There is a lot of apprehension about the filing of the income tax returns and many are looking forward to filling in the Income Tax Return Form No 1. This is a simple form that is applicable for those who have income from salaries, pension and interest income. However, there is a bit of bad news waiting for them because quite a few people, even without business or professional income, will be ineligible for the purpose of using this form and they will be forced to look at Form No 2. Here are some common reasons why people would not be able to use Form No 1.
Income from house property
There are a lot of people who have bought homes and many of them have taken home loans for this purpose. The entire list of people who have a house against their name, even if it is self-occupied, will not be able to use Form No 1. This is because income from house property, even when it is a loss due to the interest paid on housing loan, cannot be shown in Form No 1. In case there is a housing loan taken, then the way in which this will be shown in the tax return is that the notional amount for the self-occupied property will be nil and then the amount of interest on the loan will be reduced from this figure, resulting in a negative figure under the head income from house property.
Many small investors have invested in various types of mutual funds over the last several years. Many also choose the dividend option in the mutual funds, especially equity-oriented mutual funds because this does not have any tax implications as the dividend amount is exempt in their hands. However, the implication is present in terms of the income tax return that a person can use because of the fact that Form No 1 will be ineligible and the investor will have to use some other form. Even the dividend that is received from a company will be tax free in the hands of the receiver but it will again pose the same problem as far as using the income tax return form is considered and the investor will be forced to abandon the use of Form No 1.
There can be some capital gains when a share or a mutual fund unit is sold. This might seem to be a small thing as far as the tax effect is concerned. This is due to the fact that in many cases the tax impact will be zero.
When there are long-term capital gains on shares and equity-oriented mutual fund units and there is the securities transaction tax paid on this amount and in case of shares these are traded on a recognised stock exchange, then the long-term capital gains tax is nil and the short-term capital gains tax will be 10 per cent. This will have an impact as far as use of the income tax return form is concerned because the mere presence of this income in the books of the investor will lead to a situation where Return No 1 will not be used by the investor.
Small other income
For a salaried person if there is the presence of any other income other than interests, even an honorarium of Rs 500 will present a specific problem as far as the filing of the Return No 1 is concerned. There are many salaried people who get some small amounts on the side because of the extra work they do.
These small amounts might have a low overall tax impact but this has an implication as far as the returns filing is concerned because the person will not be able to use Form No 1 and will have to use some other relevant form.
(The writer is a certified financial planner)