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Tuesday, July 30, 2013

How to facilitate the filing of income tax returns

Aloke Gupta is unable to handle the paperwork when it is time to file his income tax returns. He ends up filing the return based on the Form 16 provided by his employer since salary is his primary source of income. It is easier to take care of the interest earned on deposits based on the TDS certificate, but the rest of his investments in shares and mutual funds are tough to manage for tax purposes. What should Gupta do?

If Gupta has too many transactions in equity and mutual funds, it may help to find a chartered accountant to maintain his accounts and file the tax returns. Equity transactions may create shortterm capital gains, which are taxable. Similarly, there may be capital losses that can be set off against some gains. Mutual fund transactions may also have short- and long-term capital gains that are taxable. Gupta may not be complying with tax laws if he does not account for and pay taxes that may be due on these transactions.

Many service providers and brokers provide periodic statements, which show tax liability with respect to equity, debt, mutual fund and derivative transactions. Gupta should subscribe to these services and use the statements after due verification by his CA to ensure that he is paying the right amount as tax. He should remember that the tax on these investment gains is not subject to TDS. Therefore, Gupta may have to fill up the required tax challans and pay the taxes as applicable. It might help to consolidate his transactions in investments with one or two advisory services.

Gupta also needs to ensure he does not have too many bank accounts that are used for making these investments. The non-payment of taxes may lead to fines and penalties if his returns come up for scrutiny. The cost of maintaining his accounts and books might turn out to be lower in comparison.

The content on this page is courtesy Centre for Investment Education and Learning(CIEL). Contributions by Girija Gadre and Arti Bhargava

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