How to file your taxes online using the Income Tax India website?

Vikrant commented on the Perfios post last Friday on how easy it was to register and file taxes on the Income Tax India website if you have income from only one source viz. salary, and that it took him only 10 minutes to file his own taxes this way.

I’m not familiar with this process, so I asked him if he would share his experience and he replied very promptly with the steps involved in this process.

Here are the instructions that he gave me (slightly edited).

Itâ€™s very simple, especially for people like me who have only one source of income which is salary income.

1.Â Go to https://incometaxindiaefiling.gov.in/portal/index.jsp

2.Â You need to register first, and that’s done by clicking on the Register link that’s present on the right side of the screen, and supplying your PAN.

3.Â Once registered, enter your PAN number and password to login.

4.Â Â After you login, you will find a page where you can choose to file return for this year or previous year, Letâ€™s take an example of this year. When you point your mouse to E-Filing A.Y.2012-13 it would prompt: “Individual, HUF” as shown below.

Click on the “Individual, HUF” link.

5. The next page has a set of instructions on which form you should use for your tax filing. These are fairly detailed instructions, and you can easily make out which form you should use based on the details given there.

Here is a screenshot of the instructions.

If you look at this page, it will tell you what which ITR form you need to use. Based on the kind of income you have, you will need to use the respective form like ITR1 , ITR2 and so on.

As I said, I will use ITR 1 as example as I come under Income from Salary/Pension .

6.Â Click on the Excel Utility (Version 1.0) for ITR 1 and similarly for other ITR whichever is applicable to you.

7.Â Fill this form based on the information present in form 16 and validate that.

8.Â Once you have filled the form (there are 4 pages you need to fill; all those which are applicable). Click on validate and then click on Generate. This will generate a XML file which would be saved automatically in the same location where you had saved the excel file that you downloaded.

9.Â Once the XML is generated, all you need to do is, click on the > Select assessment year on the left hand side of the web page and select the year assessment year, which would be AY12-13 for this year.

10.Once you click on AY 12 â€“ 13 Â you will find this page.

Select the option accordingly, like I have done here and click next

11.Once you click next you will find another page that looks like this.

Click on Choose file and select the XML fileÂ that got saved when you generated the XML. And click upload.

12. You will get an email from income tax office that will have a PDF file called ITRV. Take a print out, sign on the form and send it to the address mentioned on the file by ordinary post or speed post.

It’s all done! It’s a very simple process if you have income from only one source.

Conclusion

Vikrant’s instructions are fairly detailed and it looks like a simple process by the looks of it. Many thanks to him for sharing these with everyone here!

Has anyone else tried this and if so what is your experience?

Announcement and Links

I think all regular readers are familiar with Shiv, who has been commenting on the site for about 2 years now, and must have answered hundreds of reader questions in that time. I’ve asked him several questions myself and he has always given me accurate answers to my queries.

A few weeks ago, I asked him if he would be interested in writing for OneMint and he agreed to give it a try. This is the second time someone is helping me with content here (Gurpreet did a few tax articles last year), and I’m really looking forward to this.

You will start seeing his posts from next week onwards, and they will be marked as written by Shiv. This will not impact the frequency or topics of the posts that I write, so overall, you will see increased posting frequency on the site, it is hard to say by how much at this point.

I’m really glad to welcome Shiv as a blogger here and I’m sure this will add to the quality of the site.

Now, let’s get on to this week’s links.

Let’s start with this beautiful commencement address given by Atul Gawande on failure and rescue. I’ll quote my favorite part from the speech.

Scientists have given a new name to the deaths that occur in surgery after something goes wrongâ€”whether it is an infection or some bizarre twist of the stomach. They call them a â€œfailure to rescue.â€ More than anything, this is what distinguished the great from the mediocre. They didnâ€™t fail less. They rescued more.

Next up, China is the source of fastest growing international buyers for US real estate. The US real estate market is estimated to be $928 billion in the year till March, and while Canadians were the largest international buyers, Chinese were the second largest at $9 billion. Interestingly, Indians also figure in that list and account for 6% of the sales done to international buyers.

A fascinating conversation about the future and what technologies will shape our lives 30 or 40 years from now.

The Economist laments India’s slowing growth in this piece titled Farewell to Incredible India.

This is a fascinating little experiment where they teach words to a baby robot.

Hemant has a thoughtful post on planning for your retirement versus planning for your children’s future.

Finally, I think this is the most beautiful picture I’ve seen in quite a while.

Enjoy your weekend!

Free Perfios Tax Filing for 25 Early Birds

Iâ€™m sure most of you are familiar with Perfios, and Iâ€™m happy to say that they have graciously agreed to offer free online tax filing to 25 OneMint readers.

I have never used this service myself and canâ€™t talk about it in detail, but in general Perfios has great quality products, and Iâ€™m glad that 25 OneMint readers will be getting this online tax filing for free.

How to enter this giveaway?

This giveaway will be limited to the first 25 people who sign up with Perfios and this of course means that you are not eligible for the give-away if you have already signed up with them.

Here are the detailed steps:

1. You sign up with Perfios using this link. This is an automated page, and it will allow the first 25 registrants to file returns for free.
2. After the free sign ups are used up – you will be asked to pay a price of Rs. 125 for filing.

Please note that if you add another form 16 you will have to pay extra based on their rate card here.

Itâ€™s that simple!

Two ways I save money

A couple of people responded to yesterday’s post saying that writing about saving money once in a while is not a bad idea at all, so here is a post with two ideas that have helped me save some money this year.

Sticking to my new year resolution

At the beginning of the year I made a resolution that I will not buy anything on impulse, and so far I’ve stuck to it without exception.

This turned out to be easier than I thought it would, and all you need is a mental check that tells you to wait a while before you make the purchase. I used to pick up quite a few things on impulse and used to subscribe to a lot of magazines, newsletters and newspapers whenever they offered a discount but I’ve let most of them expire now, and have only continued with two or three subscriptions.

I think after the third or fourth month, it just became a habit where every time I looked at something shiny and felt like buying it, I immediately checked myself and waited a few more weeks to see if I still remembered the thing or not.

The latest example of this is Bose headphones. While driving with a friend one day, he put on a song at a high volume and it sounded much better than what I’m used to on my headphones. Then I came home and stumbled upon an ad for Bose headphones and the “must have it!” impulse hit me there and then. But as is habit, I’m still waiting to see if I’ll still want them after a month or so.

If you can control your impulse purchases you can cut through a lot of clutter and save some money as well. If you haven’t ever given thought to this then I would say that this is something definitely worth trying.

Buying Fridge Magnets

My wife and I travel a fair bit and somehow you’re most susceptible to buying crap when you are on a holiday. You feel that since you’re on a holiday it is okay to splurge a little and you end up with all sorts of junk that you will never need or didn’t even want that much in the first place. I have dream catchers that aren’t catching any dreams, cigars that I’m never going to smoke, and hats that I most certainly will never wear which remind me of this every day.

Then sometime last year we invited a few friends over for dinner and one of them commented on the fridge magnets that we had collected over the years and from then on we decided to buy only magnets for souvenirs. They are cheap, you can buy a few of them, are usually shiny and satisfy the need to bring something back on the holidays.

If you have felt that you fall prey to shopping sprees on holidays try buying something that you get everywhere and is inexpensive.

I have to say that I firmly believe that this will only work when you buy something that can be shown off. The magnets themselves may be cheap, but they tell a story of how many places we have visited and as vain as that may sound, I think that’s what makes it work.

These are two things that have definitely helped me save money and cutting clutter without compromising on anything at all and I think they are easy enough to try even if you feel you don’t spend that much on impulse purchases or holiday shopping.

Do you have some ideas you want to share?

Indians and Financial Literacy

I was surprised when I came across this article in the Financial Express that cited a Visa report which found Indians to be one of the least financially literate in the world.

I couldn’t find the report and it is really impossible to say who is the least financially literate in the world, but it did remind me of an interesting incident that occurred more than a year ago.

An advertiser who was based in the US approached me for advertising on the site, and I kept referring to OneMint as a personal finance blog; at some point he stopped me and said that I’ve gone through the content and this is an investment blog, not a personal finance blog.

You hardly write about thrift and tips for saving money which is as important as investing topics, and other personal finance blogs cover such tips in a lot of detail.

My response was that Indians don’t need tips to save money as that’s something most of us are good at anyway, and if I wrote about saving money that would just bore people away, and I really don’t know what I will write to begin with.

My response obviously didn’t satisfy him because he never did advertise on the site but since that time I’ve modified my opinion a bit.

Now I think that the Indians who want to save money are good at it and don’t need the help of blogs to do it, but there are a lot of Indians who are neither interested nor good at saving, and a lot of them belong to the younger generation who don’t have the burden of family on them, and just want to have a good time.

I’m sure all of you know many folks whose salary gets over on the first itself because of the many EMIs and credit card bills that they have to pay, or someone who bought a phone that’s worth more than a month’s salary, and surely this is not a good financial habit.

Even the ones who are good at saving money may not be all that great at investing it as evidenced by the huge number of high cost ULIPs sold in the country.

I think we give ourselves more credit than we deserve and there is still a long way to go as far as financial literacy is concerned.

What do you think?

How do NRE accounts work and how safe are they?

Ajay posted a comment about the safety of NRE accounts, and how they work yesterday, and with the exchange rate where it is – NRE accounts are attracting investors once again.

I have answered preliminary questions about the NRE account in the following three posts and in this one I will answer the question about their safety and mechanics.

NRO Account versus NRE Account

How to open NRO / NRE account when you’re abroad?

Best Bank NRE Rates

How does a NRE account work?

After you open a NRE account, you transfer money in your local currency like the USD, EUR or AUD and the bank uses the current exchange rate to convert that to Indian Rupees and then open a fixed deposit with it.

The NRE account is the closest to a fixed deposit in structure, you put some money in it for a specified tenure for a specified rate, and the bank pays you interest periodically. You can choose how you want the interest to be paid.

This is simple enough, and the only thing to keep in mind here is that the bank doesn’t guarantee an exchange rate to you. The money will convert at the rate that’s current at that time, and when the NRE deposit matures, and you want to withdraw the money, the bank will give you the rate that exists at that time.

This can work both ways and give you extra gains or even a loss. If the Rupee depreciates significantly from the time of your deposit to the time of withdrawal then you will make a loss, and if the Rupee appreciates then that will be a bonus over and above whatever the interest rate was.

Of course, if you don’t convert the money from Rupees then you don’t have to worry about the exchange rate, and that is what a lot of NRIs are using these deposits for as well.

Tax on NRE Deposits

There is no tax in India for NRE deposits but the rules are different in different countries. According to US rules, a resident needs to declare income and pay tax regardless of where they earn it. Other countries don’t have these kind of requirements, and unfortunately I’m not familiar with the details of this aspect so I won’t be able to elaborate more.

Safety of NRE Deposits

Since a lot of large PSU and private banks offer these deposits, it is hard to see a risk of default. Bank failures are rare in India, and to that extent the deposits are quite safe from default and even the interest payment is safe unless something really extra ordinary happens.

I believe I’ve covered most the questions that you will have when you are about ready to start a NRE deposit but please do leave any other comments you may have and I’ll answer them to the best of my knowledge.

What are some good saving instruments for beginners under the lowest tax bracket?

Anusha Shashidhar had this question on the Suggest a Topic page the other day, and I think the tax bracket does make a difference in what products you choose because some of the things I wrote in my earlier post on investments like FMPs and tax free bonds will not be so attractive to someone in the lower tax bracket because they can use other products that are easier to set up (bank FD or RD) and don’t have any uncertainty in them either.

I think the following three product categories are worth looking at for beginners who aren’t liable to pay a lot of tax.

1. ELSS Funds: You can still look at ELSS funds this year for your 80C deductions and since you are only at the beginning of your career you have a lot of time on your hands that reduce the risk of equities somewhat. That makes me think that ELSS funds should be in your list of options.

2. Public Provident Fund: Starting with Jitendra Solanki, many people recommended PPF, which is something that I thought of including earlier but the 15 year lock in made me turn away from it. But if you are okay with the 15 year lock in period, then this is a great option as well, especially considering the tax free at maturity aspect of it. Business Line has a great article on how to invest in a PPF.

3. Plain old bank Recurring Deposit or Fixed Deposit: I shared Ramesh’s comment on OneMint’s Facebook wall earlier about a recurring deposit, and I’ll paste it here as well because I think there is a lot of merit in this line of thinking.

Fixed Deposit rates are showing a tendency to decrease rates now. SBI has already reduced by .25%. the same is true for RDs

I think it is the best time to invest for long term say 5 years before rates fall. And if you donot have surplus cash, you can always reserve your berth by investing in RDs for 5 years thus insuring your higher interest rates above 10% for next 5 years even if rates fall below 8%

I think this makes sense and Hemant has shown through detailed calculation that due to the benefit of compounding a fixed deposit at SBI yields quite good for the long term.

I’d also like to say that for people who are in the 10% bracket, sometimes it may not make sense to try to reduce your tax liability to zero because every instrument that reduces tax liability locks in your money and sometimes it is just better to pay the little tax you owe and have the freedom to use your money the way you want.

Finally, my apologies to Anusha and all the others who I’ve had to disappoint when they have asked for personal recommendations, I believe I have a good reason to say no, and if you have the time here is explanation for that.

Infrastructure Targets for 2012 â€“ 13

The big news today was the ambitious targets set by the prime minister for infrastructure investments, and the idea behind this is that by spending money on infrastructure and building that up, the economy can be revived, and India can return to the 9% growth level it used to see a few years ago.

This is a small bit of good news because it shows that the government is trying to do at least something to improve the current situation and that they aren’t content blaming everything on Greece or global situation.

What part of these plans will actually materialize is anyone’s guess, but I think it is safe to say that because these targets are so high they will definitely be missed.

That’s not such a bad thing though, the strategy seems to be to shoot for the stars so you at least get to the moon. Some highlights of the plan are as follows, but before you start reading them please note that these indicate that projects will be awarded and not that the target port, airport or road will be finished in the next year.

Ports: Two brand new ports in Andhra Pradesh and West Bengal and a total of 42 projects in the year will be awarded.

Airports: Project to build airports will start in Itanagar, Navi Mumbai, Goa and Kannur.

Roads: Total of 9,500 kms of road projects will be awarded in the year. This doesn’t imply that 9,500 kms of road will be built in the year, just that projects for this much length will be awarded. For reference, a Jan 2011 article states that China built 33,000 kms of road in 5 years, which is about 6,600 kms per year. I’ve read earlier that India has had plans to build 20 kms per day but I don’t think we were ever even close to achieving it.

Railways: Investment worth Rs. 20,000 crore will be awarded in the Mumbai corridor.

Power: Capacity addition target is 18,000 MW.

Coal: Coal India will dispatch 470 MT of coal this year which is an increase of 8.8% from last year.

Earlier today I read a few articles that said that you have to be really wary about these plans because there is no end date associated with any of them, and at that time I hadn’t realized that there isn’t even a begin date associated with them!

I hate the phrase cautiously optimistic, but that’s the thing that comes to mind reading these targets.

People write ridiculous nonsense to attract attention

This topic has been on my mind for two or three days now, and I couldn’t decide if I should write about something like this or not, but in the end I just couldn’t resist.

I think a lot of people look at someone on television or read something that someone has written in a newspaper and automatically assume that just because they have a big audience they must be right but the truth is that a lot of these people aren’t even trying to be right.

When you think about it, there are hundreds of people on television these days, and an even larger number write for some publication or the other. With such intense competition, how do these people stand apart from each other?

Making outrageous nonsensical statements is an easy and effective way to do this, and when you look at the large number of people who choose this path, you know it is working as well.

There is a lot more entertainment in financial news than there is actual information, and if you were to pick up most pieces written about the Facebook IPO or the petrol prices in India recently – you would see what I mean. Incredibly smart people talk about oil companies screwing the Indian populace without talking about their losses, or analysts talking about Facebook not being there in 5 years from now, well guess what, Facebook most likely will be there in 5 years, but no one will remember what you said 5 years from now, and at least making such ridiculous statements helps you stand out from the crowd today.

The noise is often so loud that it drowns out the few sane voices that exist and in some way the audience is to be blamed as well because people hang on to scary headlines repeating them mindlessly without actually going deeper in the content and questioning whether the content actually reflects the scare that the headline is trying to generate.

The other aspect of this nonsense is commentary by perma bears or perma bulls. A famous Indian mutual fund manager blogs about markets and a few months ago I created a spreadsheet with date, short term predictions that he made, and then where the market was when compared with his predictions. There were two things that were quite easy to spot. One was he always found something to be positive about and second was he was wrong 80% of the time. But to this day he continues to be optimistic and continues to give guidance, not giving a damn to his plentiful wrong predictions in the last 2 years. There are examples on the other side as well, and what good is the advise of such people?

These predictions are all but useless, and just serve the purpose to make the person popular because others are only too happy to repeat that so and so analyst expects the market to end at 21,000 or 27,000 or whatever. Being accurate is not important, being loud and saying something that grabs attention is.

I think it is important for everyone to take a deep breath and think about this for a moment and keep it in the back of your mind that the person who is writing or appearing on television doesn’t always have the same goals that you as the consumer of that news have. Being popular and being right are two different things, and unfortunately you don’t need to be right to be popular.

A holistic look at petrol price taxes and oil company subsidies

Petrol prices have been in the limelight for quite a few days now, and people are naturally concerned about the rise in prices. While no one denies that if international crude prices go up, India has no option but to raise prices, a lot of people feel frustrated with the high taxation that is present in petrol prices.

The petrol pricing structure is so convoluted that it is hard to understand how all the pieces fit together, and I’ve tried to answer some questions that help take a holistic view of the situation.

How big is the subsidy?

Reuters reported a few days ago that the total fuel subsidy is Rs. 1.38 trillion this year, and the budget said that the total subsidies are going to be Rs. 1.90 trillionÂ so you feel that the fuel subsidy is about 73% of the total subsidy bill of the government. However, this percentage is not accurate because the government doesn’t bear all the subsidies. The upstream oil companies will bear 40% of these and we’ll talk about them in detail later on.

How does this Rs. 1.38 trillion number compare to revenues? The total tax revenue for this fiscal is expected to be Rs. 7.7 trillion so the subsidy is about 18% of the total tax revenue.

This is huge of course, and leaves no doubt that this problem is very real and not an eyewash by the government.

The under recoveries on oil products makes a huge hole in the government’s pocket that has to be filled up some how and to understand how it is filled, we need to look at the four major players in this equation. First, the two type of oil companies.

Upstream and Downstream Oil Companies

You will normally hear of oil companies as either upstream companies or downstream companies. Upstream companies are involved in the exploration and extraction of crude oil and downstream companies are involved in selling and distribution ofÂ oil products to end customers, these are also called oil marketing companies.

The oil marketing companies – Indian Oil (the biggest of the lot), HPCL (Hindustan Petroleum Corporation) and BPCL (Bharat Petroleum Corporation Limited) buy crude from downstream companies and then sell that at discounted rates, and in the process they incur huge losses.

These losses are subsidized by the government directly in the form of cash subsidy, and grants and by upstream oil companies – OIL (Oil India Limited), ONGC (Oil and Natural Gas Corporation) and GAIL (Gas Authority of India Limited). There is no fixed formula for deciding any of this, and periodic announcements tell people what the subsidy is going to be and who is going to share how much.

If you’re worried that the oil companies are screwing you, well, Indian Oil is India’s biggest company by sales, and it couldn’t even make a profit if it weren’t for the government grants, well that’s true for all oil marketing companies.

In fact, here is a chart based on data from IOC press release that details out how much profit oil marketing companies made last year, and how much assistance they got. The numbers speak for themselves.

Profit of Oil Marketing Companies and Assistance Given To Them

Now, let’s look at the other two players.

Central and State Governments

The central and state governments come into play because of the taxes on petrol. There are many different forms of taxes, and I’m listing below the ones I could find. There may be others.

Excise Duty

There is excise duty which is Rs. 14.45 per liter regardless of price of petrol and there were some noises earlier that the government might reduce excise duty to bring down the price of petrol but that never materialized.

VAT / Sales Tax

There is VAT as well which depends from one state to the other and Goa reduced this by Rs. 11 or the entire 20% in March this year. Then there is Sales tax and Entry tax in some states and I found a link which says that these amount to Rs. 19 in Karnataka. The rate of Sales tax / VAT which varies from 15% to 33% on the states.

Customs Duty

There used to be a 5% Customs duty on crude oil but that was eliminated last year due to the heavy under recoveries faced by the oil companies.

Import Duty

There is however a 2.5% Import duty that is levied on crude oil which was reduced from 5% to 2.5% two years ago, and there were some murmurs that it will be reduced to zero but that didn’t happen.

Here is a chart that shows how much do taxes roughly account for as price of petrol.

How much do taxes contribute to petrol prices?

Before you go on to say the taxes are very high, keep in mind that the government is running huge deficits, and if they reduce taxes they have to raise money from somewhere else, so it’s not a conspiracy by the government but a stark reality that the money has to come from somewhere. Having said that, with only 3% of the people paying taxes and huge under reporting going on in tax payments everywhere, petrol is not the only place where this money can come from. There are several other sources as well.

Conclusion

We have a very unusual and complex environment where diesel, LPG and Kerosene are hugely subsidized, cause a lot of losses to oil companies but it’s hard to decontrol their prices because of the “poor people” argument which it is quite hard to see how much of that is true, especially when you see pricy luxury diesel cars plying the road.

Then there are these companies that would have been making losses had it not been for government grants, but incredibly enough, they pay dividends too! The government gives them grants, and then they pay out dividends, and it has all gotten incredibly messy and hard to understand.

It doesn’t help that petrol is taxed so much and that can create an illusion that the government is stuffing people with these high prices.

I think it is best to look at all these players as separate entities if you really want to understand the situation rather than just lumping them together and calling them the big bad evil government.