While it comes to filing income tax returns forms and to know how much you owe to the taxman, it can be hectic and confusing. To understand this form along with all the other income tax return (ITR) forms and the basic concepts, you need to first understand Tax Deduction at Source (TDS) and a few important concepts of the Form 26AS, Form16 (Form 16A, Form 16B) and Form 16A. Let me help you to understand what all these forms mean and why you should know about it all.
So, what is TDS?
I am sure that each one of you have faced the Tax Deduction at Source or TDS. TDS is an income tax collection mechanism directed by the Government of India. TDS is deducted from your salary by the employee, your fixed deposit interest from your bank and any high-value purchases. TDS is directly related to Form 26AS, Form 16, Form 16A and your income tax returns.
There are two most popular TDS sources,
- Fixed deposit interest
- Employee’s salary deduction
TDS Deduction From Fixed deposit interest:
Let’s assume, Mr. Dey has a fixed deposit of rupees 5 lacs at 10% interest rate in State Bank of India.
The government of India has given the responsibility to the banks to deduct 10% from the FD interest if the amount is more than rupees 10,000. So, State Bank of India pays Mr. Dey the interest after deducting 10%. In this case, Mr. Dey will receive Rupees 45,000 instead of receiving Rupees 50,000 and 5000 will go to the government.
The bank has to submit the complete amount statement along with Mr. Dey’s PAN number, TDS details, etc to the TRACES website. After updating the details of TDS on the TRACES website, every payment detail will be updated to Form 16, Form 16A and then to Form 26AS. When Mr.Dey grows aware of the fact that his 5000 rupees TDS has been deducted from his interest, he could demand the whole documented proof of payments which is known as TDS certificate.
There are two kinds of TDS certificates,
- Form 16: The salary deduction details are known as Form 16. This will be provided to you only by the employer. Form 16 has two parts.
- Form 16A: Form 16A includes TAN & PAN of the employer, PAN of the employee, the period of employment, a summary of tax deducted and deposited quarterly.
- Form 16B: Form 16B includes detailed break up of salary paid, the deduction allowed under the income tax act, etc.
- Form 16A: Interest income, rental income, professional income, etc details are consolidated in the Form 16A. Form 16A will be provided to you only by the deductor.
In case of Mr. Dey, the State Bank of India will provide him Form 16A.
Employee’s Salary Deduction:
Now, Mr. Dey as an employee will also face tax deduction from his salary by his employer and the process is similar to the bank. He will be provided with Form 16 as the TDS certificate.
Filing Income Tax Returns:
Under the Income Tax Act (1961) and the Income Tax Rules (1962), Mr. Dey will file income tax returns to claim his credits at the end of the financial year. Here, Form 26AS becomes extremely crucial. There is also a penalty on late filing of Income Tax Returns which is effective from 1 April 2018.
- The penalty amount is Rupees 5000 if it’s filed after the due date of 31 July but before 31 December of that assessment year.
- The penalty amount is Rupees 10000 if tax is filed after 31 December but on or before 31 March of the relevant assessment.
- If the total income of the taxpayer does not exceed 500000, then the penalty amount is 1000.
There are 7 types of ITR Forms, let’s discuss the 3 most important ITR Forms precisely.
- ITR-1: This form can be filed by individual ordinary residents whose income is up to 50 lacs. Individuals that are eligible to file ITR SAHAJ whose earns through salary or pension, one house property and other sources.
- ITR-2: The people who cannot file ITR-1 like non resident Indians who earns through salary and annual income is above 50 lacs.
- ITR-3: The ITR-3 Form is applicable to those individuals who are a partner in a firm and gains income through interest, commission, bonus, etc.
What is Form 26AS?
Form 26AS is a consolidated tax statement of a financial year. This includes details on all taxes that have been deposited against your PAN numbers such as tax deposited by an employer, tax deducted from your FD interest or rental interest, advance tax deposited and self-assessment taxes paid by you, refunds by the Income Tax department, as well as high-value transactions that you made. It is imperative that the form is checked thoroughly along with Form 16 and Form 16A before filing income tax returns.
Where do I get the Form 26AS?
You can download the form from the income tax website or it can be viewed through your net banking account or by registering on the TDS reconciliation website.
Why is Form 26AS so important?
Every payment from Form 16 to Form 16A is reflected in the Form 26AS. In order to calculate the amount you owe to the I-T department, the taxman matches your Form 26AS with your declaration of tax returns. Without the accuracy in your form, you will be unable to claim TDS while filing income tax returns.
Problems with It:
Form 26AS is the reflection of the TDS details that the deductor has uploaded. So, it is possible that your deductor fails to file the TDS on time or the deductor has uploaded incorrect PAN number or he/she has omitted your details. Errors might arise, but you should communicate with your deductor as soon as possible to correct the mistakes before you proceed on filing your tax returns. Always check your form before filing your income tax returns online because precautions are better than cure.
What if a mismatch occurs with Form 26AS?
In case of a mismatch between tax returns filed by you and the details in Form 26AS, the I-T department sends an email titled ‘Intimidation under Sec 143(1)’. The mismatch could result in the I-T department asking for more taxes as per their count and the amount needs to be paid within 30days. If the issue is TDS-related then you can request the deductor to take immediate action, if the fault is yours then you need to revise your returns.
Be extremely careful with the Form 26AS and no errors can be taken lightly or it might prove fatal for your tax returns.