Individuals with annual income up to . 5 lakh are now exempted from filing personal income tax return for the current financial year. This relief was proposed in the Union Budget last year. However, a circular from the Central Board of Direct Taxes (CBDT) last week indicates that this relief has been extended for this financial year. An individual can now file tax returns for this financial year by July 31, 2012. However, the exemption comes with some terms and conditions, which determine the eligibility of an individual to seek the exemption from filing returns.
WHO CAN SEEK THIS EXEMPTION?
As per the Notification, only individuals who satisfy the following conditions are eligible for exemption from furnishing the tax return for the tax year 2011-12:
a) Total income does not exceed . 5,00,000. b) Total income consists only of income under the following heads:
Ø Salaries
Ø 'Income from other sources' by way of interest, not exceeding . 10,000, from a savings bank account
Ø Apart from the above conditions, an individual should also fulfill the following conditions to avail an exemption from furnishing tax return with the authorities:
Ø Report his Permanent Account Number (PAN) to his employer
Ø Report savings bank account interest income to his employer and the employer should withhold tax on such interest income
Ø Employer provides tax withholding certificate (Form 16) to employee which mentions the PAN, details of income and taxes withheld
Ø There should be no further tax payable by the employee by way of advance tax or self-assessment tax
Ø No refund claim for the relevant tax year
The employee should receive salary from only one employer for the tax year Apart from the above mentioned conditions, an individual should keep in mind that the exemption under this notification is restricted to voluntary filing of tax return and does not apply to tax return to be furnished in response to notice issued by the tax authority for regular assessment or reassessment or assessment pursuant to search/ survey proceedings.
Who Are Not Eligible For This Exemption
An individual cannot claim an exemption to file the tax return under this notification in the following cases: The individual has total income under any head other than 'Salaries' and 'Income from other sources'
The individual has total income exceeding . 5,00,000 for tax year 2011-12
The Individual has not submitted his PAN to his employer
The individual has interest income other than savings bank account interest income
The individual has not reported interest income from savings bank account to his employer and discharged his tax liability by way of advance tax or self assessment tax
The individual has refund claim in the return of income
The individual has received salary income from more than one employer
Similarly, a person cannot claim benefit of non filing of tax return under this notification where he is required to file the same by a notice issued by the tax authorities. The withholding tax certificate (Form 16) issued by the employer to the employee which mentions the PAN, details of income and taxes withheld would be treated as proof for payment of taxes.
The most important factor is that individuals seldom report their savings account interest to their employer. "Even for those who want to report the same to the employer, the difficulty arises from the fact that often the interest for the later part of the year is credited in the month of February or March. Most large employers freeze their payroll declarations as early as in the month of January. Many small employers are reluctant to accept declaration of other income.
The other practical factor is, despite this notification, many banks still continue to ask for copies of tax return while processing loan applications. Further, sometime tax return copies are required to be filed along with VISA applications. Keeping these in mind, the individual who is eligible to claim this exemption might still decide to file his return of income.
Restrictive Circular?
The intention of the government in issuing the notification is to reduce the compliance burden on small tax payers who have income under the heads 'Salaries' and 'Income from other sources'. In those cases, the Form 16 issued to salaried employees will be the sole proof for taxes paid. Hence, the conditions are restrictive to ensure that the notification is beneficial only to small tax payers whose information/ details are disclosed in the Form 16.
This circular addresses those salaried tax payers whose entire tax liability is discharged through tax withholding and whose complete details are reported by the employer as part of the withholding compliance. However, tax payers need to carefully examine compliance of exemption conditions in their cases before deciding not to file the tax return.
But the clause on that non-disclosure of savings account interest to their employer itself would eliminate a lot of individuals from seeking this exemption.
At least this exemption should be extended to individuals of this income category who also hold fixed deposits, recurring deposits, NSC, PPF etc.
A similar notification was issued last year applicable for tax year 2010-11. Since the current notification has been issued before the end of the financial year 2011-12, individual tax payers will have sufficient time to disclose their savings bank account interest income to their employers.
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