Browse Category: Income Tax

How Income Taxes Work

Paying taxes is on everyone’s mind, rarely in a good way. Knowing some pithy facts about our tax system and how you fit in may not make you feel any better. But, it could even help you plan.

  1. The IRS receives over 140 million individual tax returns and collects over $950 billion in taxes.
  2. The biggest tax deductions are those for taxes paid to state and local governments. Next biggest are for interest, especially on home mortgages.
  3. The average tax refund is almost $3,000, $2,953 to be exact. In all, over $325 billion in tax refunds are paid out.
  4. Want to aim really high and try to crack the $10 million mark? More than 11,000 individual tax returns reported adjusted gross income above $10 million.
  5. As a percentage of adjusted gross income, people earning $100,000 to $200,000 pay an average federal tax rate of only 12%. Those earning $200,000 to $500,000 pay 19.6%. Don’t confuse marginal rates with average rates. The former is what you pay on your very last dollar.


The income tax process is fairly straight forward. The tax process starts with income & usually most income which is received is taxable. Income from work, interest, pensions, and investments as well as other sources are included in a taxpayer’s gross income. The income from all these sources are added together to arrive at the taxpayer’s gross income.

What is not considered as income?
Gifts, worker’s compensation benefits, child support payments, inheritances, cash rebate from a dealer or manufacture or inheritances?

Adjustments are subtracted from gross income. They might include retirement plan contribution, alimony, half of self-employment & moving expenses, among other items. This results to adjusted gross income.

Deductions are subtracted from adjusted gross income. Tax payers have two choices regarding deductions: The standard or itemized deductions, whichever is greater. The standard deductions vary based on filing status:


Filing status Married filing jointly Married filing separately Single filers Head of household
Standard deduction amounts  








Itemized deductions could include state and local taxes, certain unreimbursed job expenses, charitable contributions, interest on a home mortgage & the cost of having your taxes prepared, among other things.

The personal exemption is subtracted once the deductions have been subtracted. For the tax year 2017, personal exemption amount is $4,050 regardless of filing status. The result here is taxable income which leads to gross tax liability.

The IRS reports that about 40% of the taxpayers use tax preparation software. Source: IRS, 2017

But, it’s not over yet.

The tax credits are subtracted from gross tax liability. Tax payers might receive credits from variety of items, including energy-saving improvements. This results to the taxpayers Net Tax.

Understanding tax process is one thing and the work is another. Remember this material is not intended as tax or legal advice. Please do consult a tax professional for information regarding your individual situation.

Estimated Tax Payments

If you earn income which is not subject to withholding, such as interest, dividends, income from self-employment, rent, alimony, investment gains, awards and prices then you may have to pay estimated tax payments.

You might also have to pay estimated taxes if your income tax withholding on pension, salary, or other income which is not enough, or if you had a tax liability for the prior year.

Please do consult a tax expertise regarding your individual situation.



You must include your expected adjusted gross income, taxable income, taxes, deductions, and credit for the year to calculate your estimated tax.
Consider using your prior year’s federal tax return as a guide.


You may pay estimated taxes online, by phone or even through the mail.
If you are filing as a partner, a sole proprietor, S corporation shareholder or a self-employed individual & expect to owe tax of $1.000 or more when you file a return, you should use Form 1040-ES, estimated tax for individuals, to calculate and pay your estimated tax

The year is divided into four payment periods for estimated tax purposes each with a specific payment due date. If at all you fail to pay taxes by the due date of each payment periods, you would be charged a penalty, even if you are due a refund when you file your income tax return.

Most tax payers would generally avoid the penalty if at all they owe less than $1,000 in taxes after subtracting their withholdings and credits, or if they at least paid 90% of tax for current year, or 1000% of tax shown on return for the prior year, whichever is smaller.

Accurate, up-to-date financial records and consultations with your tax guru can also help you make timely estimate.


Aadhar and Pan

Link Your PAN Card with Aadhar Card Now

It is mandatory to link your PAN Card with Aadhar Card on or before 1ST JULY,2017.


If PAN Card is not linked to Aadhar Card then that may lead to invalidation of your PAN card. If that happens, your PAN card will cease to serve as an identity proof, debarring you from transactions that cannot be carried out without quoting PAN.


To know the steps to link your Pan Card with Aadhaar Card, you can check our blog for the same by following the link given below:

gst tax

Reduced Liability Of Tax On Complex, Building, Flat etc. Under GST

According to complaints from buyers of flats and other buildings-under-construction recently, builders are demanding that they be paid the entire amount of cost of buying the flat before 1st July, 2017.

This is what the builders are claiming: pay now, or else pay higher amount of tax under new GST (Goods and Services Tax) system. They say this because the current service tax that you pay on goods would amount to a maximum of 6.5%, whereas under the GST scheme, you will pay 12% service tax on the cost of construction.

What they do not tell you, and what you may not have noticed before, is that the tax you would pay on your flat or office building before GST rolls out, is calculated even on the inputs (cement, steel, etc.) the builder uses to construct the building. So until the GST rolls out, you will have to pay for the service of construction as well as for the cost of acquiring the raw materials used for construction.

After the GST rolls out however, you will pay only for the service of construction in the form of tax calculated at 12% on the cost of construction (labour). This is because builders are provided with a facility called Input Tax Credit (ITC), wherein they can claim a reduction of taxes on total cost of construction. So if it cost them Rs. 1000/- to get raw materials and another Rs. 500/- for labour, they can get back Rs. 1000/- from the government as it comes under the definition of “Inputs”. So if you make the entire payment for your flat before 1st July 2017, you will pay tax on Rs. 1500/-, but if you pay the total amount after 1st July 2017, you will pay tax on Rs. 500/-

Therefore, you will not bear the cost of input (raw materials) after GST rollout. This means you will pay less after GST for your house/office overall, than you pay now. So any builders out there claiming you can pay less before GST rolls out, are only trying to profit from your lack of knowledge about the effect of cost of inputs, on the price you pay for the flat. Such builders can be deemed to be profiteering under section 171 of GST law. Hence, it is good to be advised on this matter before making a purchase of a new home or office.


For more information, visit the following page:


Financial tasks that you need to do right away

Here are some financial task that you need to deal with immediately:-


It is mandatory to link your Aadhaar card to bank account, PAN card and mobile number. Here’s how you can do it:

(A) Bank Account

Step 1. Log on to the Net banking facility of your bank.
Step 2. Click on ‘Update Aadhaar card’ or ‘Aadhaar card seeding’ option.
Step 3. Enter Aadhaar card details and submit.
Step 4. After verification, the linking will be done and you will be informed via SMS or e-mail. You can also link it offline.


(B) Pan Card

Step 1. Log on to the government income tax website and click the link ‘Link Aadhaar’ on the left under ‘Services’
Step 2. Give PAN and Aadhaar numbers, fill name and submit. After verification from UIDAI, the link will be confirmed.


Step 1. If you are registered on the income tax portal, log on and go to ‘Profile Settings’. Pull it down, click on ‘Link Aadhaar’.
Step 2. Verify details like name, date of birth and gender with those in your Aadhaar card. If the details match, fill in the Aadhaar number and captcha code, and click on ‘Link now’.
Step 3. A pop-up message will inform you when the linking has been done.


c) Mobile Number

If you are linking for the first time, download the Aadhaar card correction application from the UIDAI website. Fill the details, attach copies of Aadhaar card and identity proof, and submit these to the enrolment centre. It will be updated in about 10 days. If you are updating a new number, go to the UIDAI site, fill the Aadhaar number and captcha code. On getting an OTP, update your number and it will be linked.


To ready yourself for the online filing process, get the information and documents you will need at the time.

Step 1.Secure Form 16 from your employer.
Step 2. Check your TDS status so that you know if there is any tax due. Do so by logging on (if you are registered) to the income tax website ( Under ‘My account’ click on ‘View Form 26AS’.
Step 3. Make sure you have other information and papers like interest income, charity contribution and details for exemptions (HRA, health insurance premium, etc.) that have not been take into account by your employer.
Step 4. Go through the latest tax slabs and exemption limits before starting with the calculations.



The Foreign Account Tax Compliance Act enables exchange of information between India and the US.
Under a 2015 agreement, all individuals and entities who opened a bank account or invested in mutual funds, NPS and insurance schemes between 1 July 2015 and 31 August 2015, will have to get compliance by providing self-certification. Though the last date was 30 April, you can still do it to avoid your account being blocked.

E-Verification of Tax Return via Net Banking

After you have successfully filed your income tax return, the next step is to VERIFY it. The Income Tax Department starts processing your return when it is verified. Refunds, if any, are processed for returns, which have been submitted and verified.

We recommend it through Net banking as is the easiest and fastest way to verify your tax return.

Steps to e-verify your tax return via net banking

Login to your net banking account and locate the income tax e-filing tab. This differs from bank to bank. You will be directed straight to the Department website from here.

Select the ‘View Returns/Forms’ option to see e-filed tax returns.

Select the option ‘Click here to view your returns pending for e-verification’

Select the option ‘e-verify’.

A new pop-up window appears. Click on ‘Continue’ to generate EVC and get your income
tax return verified.

A confirmation message will be displayed with a transaction ID and EVC code. Click on the green button to download the attachment. This is for your record only. No further action is required.

Advance Tax And Self Assessment Tax 2017


For Individuals, there are two types of tax that you might have to pay before
submission of your return as on 31st July 2017:

A. Advance Tax

If you have annual tax dues of more than Rs.10,000, you must pay income tax in
advance. Usually, for the salaried, these income tax payments are taken care of via TDS
deductions by employer.

Due Dates of payment of Advance Tax for FY 2016-17

For Individuals
  • On or before 15th June – Up to 15% tax
  • On or before 15th September – Up to 45% of tax
  • On or before 15th December- Up to 75% of tax
  • On or before 15th March- Up to 100% of tax

How to calculate and pay advance tax:

  • Estimate your Total Income: Add income from all sources. Include salary income, interest income,capital gains etc.
  • Allow deductions:From your total income reduce deductions and arrive at your taxable income.
  • Calculate Tax due on total income:Apply the latest income tax slab rates on your taxable income to calculate your income tax due. Reduce any TDS that may have been deducted from your total tax due.

These have to be paid as per the installments mentioned above.

B. Self Assessment Tax

Your income tax return cannot be submitted to the tax department, unless you have paid tax dues in full. Sometimes,you may see tax payable at the time of filing your return (inspite of paying advance tax).
You can only file the returns once you have successfully paid the
income tax online.

Usually, interest under section 234B and 234C will also have to be paid along with your tax due, if you are paying tax after 31st March.

For online payment of both advance tax and self assessment tax

Step 1: Login to > Services > e-payment: Pay Taxes Online.

Step 2: Select the relevant Challan (CHALLAN NO./ITNS 280)

For individuals paying tax, select 0021 (INCOMETAX OTHER THAN COMPANIES).

Choose the Assessment Year correctly. Choose the type of payment as “100 (ADVANCE TAX)” if you are paying taxes during the financial year. Choose “300 (SELF ASSESSMENT TAX)” if you are paying tax after the financial year has ended. Choose “(400) TAX ON REGULAR ASSESSMENT” if you get a demand notice from the Tax Department.

Figure: Challan for payment of Advance Tax and Self Assessment Tax

Step 3: Select your bank and pay the amount through net banking. Double check the
information entered here and fill in the income tax amount to be paid in the income tax field.

Step 4: A challan counterfoil will be displayed containing CIN, payment details and
bank name through which e-payment has been made. This counterfoil is proof of payment being made. Please store the Counterfoil.

Corporate Benefit after Budget


Impact of Budget-2017 on Companies & LLP/Partnership Firms

  • Budget 2017 has given companies an advantage over partnership and Limited
    Liability Partnership in terms of Income Tax
  • The maximum marginal tax rates including surcharge will be lesser in
    Companies in comparison to LLP/Partnership Firm after Budget-2017.
  • As per the new budget 2017, the corporate tax on companies has been reduced
    from 30% to 25% though the tax on LLP/Partnership remains same i.e. 30%.

Applicable Tax Rate on Companies & LLP/Partnership Firms

Advantages Of Companies Apart From Taxation Point Of View

Restriction on payment of Salary and Interest to Partner when compared to

  • Limit Partners to draw salary, remuneration and interest from partnership/LLP whereas there are no Limit on payment of
    Salary/Remuneration to Directors.
  • The formula is given in Income Tax under Section 40(b) which defines maximum amount which can be given to partners and
    claimed as expenses for partnership firm and LLP.
  • Following are the Limits:-

Dividend Distribution Tax

Dividend distribution tax is the tax levied by the Indian Government on
companies according to the dividend paid to a company’s investors. At
present the dividend distribution tax is 15%. However many closely
held companies instead of declaring dividend they pay Salary and
remuneration to directors to avoid paying DDT.

Formation and Other cost

The cost for formation of Company is bit higher than compared to partnership and
LLP. However it is one time cost and can be adjusted against the tax benefit it
receives over LLP and partnership.

Other Benefits

  • ✓ Company has Limited Liability when compared to partnership Firm
  • ✓ Better Corporate Governance
  • ✓ Easy Succession Planning and expansion
  • ✓ Separate Legal Entity as compared to Partnership Firm

Conversion OF LLP into Private Limited Company

Before filing application for conversion, please ensure the followings:

  • That secured creditors have given their consent for such conversion;
  • A notice in newspaper about such conversion, one in English and in vernacular language seeking objections must be
  • There are minimum seven or more members in the existing LLP for converting the LLP into a Company.
  • A general meeting must be held where majority of partners have given their consent for such conversion.

Procedure to be followed for Conversion:

  • Apply for DIN in DIR-3- In case members ought to be directors;
  • Apply for Name approval in form INC-1-The name once approved by the authority is valid for 60 days;
  • File eform URC-1- for conversion;
  • File eForm INC 7- For declaration of compliance;
  • File eForm INC 22- For registered office address; and
  • File eform DIR 12- For appointment of Directors

New Budget Highlights 2017


  • Existing tax rate for personal income of INR 2.5 – 5 lakhs reduced from 10% to 5%
  • 50% tax savings if a person is earning less than INR 5 lakhs
  • 10% surcharge to be levied on annual income from INR 50 lakhs – 1 Crore
  • 87A Rebate decreased from INR 5000 to INR 2500
  • Dividend Income taxable @ 10% if exceeds Rs 10 Lakhs, except for domestic companies or trust or institution or fund registered under
  • section 12AA or referred to in section 10(23C).
  • Simple one-page form to be filed as Income Tax Return – if taxable income other than business income is up to 5 lakhs
  • Levy of Additional Fees Max to 10000 for delay in Return Filling.
  • LIC to issue pension with 8% return
  • Once in A Year TDS @ 5% to be deducted on Rent Paid beyond 50000 P.M.
  • Restriction on set off of loss from house property to Rs 2 lakhs
  • Indexation benefit to be obtained from 1/4/2001 instead of 1/4/1981
  • Holding period for immovable property for LTCG reduced to 2 years


  • Corporate tax of 25% on Domestic Companies with turn over less than the INR 50 Crore
  • MAT credit can be availed up to 15 years
  • No Cash transaction above INR 3 lakhs, Penalty may be Levi able.
  • Allowable cash limits for cash payments reduced from INR 20,000 to INR 10,000 for all revenue and capital expenditure
  • No major changes under indirect taxation
  • Allocation to Make in India Schemes to be increased
  • A tax return can be revised in 12 months from completion of F.Y
  • For turnover up to INR 2 Crores, presumptive income is reduced from 8% to 6% for turnover which is by non- cash means
  • Maintenance of book of accounts for individual & HUF, if annual turnover is 25 lakhs (what about Professionals)


  • FIPB to be phased out
  • A new ETF with diversified CPSE stocks and other Government holdings to be launched in 2017-18
  • By 2019, all coaches of Indian Railways will be fitted with bio toilets
  • New Metro policy to be announced
  • Tier 2 airports infrastructure to be taken under PPP mode
  • A proposal to mandate all government receipts through digital means, beyond a prescribed limit, is under consideration
  • Strategic crude oil reserves proposed to be set up at 2 more locations
  • Head post office to issue PASSPORTS<
  • Introduction of a system to measure annual learning outcomes in schools
  • Skill Acquisition and Knowledge Awareness for Livelihood Promotion programme (SANKALP) to be launched
  • Next phase of Skill Strengthening for Industrial Value Enhancement (STRIVE) to also be launched in 2017-18
  • A scheme for creating employment in the leather and footwear industries along the lines in Textiles Sector to be launched

FINISH filing your old Income Tax Returns by August 31 2016

Are you sure your IT Return has been filed and processed?  Merely uploading the IT return does not finish the process.  You also need to file acknowledgements of tax returns to complete the process or else the return submission is not complete.

Don’t worry, the Government has permitted all tax payers to regularise their returns for the last six assessment years by 31 August 2016 to complete the process.

The Central Board of Direct Taxes (CBDT) has given a final opportunity to taxpayers to complete pending tax returns for the previous six assessment years. This is being done to regularise income tax returns that have remained pending because the ITR-V (acknowledgement) was not received by the Central Processing Cell (CPC).

Returns for AYs from 2009-10 to 2014-15, which were uploaded electronically by the taxpayer within the time allowed but have remained incomplete due to non-submission of ITR-V for verification, will also be allowed for verification through an Electronic Verification Code (EVC).

It is mandatory for all the taxpayers who have annual total income of more than Rs.5 lakh or have a refund claim, to e-file their ITR. The next step is to verify the ITR-V using any of the following methods, and this needs to be done within 120 days from filing of the return:

  • Verification using a digital signature;
  • Sending a signed form ITR-V to tax department’s Centralized Processing Centre (CPC).
  • E-verification of ITR-V using a one time password (OTP), either through Aadhaar or Internet banking (introduced from AY 2015-16).

While most of the people generally file their returns, many forget to complete the last part of the process – verifying the ITR-V, which technically means that the return has not been filed.

Where tax filers have not submitted their ITR-V within the stipulated time period of 120 days, the return is not considered as Valid. However, the same can now be regularised for the returns from AY 2009-10 to AY 2014-15.

An intimation is generally received from the income tax department if your ITR is pending because of non-submission of ITR-V. Nonetheless, you can also find out the status yourself by logging on to the tax department’s website:



Under services, you will find an option ‘ITR-V Receipt Status’. Enter your Permanent Account Number (PAN) and AY or e-Filing Acknowledgement Number. If ITR-V has not been received within the prescribed time, its status will not be displayed, which will mean that you need to take steps to complete the filing process.

Completing verification

You can either complete the verification process through any of the methods specified above.

Interest on refunds due

If there is a pending refund, interest on it will be calculated based on the rules under section 244(A)2 of the Act. However, if your ITR-V is pending for processing due to your mistake, interest on due refunds will be calculated only till the date of filing returns.

Please make sure you use this opportunity and regularise your Income Tax Returns. This is the final opportunity provided by the Government. If not done, it will be treated as though the return was never filed – aka – does not exist. Penalty of Rs.5,000 may also be levied apart from interest on pending taxes, and other penal actions can also be taken.

We strongly recommend you to check the status of your ITR – V on the tax department’s website and do the needful as early as possible. This is a good opportunity to get your tax filings in order.

Please note – the Government has only permitted to file the ITR-V till August 31, 2016. It does not mean that you can proceed to file your Income Tax Return now, if you have not filed earlier.

Ensure you check your e-Filed Returns status to know what is the status of the Income Tax Returns filed. Below is the sample of how the screen may look for the different years that you have filed your returns.


If status is showing return uploaded, it means the return is pending for verification. You can click the green box just above the return status (which says “Click here to view your returns pending for e-verification”) and then e-verify to complete the process immediately.


Should you require any clarification or assistance, please feel free to mail on

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