Navigating Income Tax Filing with Multiple Income Sources

Multiple Income Sources

Navigating Income Tax Filing with Multiple Income Sources

Multiple Income Sources

Starting early on tax preparations, especially when managing multiple income sources, is crucial. Choosing the right ITR form is the first step towards accurate tax filing, which is particularly important for freelancers, moonlighters, and others with diverse income streams.

Simplifying Tax Filing for Single Income Source

For individuals with a single income source, particularly salary, tax filing is relatively straightforward. The ITR-1 form, designed for salaried individuals, is known for its ease of use. Employers typically provide Form 16, which includes most of the necessary details for pre-filling the Income Tax Return (ITR) form. This simplicity often means fewer deductions and calculations for those earning solely from salary.

Multiple Income Sources

Tackling Multiple Income Sources

While single-source income filing is simple, many individuals earn from various sources, complicating the process. Here’s how to effectively manage tax filing with multiple income sources:

1. Selecting the Appropriate ITR Form

Depending on your income sources, you may need to use ITR-2, ITR-3, or another relevant form, as ITR-1 may not suffice for complex income types.

2. Collecting Essential Documents

Gather specific documents for each income source:

  • Form 16 for salary income
  • Rental agreements for rental income
  • Investment receipts for dividends

Form 26AS is also crucial as it shows all tax deducted at source (TDS) throughout the year.

3. Assessing Income to Calculate Tax

Calculate earnings from each source and aggregate them to determine your total taxable income. Each income type may have different tax implications.

4. Considering Deductions and Exemptions

Identify potential deductions and exemptions to reduce your tax burden. Ensure you leverage all available opportunities to save on taxes.

Overcoming Challenges in Tax Filing

Filing ITRs with multiple income sources can be daunting, especially for those unfamiliar with tax terminology and regulations. Here’s why it can be challenging:

1. Variety of ITR Forms

With seven distinct forms, each tailored to specific eligibility criteria, selecting the right form can be confusing, particularly with diverse income sources.

Multiple Income Sources

2. Calculating Income and Taxes

Each income source has unique tax considerations. Understanding concepts like capital gains and business income calculations, and how they differ from salary income, can be complex.

3. Deductions and Exemptions

Identifying eligible deductions and exemptions and accurately computing them requires a solid grasp of tax regulations. Missing these opportunities can result in paying more tax than necessary.

4. Document Management

Maintaining records for each income source, such as investment statements, rental agreements, or receipts, is essential. Keeping track and ensuring you have all necessary documents can be challenging.

Seeking Professional Help

Ultimately, the best approach depends on your familiarity with tax processes and the complexity of your income streams. If you find the process overwhelming, consulting a tax advisor or Chartered Accountant can ensure accurate and efficient filing of your ITR.

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Creating a Strategy for Tax Savings in FY25 with ELSS Mutual Funds

ELSS Mutual Funds

Creating a Strategy for Tax Savings in FY25 with ELSS Mutual Funds

ELSS Mutual Funds

Are you still adhering to the old tax regime? Considering tax savings under Section 80C? With the commencement of a new financial year, it’s an ideal moment to strategize tax-saving endeavors. Many financial advisors advocate for early tax planning rather than leaving it until the eleventh hour.

Investors can commence by allocating Rs 1.5 lakh through various investment modes like lump sum, SIP, or STP in ELSS funds to avail tax benefits under Section 80C. ELSS, or Equity Linked Savings Schemes, channel investments into equities, offering investors the choice between dividend or growth options. Individuals can invest up to Rs 1.5 lakh in ELSS within a financial year for tax savings. Given their equity investments, ELSS funds present the potential for higher long-term returns.

With the commencement of the new fiscal year, what is the appropriate allocation for the ELSS schemes? First and first, if you are subject to the old tax regime, confirm that you are not also subject to the default new tax regime, as Section 80C advantages are exclusive to those who are subject to the old tax regime. If you are still paying taxes under the previous system and you need to save Rs 1.5 lakh in taxes under Section 80C for tax benefits, deduct anything that has already been paid, such as insurance premiums and pre-tax savings funds. Thus, after deducting everything, the remaining sum can be used to fund ELSS plans.

Section 80C provides investment choices such as ELSS funds, NPS, ULIP, PPF, EPF, FD, SSY, and NSC. The three-year lock-in period of the ELSS schemes is shorter than that of any other options made available under Section 80C.

Do you have questions or concerns about the potential earnings from investing in ELSS schemes?

As an equity investor, you are aware of the advantages that potential ELSS funds have over other securities. The potential yield of an ELSS fund is greater than that of any other Section 80C investment product. While products like ELSS funds have the ability to yield double digit returns, PPF, EPF, and FD are more on the debt side and can only yield an 8% return.

ELSS plans have yielded an average return of 20.05% during the past three years. Around 36 ELSS programs were in place during that time. With a return of almost 29.03%, Quant ELSS Tax Saver Fund had the highest yield. The oldest plan in the category, SBI Long Term Equity Fund, returned 28.43% during that time. With respect to managed assets, the largest fund in the category, Axis ELSS Tax Saver Fund, provided the lowest return, approximately 11.86%.

ELSS Mutual Funds

The average return on the ELSS plans during the last five years was 17.73%. Approximately 32.01% was the maximum return offered by Quant ELSS Tax Saver Fund.

Considering making an investment in an ELSS plan to reduce your taxes? Which course of action to take? In your financial plan, debt and equity are included. Instead of dividing at the Section 80C level, divide according to your financial strategy.

Investors seeking to reduce their taxes under Section 80C of the Income Tax Act are advised to consider tax saving or education loan savings plans. Investors may deduct up to Rs 1.5 lakh from their taxes in a given fiscal year by investing up to that amount in these schemes.

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RBI to Launch First Pilot of Retail Digital Rupee on 1st December 2022

Operationalization of Central Bank Digital Currency – Retail (e₹-R) Pilot

The Reserve Bank announces the launch of the first pilot for retail digital Rupee (e₹-R) on December 01, 2022. It may be recalled that RBI had, in a Press Release dated October 31, 2022, indicated that the pilot in e₹-R would commence in a month’s time.

2. The closed user group (CUG), which consists of participating customers and retailers, would cover a few specific regions in the trial. The e-R would take the shape of a digital token that stands in for money. It would be distributed in the same denominations that coins and paper money are now distributed in. It would be spread by means of middlemen, namely banks.

 

RBI

 

Through a digital wallet provided by the participating banks and kept on mobile phones or other devices, users will be able to conduct transactions with e-R. Both person-to-person (P2P) and person-to-merchant transactions are possible (P2M). QR codes that are displayed at retail places can be used to make payments to retailers.

The e-R would provide characteristics of actual money, such as trust, safety, and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks.

3. The real-time pilot will evaluate the sturdiness of the complete creation, distribution, and retail use of digital rupees. Based on the lessons learned from this pilot, other aspects and uses of the e-R token and architecture will be evaluated in further pilots.

 

RBI

 

4. Eight banks have been chosen to take part in this pilot project in phases. Four banks—State Bank of India, ICICI Bank, Yes Bank, and IDFC Initial Bank—will launch the first phase in four locations throughout the nation. Following the initial four banks, this pilot will also include the Bank of Baroda, Union Bank of India, HDFC Bank, and Kotak Mahindra Bank. Mumbai, New Delhi, Bengaluru, and Bhubaneswar would be the first four cities the pilot would cover.

 

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Later, Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla would also be included. As needed, the pilot’s scope may be gradually expanded to cover additional banks, users, and locations.