IT Returns for Income less than 5 Lakhs-Part II

Continuning further from our previous part No IT Returns if Income less than 5 Lakhs, here we continue with the Scenario 2:

Your Net Salary mentioned on Offer Letter: 6.5 Lakhs. (however, this is NOT the basis of your net taxable income)
What you need to check is your FORM-16 issued by the employer. The first field in that will be something like "Gross Salary". Ignore that as well and see further down. There should be a field called "Income chargeable under the head 'Salaries'". Suppose this figure is 5.8 Lakhs

Continue further down on your FORM-16, till you see a field called "Total Income". This will usually be after a field called "Aggregate of deductible amount under Chapter VIA" and just above a field called "Tax on total income".
It is this TOTAL INCOME value which will determine whether you need to file your tax returns or not.
If this "Total Income" field value is less than 5 Lakhs, then you need NOT file Income Tax returns for this assessment year.
But if this figure is above 5 Lakhs, then you need to file IT Returns.

But, hang on. There is more to it even for individuals who have this "Total Income less than 5 lakhs". See the following scenario 3 as well regarding your additional income.

Scenario 3: Along with Salary Income, I also have additional income from stock trading, other business, interest earned on Fixed deposits, savings accounts etc. :
Now this is where things get a bit complicated. Many of the individuals dont know that every single penny you earn is taxable. Whether it is the income as interest earned on your savings account or Fixed deposit accounts, any other income from other source, everything is taxable.
You are responsible to declare that income. Hence, there are 2 cases here.
1) You have declared this additional income to your Employer and it has been mentioned in Form-16 by the employer in the section "Add: Any other income reported by the employee".
If this is the case, then you again look at the "Total Income" field value as mentioned in scenario 2. If that is less than 5 lakhs, you need not file IT returns. But if that is higher than 5 Lakhs, you need to file your IT returns

2) You have additional income, but you've not mentioned it to your employer and hence it is not mentioned in your Form-16:
This is the most common case. Remember, you are required to pay taxes on every single paisa you earn.
Now, what you can do in this case is, take the "Total Income" value from your form-16. Then, add to it the Income you have from additional sources to arrive at the ""Net Total Income". If this is less than 5 lakhs, you need not file IT returns. But if that is higher than 5 Lakhs, you need to file your IT returns.

However, you MUST pay tax on this additional income also. Since it is not mentioned in your form-16, that means it has not been taxed. Hence, it is your liability to pay taxes on this on your own.

Related: File Tax Returns: Step By Step Guide

Read first part: No IT Returns if Income less than 5 Lakhs

Scenario 4: I have a refund to claim from the IT department as additional taxes has been deducted/paid
In case you have a refund to claim, then you MUST file IT Returns, irrespective of the fact that your income is less than or higher than 5 Lakh.

Is this the concrete and full information?
No, we need to disclaim this at the moment as this is based upon the news which has come out yesterday, 31st May 2011.
The government will issue a notification very soon in the month of June 2011 exempting 'classes of persons' from the requirement of furnishing income tax returns.
The purpose of publishing this information is to provide some insights into the new IT returns requirement system, and ask the individuals to hold onto their tax returns filing till the official notification from government comes in in June. Otherwise, people end up spending a lot of money in paying the agents and TRP's for filing their returns.
We'll advise individual tax payers (who are around that 5 Lakh mark), that last date for filing returns is 31st July, so hold on till you see more clarity on this from government.

What will be the benefit of this initiative by the government?
It will help reduce a lot of paper work, and individuals will file returns for only genuine refund cases. Basically, it was becoming a case of duplicating the information from form-16 to IT Returns form. So by exempting individuals in the lower income bracket, the Income Tx department will be able to work in a timely manner only on the genuine IT returns.
It will be benficial to the individuals also, as majority of them end up paying a lot of money to TRP's and agents.

No IT Returns if Income less than 5 Lakhs

Details about whether IT Returns required in case of individuals earning less than 5 lakh rupees as annual income
The good news for laks of individual tax payers in India has come out yesterday, when major business news channels reported this news that Individuals Earning less than 5 lakh Rupees of Income will not be required to file Income tax returns for the assessment year 2011-12 (or financial year 2010-11)

IT Returns Not Required if Income is less than 5 Lakh Rupees

Obviously this is a good move by the government that will help reduce lots of paperwork and avoid payment of so called "service-charges" to Tax Return Preparer (TRP) and their agents. It will also be helpful for so many people, especially salaried employeesm since now they only need to maintain the Form-16 (which is usually in digital PDF form), rather than the paper based returns.
Somehow, I still feel that this good initiative could have come a bit earlier, that would have helped a lot of people to declare their additional incomes to their employers (like income from interest on FD, savings, stock trading, etc.). Anyways, better late than never.

Now, let's look at some of the scenarios which will enable you to understand whether you are exempt from Income Tax return filing process or not. Please note that the common notion among lots of tax payers is that if their salary (mention on offer letter) or the CTC (Cost to the Company) is above 5 lakhs, then they will need to file the returns as they dont come above 5 lakh limit. However, this notion is NOT correct. Even if your CTC or offer salary on paper is above 5 lakhs, you can still be exempt from filing IT returns. Here are the various scenarios discussed.

Scenario 1: Income or Salary or CTC less than 5 Lakhs:
This is the straightforward case. Your on paper salary, or your CTC mentioned on your job offer letter is less than 5 Lakhs, then there is no need for you to file your tax returns.
All you need to do is maintain a copy of Form-16 which you must have received from the employer - that will serve the purpose of IT records.

Related: File Tax Returns: Step By Step Guide

Scenario 2: Offer Salary/ CTC mentioned on offer letter greater than 5 Lakhs
This will be the scenario for majority of the working class which will be in the 2-7 years work experience range.
Interesting thing is that even if your Offer Salary/ CTC mentioned on offer letter greater than 5 Lakhs, then also depending upon your "NET TAXABLE INCOME", you may NOT be required to file the Tax Returns. How? Let's take an example.

Your Net Salary mentioned on Offer Letter: 6.5 Lakhs. (however, this is NOT the basis of your net taxable income)
What you need to check is your FORM-16 issued by the employer. The first field in that will be something like "Gross Salary". Ignore that as well and see further down. There should be a field called "Income chargeable under the head 'Salaries'". Suppose this figure is 5.8 Lakhs

Continue further down on your FORM-16, till you see a field called "Total Income". This will usually be after a field called "Aggregate of deductible amount under Chapter VIA" and just above a field called "Tax on total income".

Continue to Part II: IT Returns for Income less than 5 Lakhs-Part II