PRINCIPLES OF TAXATION LAW

ASSIGNMENT ON:
Filing of Income Returns, Assessment of income tax, Tax
deduction source, Advance tax and rectification of tax

SUBMITTED BY:-
RUSHI SREEDHAR KUNKUPUDI
B.B.A. LLB
ROLL NO: - 358
CLASS: - D
SYMBIOSIS LAW SCHOOL, HYDERABAD
SYMBIOSIS INTERNATIONAL UNIVERSITY, PUNE
IN
SEPTEMBER 2019
UNDER THE GUIDANCE OF
PROF. A. Chandrasekhar
1. FILING OF INCOME TAX RETURNS- PAN

Income Tax Return is a form in which the taxpayers file information about his
income earned and tax applicable to the income tax department. The income tax
department has notified 7 various forms i.e. ITR 1, ITR 2, ITR 3, ITR 4, ITR 5,
ITR 6 and ITR 7. Every taxpayer should file his/her ITR on or before the specified
due date. The applicability of ITR forms varies depending on the sources of
income of the taxpayer, the amount of the income earned and the category the
taxpayer belongs to like individuals, HUF, company, etc.

It is mandatory to file income tax returns (ITR) in India if any of the conditions
mentioned below are applicable to you:

1. If your gross annual income is more than-

 For individuals bellows 60 years - Rs. 2.5 Lakh
 For individuals above 60 years but below 80 years - Rs 3 lakh and
 For individuals above 80 years - Rs. 5 lakhs.
2. If you have more than one source of income like house property, capital gains
etc.
3. If you want to claim an income tax refund from the department.
4. If you have earned from or have invested in foreign assets during the FY.
5. If you wish to apply for visa or a loan
6. If the taxpayer is a company or a firm, irrespective of profit or loss.

The following are various income tax return forms that are to be filled according to
the requirements:

 ITR-1 OR SAHAJ

This Return Form is for a resident individual whose total income for the
assessment year 2018-19 includes:

 Income from Salary/ Pension; or

 Income from One House Property (excluding cases where loss is brought
forward from previous years); or
 Income from Other Sources (excluding Winning from Lottery and Income from
Race Horses)
 Agricultural income up to Rs.5000.

This form is not available for those who have:

 Total income exceeding Rs 50 lakh

 Agricultural income exceeding Rs 5000
 If you have taxable capital gains
 If you have income from business or profession
 Having income from more than one house property
 If you are a Director in a company
 If you have had investments in unlisted equity shares at any time during the
financial year
 Owning assets (including financial interest in any entity) outside India) if you
are a resident, including signing authority in any account located outside India
 If you are a resident not ordinarily resident (RNOR) and non-resident
 Having foreign assets or foreign income
 If you are assessable in respect of income of another person in respect of which
tax is deducted in the hands of the other person.

 ITR-2

ITR 2 is for the use of an individual or a Hindu Undivided Family (HUF) whose
total income for the AY 2018-19 includes:

 Income from Salary/Pension; or

 Income from House Property; or
 Income from Other Sources (including Winnings from Lottery and Income
from Race Horses).
 (Total income from the above should be more than Rs 50 Lakhs)

 If you are an Individual Director in a company

 If you have had investments in unlisted equity shares at any time during the
financial year
 Being a resident not ordinarily resident (RNOR) and non-resident
 Income from Capital Gains; or
 Foreign Assets/Foreign income
 Agricultural income more than Rs 5,000

Further, in a case where the income of another person like one’s spouse, child etc.
is to be clubbed with the income of the assesse, this Return Form can be used
where such income falls in any of the above categories.

This form isn’t applicable to those who:

This Return Form should not be used by an individual whose total income for the
AY 2018-19 includes Income from Business or Profession.…. GUI

 ITR-3

The Current ITR3 Form is to be used by an individual or a Hindu Undivided

Family who have income from proprietary business or are carrying on profession.
The persons having income from following sources are eligible to file ITR 3 :

 Carrying on a business or profession

 If you are an Individual Director in a company
 If you have had investments in unlisted equity shares at any time during the
financial year
 Return may include income from House property, Salary/Pension and Income
from other sources
 Income of a person as a partner in the firm.

 ITR-4 or Sugam
The current ITR 4 is applicable to individuals and HUFs, Partnership firms (other
than LLPs) which are residents having income from a business or profession. It
also includes those who have opted for the presumptive income scheme as per
Section 44AD, Section 44ADA and Section 44AE of the Income Tax Act.
However, if the turnover of the business exceeds Rs 2 crore, the taxpayer will have
to file ITR-3.

This form is not available to those who:

 If your total income exceeds Rs 50 lakh

 Having income from more than one house property
 If you have any brought forward loss or loss to be carried forward under any
head of income
 Owning any foreign asset
 If you have signing authority in any account located outside India
 Having income from any source outside India
 If you are a Director in a company
 If you have had investments in unlisted equity shares at any time during the
financial year
 Being a resident not ordinarily resident (RNOR) and non-resident
 Having foreign assets or foreign income
 If you are assessable in respect of income of another person in respect of which
tax is deducted in the hands of the other person.

 ITR-5

ITR 5 is for firms, LLPs (Limited Liability Partnership), AOPs (Association of

Persons), BOIs (Body of Individuals), Artificial Juridical Person (AJP), Estate of
deceased, Estate of insolvent, Business trust and investment fund.

 ITR-6
For Companies other than companies claiming exemption under section 11
(Income from property held for charitable or religious purposes), this return has to
be filed electronically only.

 ITR-7

For persons including companies required to furnish return under section 139(4A)
or section 139(4B) or section 139(4C) or section 139(4D) or section 139(4E) or
section 139(4F).

 Return under section 139(4A) is required to be filed by every person in receipt

of income derived from property held under trust or other legal obligation
wholly for charitable or religious purposes or in part only for such purposes.
 Return under section 139(4B) is required to be filed by a political party if the
total income without giving effect to the provisions of section 139A exceeds the
maximum amount, not chargeable to income-tax.
 Return under section 139(4C) is required to be filed by every –
o Scientific research association;
o News agency ;
o Association or institution referred to in section 10(23A);
o Institution referred to in section 10(23B);
o Fund or institution or university or other educational institution or any
hospital or other medical institution.
 Return under section 139(4D) is required to be filed by every university,
college or other institution, which is not required to furnish return of income or
loss under any other provision of this section.
 Return under section 139(4E) must be filed by every business trust which is not
required to furnish return of income or loss under any other provisions of this
section.
 Return under section 139(4F) must be filed by any investment fund referred to
in section 115UB. It is not required to furnish return of income or loss under
any other provisions of this section.
2. ASSESMENT OF INCOME TAX

Every assesse, who earns income beyond the basic exemption limit in a Financial
Year, must file a statement containing details of his income, deductions, and other
related information. This is called the Income Tax Return (ITR). Once the income
returns are filed, the CBDT based on set of parameters, return of an assessed gets
picked for an assessment.

The various forms of assessment are as follows:

1. Self-Assessment
2. Summary Assessment
3. Regular Assessment
4. Best Judgement Assessment
5. Income Escaping Assessment

1. Self-Assessment

The assessee himself determines the income tax payable. The tax department has
made available various forms for filing income tax return. The assessee
consolidates his income from various sources and adjusts the same against losses
or deductions or various exemptions if any, available to him during the year. The
total income of the assessee is then arrived at. The assessee reduces the TDS and
Advance Tax from that amount to determine the tax payable on such income. Tax,
if still payable by him, is called self-assessment tax and must be paid by him
before he files his return of income. This process is known as Self-Assessment.

2. Summary Assessment

It is a type of assessment carried out without any human intervention. In this type
of assessment, the information submitted by the assessee in his return of income is
cross-checked against the information that the income tax department has access
to. In the process, the reasonableness and correctness of the return are verified by
the department. The return gets processed online, and adjustment for arithmetical
errors, incorrect claims, and disallowances are automatically done. Example, credit
for TDS claimed by the taxpayer is found to be higher than what is available
against his PAN as per department records. Making an adjustment in this regard
can increase the tax liability of the taxpayer.

After making the aforementioned adjustments, if the assessee is required to pay

tax, he will be sent intimation under Section 143(1). The assessee must respond to
this intimation accordingly. Here you can read a more detailed article on Section
143(1).

3. Regular Assessment

The income tax department authorizes the Assessing Officer or Income Tax
authority, not below the rank of an income tax officer, to conduct this assessment.
The purpose is to ensure that the assessee has neither understated his income or
overstated any expense or loss or underpaid any tax.

The CBDT has set certain parameters based on which a taxpayer’s case gets picked
for a scrutiny assessment.

a) If an assessee is subject to a scrutiny assessment, the Department will send a

notice well in advance. However, such notice cannot be served after the expiry
of 6 months from the end of the Financial year, in which return is filed.

b) The assessee will be asked to produce the books of accounts, and other
evidence to validate the income he has stated in his return. After verifying all
the details available, the assessing officer passes an order either confirming the
return of income filed or makes additions. This raises an income tax demand,
which the assessee must respond to accordingly.

4. Best Judgement Assessment

This assessment gets invoked in the following scenarios:

a) If the assesse fails to respond to a notice issued by the department instructs him
to produce certain information or books of accounts

b) If he/she fails to comply with a Special Audit ordered by the Income tax
authorities

c) The assesse fails to file the return within due date or such extended time limit
as allowed by the CBDT

d) The assesse fails to comply with the terms as contained in the notice issued
under Summary Assessment

After providing an opportunity to hear the assessee’s argument, the assessing

officer passes an order based on all the relevant materials and evidence available to
him. This is known as Best Judgement Assessment.

5. Income Escaping Assessment

When the assessing officer has sufficient reasons to believe that any taxable
income has escaped assessment, he has the authority to assess or reassess the
assessee’s income. The time limit for issuing a notice to reopen an assessment is 4
years from the end of the relevant assessment Year. Some scenarios where
reassessment gets triggered are given below.

a) The assesse has taxable income but has not yet filed his return.

b) The assesse, after filing the income tax return, is found to have either
understated his income or claimed excess allowances or deductions.

c) The assesse has failed to furnish reports on international transactions, where he

is required to do so.

Assessment could close quickly for some taxpayers, while it could prove to be
quite gruelling for others. If you are not comfortable dealing with income tax
officers, it is suggested that you take the help of a Chartered Accountant to help
you with your case.
3. TDS or TAX DEDUCTED SOURCE

As per the Income Tax Act, any company or person making a payment is required
to deduct tax at source if the payment exceeds certain threshold limits. TDS has to
be deducted at the rates prescribed by the tax department.

The company or person that makes the payment after deducting TDS is called a
deductor and the company or person receiving the payment is called the deductee.
It is the deductor’s responsibility to deduct TDS before making the payment and
deposit the same with the government. TDS is deducted irrespective of the mode of
payment–cash, cheque or credit–and is linked to the PAN of the deductor and
deducted.

TDS is deducted on the following types of payments:

 Salaries
 Interest payments by banks
 Commission payments
 Rent payments
 Consultation fees
 Professional fees

However, individuals are not required to deduct TDS when they make rent
payments or pay fees to professionals like lawyers and doctors. TDS is one kind of
advance tax. It is tax that is to be deposited with the government periodically and
the onus of the doing the same on time lies with the deductor. For the deductee,
the deducted TDS can be claimed in the form of a tax refund after they file
their ITR. TAN stands for Tax Deduction Account Number. It is 10 digit alpha
numeric numbers required to be obtained by all persons who are responsible for
deducting or collecting tax. Under Section 203A of the Income Tax Act, 1961, it is
mandatory to quote Tax Deduction Account Number (TAN) allotted by the Income
Tax Department (ITD) on all TDS returns.
TDS certificates are issued by the deductor (the person who is deducting tax) to the
deductee (the person from whose payment the tax is deducted). There are mainly
two types of TDS certificates issued by the deductor.

1. Form 16: which is issued by the employer to the employee incorporating details
of tax deducted by the employer throughout the year, and
2. Form 16A: which is issued in all cases other than salary.

For example, Mr. Gupta is working as a salaried employee at a company and tax is
deducted on his salary @ 15%. The company shall provide Mr. Gupta with a Form
16 describing particulars in detail regarding the amount of salary paid and tax
deducted on the same. However, had Mr. Gupta been working as a professional
and received professional fees from an organization which is subject to TDS, then
he will be provided Form 16A for the same.

Numerous transactions are covered under the purview of TDS sections and
calculation of TDS can be tricky in some sections. Here, we shall discuss some
examples of different sections to make the calculation clear.

Example 1:
Under the section, 194A tax is to be deducted on payment of interest other than
interest on securities. However, no tax is required to be deducted if amount of such
interest paid or credited or is likely to be paid or credited does not exceed Rs
10,000/- in case of banking company, co-operative society engaged in the business
of banking and post office deposits and Rs 5,000/- in any other case in a financial
year. Also, note that no tax is to be deducted on savings account interest.
 Scenario 1: Suppose interest paid or credited or is likely to be paid or credited
by a banking company to a person in a financial year is Rs 9,000/-, then no tax
is required to be deducted as the amount has not exceeded the cap of Rs
10,000/-.
 Scenario 2: Say interest paid or credited or is likely to be paid or credited by a
banking company to a person in a financial year is Rs 12,000/-, then tax is
required to be deducted on the whole amount of Rs 12,000/- @ 10% i.e. TDS of
Rs 1200/-. Please note that Rs 10,000/- is a capital just for fixing
responsibility of banking company for TDS and is not an exemption limit
i.e. tax is to be deducted from the whole amount of Rs 12,000/- as soon as
the amount exceeds the capital amount of 10,000/-. Similar examples are
relevant for other interest, except in those cases the capital amount shall be Rs
5,000/- instead of Rs 10,000/-.
4. Advance tax and Ratification of return

Once you file an income tax return the Income Tax Department processes the
return and sends an intimation. The intimation contains details of the return
submitted by you and the numbers that the department has. If there is a mismatch
i.e. a demand or higher refund than what you had claimed in the return you can do
the following –

1. File a rectification

2. Agree with the demand and pay the tax.

A rectification request under section 154(1) is allowed by the Income Tax

Department for correcting mistakes when there is an apparent mistake in
your Income Tax Return.

The following errors can be taken care of by filing a rectification –

 An error of fact
 An arithmetic mistake
 A small clerical error
 An error due to overlooking compulsory provisions of law.

Here are some examples of these errors are –

 A mismatch in tax credit

 Advance tax mismatch
 Gender mentioned incorrectly
 Additional details not submitted for capital gains at the time of filing return

A rectification request can be filed only for returns which are already processed in
CPC, Bangalore. If on rectifying a ‘mistake’ there is a change in Income – a
rectification should not be filed. In this case, a Revised Income Tax Return should
be filed. No new deductions or exemptions are allowed to be claimed. A
rectification can be filed by you or an Income Tax Authority can on its own rectify
a mistake which is apparent. If the Income Tax Return was filed online then an
online rectification has to be filed.

The following is a step by step guide on how to file a rectification request under
section 154(1) –

Step 1 – Login to Income Tax Website

Step 2 – Go to ‘e-File’. In the drop-down select ‘Rectification’.

Step 3 – Select the ‘Assessment Year’ for which rectification is to be filed and
‘Latest Communication Reference Number’ (as mentioned in the CPC Order). In
case you have received more than 2 orders use the latest order number. Click on
‘Validate’.

Step 4 – Select the ‘Rectification Request Type’ based on the reason for filing
rectification.

Here is what you need to do after selecting the reason –

A. ‘Taxpayer Correcting Data for Tax Credit mismatch only’ − On

selecting this option three check boxes are displayed. One can make a
correction to Tax Collected at Source (TCS), Tax Deducted at Source
(TDS) and Income Tax (IT) entered in the Income Tax Return. One
may select the checkbox for which data needs to be corrected. One
can add a maximum of 10 entries for each of the selections.
 B. ’Taxpayer is correcting the Data in Rectification’ − Select the
reason for seeking rectification and the Schedules in the return being
changed. Next, one needs to upload XML. One can select a maximum
of 4 reasons.

C. ‘No further Data Correction required. Reprocess the case’ – one

can select this option if there is a Tax Credit mismatch or Tax/
Interest mismatch. One may select the checkbox for which
reprocessing is required. No upload of an Income Tax Return is
required.

Step 5 – Click the ‘Submit’ button. A pop up will appear to make sure that the
TDS entries are as per Form 26AS. Click on ‘OK’.

Step 6 – On successful submission, a Reference number is generated and sent for

processing to CPC, Bangalore.

After processing the Rectification Request, the rectification order under Section
154 will be issued. At the time of filing income tax return (ITR), if there is
any income tax payable pending, then one is required to pay it before completing
the process of ITR filing. If a mistake has been made while depositing the income
tax, then such tax deposits will not be reflected in Form 26AS and one would not
be able to claim tax credit for the same.