be quoted on all the correspondence with the tax authorities.

As per the domestic tax law in India, every individual is required to file India tax return for the respective financial year with the Indian-tax authorities by 31 July following the financial year end if:

• Their income chargeable to tax in India, without giving effect to exemption claimed upon sale of a Capital Asset, exceeds basic exemption limit (i.e. INR250,000); or
• Expenditure has been incurred by the taxpayer of an amount or aggregate of the amounts exceeding INR200,000 for self or any other person for travel to a foreign country/jurisdiction; or
• Expenditure has been incurred by the taxpayer of an amount or aggregate of the amounts exceeding INR100,000 towards consumption of electricity; or
• They qualify as Ordinary Resident of India and
  • holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India; or
  • has signing authority in any account located outside India; or
  • is a beneficiary of any asset (including any financial interest in any entity) located outside India?

Further, for an individual of age 80 years or older at any time during the previous year, and who furnishes the India tax return in ITR 1 or ITR 4, it is not mandatory for the individual to e-file the return of income i.e. a paper return can be filed. For all other cases, e-filing of India tax return is mandatory.

It may further be noted that obtaining and quoting Aadhaar is mandatory for an individual. However, the said requirement shall not apply to an individual who does not possess the Aadhaar or the Enrolment ID and is:

• Residing in the States of Assam, Jammu and Kashmir and Meghalaya.
• A non-resident as per the Act.
• Of the age of 80 years or older at any time during the previous year.
• Not a citizen of India.

Tax is required to be withheld at source on salaries, professional fees, rent, interest, dividends, etc. at the time such income is credited to the account of the payee or at the time of payment, whichever is earlier. In case the amount of tax withheld at source is short of the actual tax liability, an individual is liable to pay advance/self - assessment tax.

Advance tax is payable by the taxpayer during the tax year if the estimated taxes (net of taxes withheld at source) exceeds INR10,000. Advance tax payable is the tax on estimated income of the tax year, reduced by tax withheld at source. Advance tax is payable in four installments by individuals as follows:

• 15 percent is payable by 15 June of the tax year
• 45 percent is payable by 15 September of the tax year
• 75 percent is payable by 15 December of the tax year
• 100 percent by 15 March of the tax year.

In case of default in filing of a tax return, interest is levied on the amount of unpaid tax at the rate of 1 percent for every month or part thereof for the period during which the default continues and is payable along with the self-assessment tax before filing of the tax return. In case of default in payment of advance tax, interest is levied on the shortfall of advance tax and the deferment of advance tax at the rate of 1 percent for every month or part thereof, during which the default occurs. Such interest is payable before filing of the tax return.
Further, a resident senior citizen (i.e. 60 years and older), not having any income from a business or profession, shall not be liable to pay advance tax.