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Proper documentation can help take half the pain out of filing your income tax return, says Amar Pandit.
Illustration: Dominic Xavier/Rediff.com
The deadline of July 31 fast approaching, time is ticking away for filing tax returns for the financial year 2017-18.
It is always wise to finish with the filing well in advance.
Many things can go wrong if you wait up to the last day: Server crash at the e-filing Web site, a bank holiday making it impossible to pay your tax due...
But then like someone said, 'if it weren't for the last minute, nothing would ever get done'.
In the last-minute rush, a lot of common errors are committed.
Most of these have to do with the omission of certain sources of income or furnishing incorrect details of income.
Proper documentation of receipts, challans, bank statements can go a long way in helping you have a smooth time while filing returns.
If you have income that is exempt from tax (like say dividends, insurance policy maturity payout, etc) or are filing a refund return, it is all the more important to have documents to back the claim.
Good documentation involves more than just collecting documents, as we will see.
Keeping track of your income
As your sources of income grow, the list of documents to keep track of increases.
Young earners for whom salary is the only source of income, Form 16 and Form 26AS may provide all the inputs required.
If you are a couple of years into your work life you may additionally have income from fixed deposits, interest from savings account, mutual fund gains (either because you redeemed or switched units), dividends or capital gains from shares and real estate transactions. In this case many more documents come into the picture.
For instance, listed below are some of the common income sources of a salaried person and the proofs, forms, s/he may have to refer to:
Similarly, Form 16A reflects TDS on interest that the bank has deducted.
Form 26AS is the acknowledgement from the Tax department of all the TDS that has been deposited against your income.
This is a consolidated statement and would reflect TDS on salary, interest, etc.
The list above is meant for illustration and is not a comprehensive one. It is highly advisable for those with multiple income sources to take professional advice.
For business owners the requirement for documentation is much more demanding. It would include proofs of various expenses, in addition to proofs of income. Many of them usually hire the services of a CA to file returns, which is recommended.
Organise your financial documents
Like we mentioned before, good documentation goes beyond simply stacking away documents, whether electronic or physical.
For electronic documents it involves at the very least these three steps:
Increasingly, the trend for companies is to send digital copies of transaction statements and holding statements to clients through e-mail, unless they have opted to receive physical copies.
If you have physical documents, they too need to be organised and maintained in a dedicated file in a similar manner.
As a best practice, make at least one member of your family aware about where they can access your financial documents.
Believe us, you will save them a great deal of headache in the event they need to, and you aren't around.
Finally, each year, save your ITR-V, the acknowledgement certificate from the Income Tax department for return filed.
And remember, the tax department can issue a notice any number of years after the return is filed, which means it is necessary to maintain proofs technically forever!
Amar Pandit, CFA, is an engineer-turned-financial planner, and founder of HappynessFactory.in, a unique fintech company.