Filing your tax return is only a part of the income-tax procedure that could get more troublesome if the officer decides to pick your return for scrutiny
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Perhaps no other domain in finance involves as many hassles and complications as does taxation. The salaried class knows how cumbersome tax matters are-weighed down by endless paperwork and having to stand in long queues to submit returns. After the hard part is done and over, there's still a chance that your tax return may be the one handpicked for scrutiny. So, how should one deal with the issue? Is there a simple way out? Moneylife Foundation invited Ameet Patel, tax partner at SKP Group, to address these and other concerns of taxpayers at the Moneylife Knowledge Centre on Tuesday.
Mr Patel said that the main objective of his address was to help people understand the difficulties that could crop up after filing tax returns. The problem arises when a tax-payer's return is picked up for scrutiny by the Income-Tax officer. The aim of the scrutiny is to determine whether all the income earned during the year is duly reflected in the tax return, whether deductions claimed are genuine and whether the appropriate tax has been genuinely paid or not. (Read Mr Ameet Patel's article, 'Pay Tax, Na Karo Relax' in the edition of MoneyLife magazine dated 27 January 2011, now on the stands.)
He pointed out that to avoid getting caught in the scrutiny, one must have at hand all documentary proof relating to the return. Among the documents required to be produced are the bank statement or pass book. Other important documents that a taxpayer must preserve are dividend receipts, records of salary, interest income, gifts received and loans taken, proceeds from sale of shares/mutual fund units credited to the bank account and other credits.
The audience listened intently as Mr Patel described issues that could create problems for taxpayers. He pointed out that a salaried person should match the salary deposited in the bank with the amount entered in Form 16. The gross salary in the salary certificate, minus recoveries such as provident fund, profession tax, loan, TDS, etc, and non-monetary perks should ideally tally with the amounts deposited in the account. He also explained the importance of Form 26AS, which contains details about tax payments credited in the investor's name in government records.
Another major issue that he addressed was AIR or Annual Information Return. Tax officers can access this information on the basis of a taxpayer's PAN. Mr Patel said that an investment is to be reported only if it crosses Rs2 lakh.
Another stumbling block is TDS information. Taxpayers are expected to match every TDS entry-gross amount, date of deduction, etc, with their records. He also talked about business income versus capital gains, which has been a bone of contention for several years.
Mr Patel also answered questions from the participants in a lengthy Q&A session. The queries ranged from how a particular file is picked up for scrutiny, to the debate over the classification of capital gains and business income.
One participant inquired what differentiated a 'trader' from an 'investor'. Mr Patel explained that it is the tax officer who decides whether a taxpayer is a 'trader' or an 'investor'. While some IT officers consider even 10 share transactions in a year as indicative of business, others might decide that even 100 such transactions constitute investment. The main points that differentiate a trader from an investor are the frequency and volume of transactions, whether funds use are owned or borrowed, and the holding period of the investment.
Another participant asked whether one could set off a loss from speculative trading against gains from other investments. Mr Patel clarified that such losses could only be set off against speculative gains.
Mr Patel is a former president of the Bombay Chartered Accountants Society, which has over 8,000 members. He is a tax partner at SKP Group and was earlier partner at Kanu Doshi Associates. Mr Patel is an occasional columnist for Moneylife.
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