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How to prepare Income Tax file and present your worth


CA Pulkit Sharma

2013-07-30

Answer-Tax-Authorities,-what-are-you-worth!!!What are you worth? Have you ever come across this question? Well most of us face this question while applying for Home loan, Business loan or are in requirement of any other credit facility. Even Businesses need to answer this. Our worth is not equal to Assets that we have, but the white Assets or white money we have!

 

White Assets are the Assets which are acquired out of Income on which you have paid taxes. There are certain incomes on which taxes are not required to be paid.

 

So white Assets can formularized as Assets acquired from Money on which tax is paid, or out of the money disclosed to Revenue department and on which tax is not required to be paid.

 

Take example of Shyam, when he bought a house worth Rs.80 lac, he was summoned a notice by Income Tax Department asking the source of money he paid for house. These are critical situation. Shyam had savings out of his salary and substantial agricultural income, but what Income Tax Department asked him to produce was that whether he bought house only out of the money he earned by salary, or he had any other source of Income.

 

Shyam being a software Engineer had no idea of what is Income Tax Return filing, Statement of Affairs and Capital Account. He considered his job was over when he received salary net of Tax Deducted at Source (TDS).

 

Income Tax Department had the details of his salary income and not of his agricultural income, though income from agriculture is Tax exempted, but still Shyam should have shown the agriculture income in his return so that Tax authorities had enough evidence to consider the transaction in capacity of Shyam.

 

Now Shyam is facing difficulties in presenting his worth to Tax authorities. What Shyam could have done to come out of this?  The answer to Shyam situation would be that he should have taken at least a day in a year out of his schedule to calculate his worth.

 

Shyam is not the alone to face this problem but many of us do that. So advice to each and every tax payer is to not only pay taxes but take of Income Tax returns. Most of the people think that once they have filed their return the job is over. But it’s not so. The job does not end at filing the return. Job ends after you have calculated your worth.

 

Calculating your worth or capital is not a complex task to do. What you have to do is each year what you save out of you earning get added to your capital and your total capital is you worth. Shyam had enough capital to buy the house, but he had no records as how he made this capital. The capital to buy house was accumulated in 10 years. So Shyam have to give the Capital addition of each year to Tax authorities. And had Shyam prepared his Capital Account and statement of Affairs each year, it would have taken just a day to solve the issue with Tax authorities but now it will be a tough time for Shyam to consult a Chartered Accountant and getting his work done.

 

Most of the people earning handsome money don’t want to spend a little on their tax work. People like Shyam make a call to various chartered Accountant and ask the fees for return filing and fees quoted by chartered accountants ranges from 100 to 10,000. The reason in variation in quoted fees is due to different understanding of work by different Chartered Accountants. Some understand that only return is to be filed but some quote based on the preparation of capital account and statement of affairs.

 

So never go for a less quotation, you may save some thousands as of now but in long term it will be of much difficulty when you buy a house or take a loan or start a Business.

 

Format of a standard Income Statement

Shyam

(S/o Sri. ghanshyam)

 

 

 

 

Year Ended : 31/3/2012

PAN :

 

 

Asst. Year : 2012-13

ADD :

 

 

Status     : Individual

 

 

 

D.O.B     :

 

 

 

COMPUTATION OF TOTAL INCOME

Income from Business & Profession

 

 

 

Receipts From Profession

 

1,88,350

 

 

 

 

1,88,350

Income From Other Sources

 

 

 

Interest on SB Accounts

 

 

435

Dividend income

 

45

              -  

Less: Exempted income

 

(45)

 

 

 

 

 

Gross Total Income

 

 

1,88,785

 

 

 

 

Total Income

 

 

1,88,785

 

 

 

 

Rounded Off

 

 

1,88,790

Tax thereon

 

 

Nil

Tax Deducted At Source

 

 

6,581

Deducted by xx

6,581

 

 

Net Tax Payable/(Refund)

 

 

             (6,581)

 

Format of a standard capital account and statement of Affairs

Shyam

(S/o Sri. ghanshyam)

Year Ended : 31/03/2012

 

 

 

 

                ASST. YEAR: 2012-13

CAPITAL ACCOUNT FOR THE YEAR ENDED MARCH 2012

PAYMENTS

RECEIPTS

Withdrawn

 

65,000.00

By Balance B/d

 

78,000.00

  " Balance C/f

 

2,01,830.00

 

 

 

 

 

 

By  Receipts From Profession

 

1,88,350.00

 

 

 

By  Dividend Receipts

 

45.00

 

 

 

By Interest on SB Accounts

 

435.00

 

 

 

 

 

 

TOTAL

 

2,66,830

TOTAL

 

2,66,830

 

 

 

 

 

 

STATEMENT OF AFFAIRS AS ON 31 MARCH, 2012

CAPITAL AND LIABILITIES

ASSETS

Capital

 

2,01,830.00

Cash & Bank Balances

 

1,63,830.00

 

 

 

Cash with Bank

1,40,558.60

 

 

 

 

Cash in Hand

23,271.40

 

 

 

 

Loans and Advances

 

38,000.00

TOTAL

 

2,01,830

TOTAL

 

2,01,830.00

 

For further clarification of doubts post your querries in Forum section under Taxation subcategory.

Mukesh Jain CA

2013-07-31

The services of a chartered accountant should not be hired based on the cost of the service or one who quotes less. The one who can deliver or provide a good quality service should be selected. Various people will give various quotations but the quality sholud be preferred. Surely it will be helpful in the long run. 

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