Before We Begin:
I have written many articles on Indian Income Tax. You can read them to familiarize yourself with the Indian Tax Laws by reading them. To read them “click here”
What is the Good News?
Well, the good news is the fact that
“No Income Tax Returns is required for Salaried Individuals whose annual taxable income is upto 5 lakhs”
How is this Good?
Below are some reasons why this is good:
1. People who have annual income of upto Rs. 5 lakhs need not file any tax returns
2. Companies don’t have to deduct TDS (Tax Deducted at Source) for their employees whose annual incomes are less than 5 lakhs
3. Employees will get their full salary without any tax deductions (If their annual income is less than 5 lakhs)
4. The government does not have to process tax returns for people whose salaries are less than 5 lakhs and they can concentrate on the higher income group
How many people will be affected/benefited by this?
Approximately 85 lakh salaried individuals in India are expected to gain benefits because of this ruling. Note that, this number is just an approximation and the actual number might be higher or lower than this 85 lakhs.
From when is this effective?
This ruling is effective from financial year 2011-2012. i.e., for this financial year starting April 2011 and ending March 2012, people whose salaries are less than 5 lakhs need not file their tax returns in June 2012.
Points to Note:
Though this is good news, there are some things that we need to keep in mind:
1. The annual income comprises of the individuals salary and any other income that he/she may earn through bank interest, dividend income from Mutual Funds, Capital Gains from Shares etc
2. If your annual income including all the above mentioned entities is more than 5 lakhs, you need to file tax returns even if your salary is less than 5 lakhs.
3. Filing your tax returns is always a good idea if you are thinking of buying a home. Banks often ask for the past 2-3 years of IT Returns when you apply for a home loan and hence, it’s a good idea to file your returns to show that you are a responsible citizen as well as to cement the fact that you are earning legal income and can afford to repay the home loan EMI
There is still not much clarity about this 5 lakh limit. Does this cover only people whose annual income is less than 5 lakhs or does this cover people whose annual taxable salary is less than 5 lakhs.
Lets say an individuals annual salary is 7.5 lakhs. He gets a 1 lakh exemption under Section 80C (Investments) and another Rs. 1.5 lakh exemption on his home loan interest and another Rs. 15000 on Medical expenses. If we deduct all these exemptions (amounting to 2.65 lakhs), this individuals net taxable income is only Rs. 4.85 lakhs.
So, in this case, should this person file his returns or not?
Well, unfortunately, there is not much clarity on this front. Experts feel that, this ruling is applicable for these individuals as well, but it isn’t confirmed yet. If there is any clarity on this topic, as you might already know, we will cover that in my blog as always!!!
That’s it for now. Happy Tax Filing!!!