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Limited Benefits

Very few individuals with income of up to Rs 5 lakh will benefit from being exempt from filing IT returns…

The Central Board of Direct Taxes has announced that salaried taxpayers with an annual income of up to Rs 5 lakh need not file their returns. However, this notification comes with a number of pre-conditions due to which only a few people will be able to benefit from the scheme.

According to the notification, the total income of eligible individuals (after deductions under 80C to 80U) must be up to Rs 5 lakh. Income must be earned from salary, or from interest income from saving bank account not exceeding `10,000. Such individuals must report their permanent account number and the entire income from bank interest to their employer, pay the entire tax by way of tax deducted at source, and obtain a certificate of tax deduction — Form No. 16. In effect, Form 16 issued to salaried employees will be treated as IT return under the scheme. Pension is also covered under salary head. Persons receiving salary from more than one employer, having income from sources other than salary and interest income from savings bank account, or having refund claims shall not be covered under the scheme. The exemption is available for assessment year 2011-12.

Too late in the day
The announcement comes at a time when Form 16 has already been issued to taxpayers. According to Veer Sardesai, a Pune-based financial planner, “The notification has come too late. People will not be able to take advantage of this new scheme this year because their Form 16s have already arrived.”

Is it actually beneficial?
At one glance, the circular appears to be beneficial for salaried individuals. But is it really so? Most salaried people won’t fulfil the above terms and conditions.
For instance, interest gets credited after March 31 in bank accounts. One needs to give proof of investments in the investment declaration form before that, based on which your Form 16 gets prepared. So either you will have to calculate the interest you will earn from your savings bank account, which is a tedious task or you will have to submit a tentative interest amount, which might be right or wrong.
Moreover, how many people who earn around Rs 5 lakh a year do not have income from sources other than salary and interest income from saving account? Most people also earn an income from sources such as fixed deposits (FDs), mutual funds, equity, gold and property. If they do, they will again not be eligible for this scheme. If you earn a fixed rate of return from instruments such as bank or company deposits, national savings certificates, which comes under the head — income from other sources — you will again not qualify for this scheme.
According to income tax experts, if you have invested in equity, you do not have an income till you redeem those investments. So there is no need to file returns. Gain or loss is realised only when you redeem. Returns, however, will be applicable for short-term capital gains. As there is no tax on long-term capital gains for stocks and equity mutual funds, individuals enjoying long-term capital gains but having taxable income of less than Rs 5 lakh need not file returns.
Says Sardesai: “This scheme offers an option to eligible individuals. If they do not like to file their tax returns, they need to follow the above procedure. Otherwise, if they wish to, they could easily file their returns without any restrictions.”

Thus, people who qualify for this scheme (which will be a rather small group of individuals) can avoid the hassle of filing their income tax return this year. However, the income-tax department has introduced simple and user-friendly forms.
Commenting on how this scheme can be improved further, Sardesai says: “Right now the scheme applies to a small audience. But if the IT department could expand the income limit and include other investments such as FDs, it would appeal to a larger set of people.”
Finally, given the terms and conditions that accompany the scheme currently, it’s unlikely that many people will be able to avail of it.