ITR-2

Name: Faiz Memon Subj: Tax Management Activity: 3 Submitted to: Bela Maam Sem: V Navrachana University

Introduction
The process of electronically filing Income tax returns through the internet is known as e-Filing. It is mandatory for Companies and Firms requiring statutory audit u/s 44AB to submit the Income tax returns electronically from AY 2007-08 onwards.Digital signature in e-filing has become mandatory for Companies from AY2010-11 onwards. Forms from ITR1 to ITR 8 were introduced to file income tax return.This report will show us the rules and instructions on filing ITR-2. ITR-2 Form is to be used by an individual or a Hindu Undivided Family whose total income for the assessment year 2012-13 includes:(a) Income from Salary / Pension; or (b) Income from House Property; or (c) Income from Capital Gains; or (d) Income from Other Sources (including Winning from Lottery and Income from Race Horses). Further, in a case where the income of another person like spouse, minor child, etc. is to be clubbed with the income of the assessee, this Return Form can be used where such income falls in any of the above categories.

 This Return Form should not be used by an individual whose total income for the assessment year 2012-13 includes Income from Business or Profession.

Instructions for ITR-2

This Form can be submitted to the Income Tax Department in any of the following manners:(i) By furnishing the return in a paper form; (ii) By furnishing the return electronically under digital signature; (iii) By transmitting the data in the return electronically and thereafter submitting the verification of the return in Form ITRV; (iv) By furnishing a bar-coded paper return. If you are a salaried individual and have made some money selling shares, or if you own a house, then ITR-2 is the form to be filled up. The main portion of ITR-2 has two pages. Other than these, there are four pages occupied by 15 schedules. The user has to first fill up the schedules and then get around to filling up the two main pages. Some of the details in this form have to be filled out on the basis of the relevant codes. The parts and the schedules are described below:(i) The first part, i.e., Part-A is spread over half of the first page of the return. It mainly seeks general information requiring identificatory and other data.

(ii) The second part, i.e, Part-B on page 1 and page 2 is regarding an outline of the total income and tax computation in respect of income chargeable to tax. (iii) On page 2, there is a space for furnishing details of the transmission of the data of the form if the form has been furnished in the manner mentioned above in the form submission types point no(iii). (iv) After Part-B, on page 2, there is a space for a statutory verification. (v) On top of page 3, there are details to be filled if the return has been prepared by a Tax Return Preparer. (vi) On pages 3 to 6, there are 15 Schedules details of which are as under(a) Schedule-S: Computation of income under the head Salaries. (b) Schedule-HP: Computation of income under the head Income from House Property (c) Schedule-CG: Computation of income under the head Capital gains. (d) Schedule-OS: Computation of income under the head Income from other sources. (e) Schedule-CYLA: Statement of income after set off of current years losses (f) Schedule-BFLA: Statement of income after set off of unabsorbed loss brought forward from earlier years. (g) Schedule- CFL: Statement of losses to be carried forward to future years. (h) Schedule-VIA: Statement of deductions (from total income) under Chapter VIA.

(i) Schedule SPI: Statement of income arising to spouse/ minor child/ sons wife or any other person or association of persons to be included in the income of assessee in Schedules-HP, CG and OS. (j) Schedule-SI: Statement of income which is chargeable to tax at special rates (k) Schedule-EI: Statement of Income not included in total income (exempt incomes) (l) Schedule-AIR: Information regarding transactions which are reported through Annual Information Return under section 285BA. (m) Schedule-IT: Statement of payment of advance-tax and tax on self-assessment. (n) Schedule-TDS1: Statement of tax deducted at source on salary. (o) Schedule-TDS2: Statement of tax deducted at source on income other than salary.

Sequence for filling out parts and schedules:

You are advised to follow the following sequence while filling out the form; (i) Part A- General on page 1. (ii) Schedules (iii) Part B-TI and Part B-TTI (iv) Verification (v) Details relating to TRP and counter signature of TRP if return is prepared by him.

 Computation of total income:

(a) Previous year is the financial year (1st April to the following 31st March) during which the income in question has been earned. Assessment Year is the financial year immediately following the previous year. (b) Total income is to be computed as follows, in the following order: (i) Classify all items of income under the following heads of income(A) Salaries; (B) Income from house property; (C) Capital gains; and (D) Income from other sources. (ii) Compute taxable income of the current year (i.e., the previous year) under each head of income separately in the Schedules which have been structured so as to help you in making these computations as per provisions of the Income-tax Act. These statutory provisions decide what is to be included in your income, what you can claim as an expenditure or allowance and how much, and also what you cannot claim as an expenditure/allowance. (iii) Set off current years headwise loss(es) against current years headwise income(s) as per procedures prescribed by the law. A separate Schedule is provided for such set-off. (iv) Set off, as per procedures prescribed by the law loss(es) and/or allowance(s) of earlier assessment year(s) brought forward. Also, compute loss(es) and/or allowance(s) that could be set off in future and is (are) to be carried forward as per procedures prescribed by the law. Separate Schedules are provided for this. (v) Aggregate the headwise end-results as available after(iv) above; this will give you gross total income. (vi) From gross total income, subtract, as per procedures prescribed by the law, deductions mentioned in Chapter VIA of

the Income-tax Act. The result will be the total income. Besides, calculate agricultural income for rate purposes.

Computation of income-tax, surcharge, education cess and interest in respect of income chargeable to tax:
(a) Compute income-tax payable on the total income. Special rates of tax are applicable to some specified items. Include agricultural income, as prescribed, for rate purposes, in the tax computation procedure.. (b) Add surcharge as prescribed by the law on the above tax payable. (c) Add Education Cess as prescribed on the tax payable plus surcharge. (d) Claim relief(s) as prescribed by the law, on account of arrears or advances of salary received during the year or of double taxation and calculate balance tax and surcharge payable. (e) Add interest payable as prescribed by the law to reach total tax, surcharge and interest payable. (f) Deduct the amount of prepaid taxes, if any, like tax deducted at source, advance-tax and self-assessment tax. The result will be the tax payable (or refundable).

How to file ITR

Let us take an example of some Mr. Sharadh Unnithan: Mr. Sharadh Unnithans salary structureBasic- 1,44,400 House rent allowance;72,000 Special allowance;96,720 Transport Allowance;9,600 Medical Reimbursement;15,000 Leave travel allowance ;15,000 Bonus ;1,80,000

Salary income: The information to fill up this schedule comes largely from Form 16 and your salary structure. Salary includes your basic salary and the bonus earned during the course of the year. In the case of Mr. Sharma, the basic and bonus amount to Rs 3,24,000. Allowances like leave travel allowance, medical reimbursement, house rent allowance (if an individual lives in a rented accommodation) and transportation allowance, etc are exempt from taxes. Nevertheless, these need to be mentioned in the form. You dont need to calculate this entry separately your form 16 will have the numbers. Allowances not exempt include allowances like special allowance. It also includes the house rent allowance (HRA) if the individual owns a house and lives in it. Mr. Sharadh Unnithan has

bought a house for Rs 30 lakh this year and lives in it. He has taken a loan of Rs 25 lakh and paid the remaining amount from his own savings. Since he lives in the house, his HRA is taxable. The total of his special allowance (Rs 96,720) and HRA (Rs 72,000) works out to Rs 1,68,720. The income chargeable to tax under this head works out to Rs 4,92,720. Income from house: If you dont own a house, this section is not for you. If you have a house and you live in it, the entry that matters to you is the interest paid on borrowed capital. Mr. Sharadh Unnithan has a 20-year housing loan of Rs 25 lakh at a fixed interest rate of 12%. His equated monthly instalment (EMI) for this works out to Rs 27,527. The interest component for the year works out to Rs 2,98,275. In case of a self-occupied house, interest of up to Rs 1,50,000 can be shown in a given year. So, even though Mr. Sharadh Unnithan has paid an interest of Rs 2,98,275 during the year, he can show an interest of only Rs 1,50,000. To make this entry, take a look at the certificate issued by the bank, whose housing loan you have. Given that Mr. Sharadh Unnithan lives in the house he bought, and he pays an interest on the home loan he has taken, his income from house property is negative. That entry has been made in the table below. For those who rent out their house, the entire interest part of the EMI can be set off against the rent earned during the course of the year.

Income from capital gains: All capital gains are not taxed at normal tax rates. Hence the need for a separate entry. Short-term capital gains from equity are taxed at the rate of 15% for the financial year 2008-09. Other short-term capital gains are lumped with income and taxed according to the tax bracket you fall in. A short-term capital loss can be set off against any short-term capital gain you have made on selling shares or any other taxable short-term capital gain. But this loss cannot be set off against long-term capital gain on selling shares, because longterm capital gain made on selling shares is not taxable. Nevertheless, you can set off the short-term capital loss against any other taxable long-term capital gain like sale of gold or property or debt mutual funds. Long-term capital gains made through stocks sold through a stock exchange, which are not taxed, are not to be mentioned in this section. There is a separate schedule EI (exempt income, which is not shown here) for that. Other long-term capital gains are taxed at the rate of 10% without indexation and 20% with indexation. Indexation is essentially a process that takes inflation into account while deciding the cost of acquisition of a particular asset. For this, index numbers are available in the instructions that come with ITR-2. What about long-term capital loss on selling shares? Long-term capital gain on selling shares or units of equity mutual funds is tax-free. As a result, long-term capital loss on selling shares is also tax-free. Put simply, any long-term capital loss incurred on selling shares or units of equity mutual funds cannot be set off against any long-term capital gain, even taxable long-term capital gain made on selling units of debt mutual funds or for that matter property.

Income from short-term capital gains: Full value of consideration indicates the total value of sale of the assets. In his case, Mr. Sharadh Unnithan sold shares for Rs 64,000 and liquid funds for Rs 50,000. So, the total value comes to Rs 1,14,000, which is the entry to be made here. Cost of acquisition is the price at which the assets are bought. Mr. Sharadh Unnithan bought the shares for Rs 84,000 and liquid fund units for Rs 48,000, putting the total cost of acquisition at Rs 1,32,000. The difference between sale value (Rs 1,14,00) and cost of acquisition (Rs 1,32,00) is the short-term capital gain or loss. This, in Mr. Sharadh Unnithans case, works out to a loss of Rs 18,000. Short-term capital gain under section 111 A is the capital gain made by selling shares. In Mr. Sharadh Unnithans case, there is a loss of Rs 20,000 (Rs 64,000 Rs 84,000). Short-term capital gain other than section 111 A  is the remaining capital gain. In Mr. Sharadh Unnithans case, this is Rs 2,000 ( Rs 50,000 Rs 48,000).

Other income: Dividend income from stocks and mutual funds is tax-free. Hence, dividend entry should include only dividend from foreign stocks. In Mr. Sharadh Unnithans case, this remains blank. Interest income includes interest received on fixed deposits (FDs) and money in the savings accounts. Mr. Sharadh Unnithan receives an interest of Rs 4,000 on FDs.

Losses of current year: If an individual has made a loss under any of the sources of income, he can adjust these losses against other sources of income to reduce his tax liability. For Mr. Sharadh Unnithan, the loss from house property is Rs 1,50,000. Capital losses can be adjusted only against capital gains and not against any other source of income. Mr. Sharadh Unnithan has also suffered a short-term capital loss of Rs 20,000 on selling shares. He has been able to adjust Rs 2,000 against short-term capital gain and Rs 3,481 against longterm capital gain. This still leaves Rs 14,519. This remaining loss cannot be set off this year as there are not enough capital gains available to do so. It will therefore have to be carried forward and entered in schedule CFL (carried forward loss) and also as entry 14 in computation of total income. The schedule CFL is not shown here. Losses can be carried forward for a maximum of 8 years.

Tax deductions: There are 13 sections (only 3 are shown below) under the schedule VIA of the Income Tax Act, which allow you to get tax deductions. Section 80 C allows a maximum of Rs 1 lakh for investments into life insurance, Employees Provident Fund, tax saving mutual funds, Public Provident Fund, repayment of home loan principal etc. Mr. Sharadh Unnithan has utilised this limit. Section 80 D allows a deduction for payment of health insurance premium. The maximum limit is Rs 15,000 or Rs 20,000 for

senior citizens. On his part, Mr. Sharadh Unnithan pays a premium of Rs 7,500. Section 80 E allows a deduction for repayment of education loan. The deduction is allowed only for the interest portion of the EMI up to a maximum of Rs 40,000. In case of Mr. Sharadh Unnithan, the total interest on the education loan works out to Rs 10,000.

Total tax to be paid: As can be seen in entry 13 in computation of total income, the total taxable income is Rs 2,29,200. The entire amount will be taxed at normal taxes rates. This is primarily because Mr. Sharadh Unnithan has no capital gain. As we have seen, he has suffered from capital loss. Since he has faced a loss, no special rates come into play. The company has already deducted a tax of Rs 10,000 and his tax liability on Rs. 2,29,200 work out to Rs. 8,158. So , Sharadh Unnithan will get a refund of Rs 1,842. In case of refunds, it is mandatory to quote the MICR code.