In a big relief from cumbersome tax filing process for the salaried class, Finance Minister Pranab Mukherjee on Monday proposed to exempt them from filing tax returns unless they have other sources of income. The government will be issuing a notification exempting ‘classes of persons’ from the requirement of furnishing income tax returns, said the Memorandum to the Finance Bill 2011. 

Salary earners having an income of less than Rs 5 lakh will not have to file tax returns from this year. “Salaried people, may be up to Rs 5 lakh…they need not file the (income tax) return,” CBDT chairman Sudhir Chandra said.  The exemption from filing tax returns come into effect from the assessment year 2011-12. The decision, which will come into effect from June 1, 2011, will reduce the compliance burden on small taxpayers, it added.

In case such a salary earner has income from other sources like dividend, interest etc. and does not want to file returns, he will have to disclose such income to his employer for tax deduction, Chandra said.

The Form 16 issued to salaried employees will be treated as Income Tax Return, he added.

“Therefore, in cases where there is no other source of income, filing of a return is duplication of existing information,” the Memorandum said.

The Income Tax department is open to examining a proposal to exempt them from the annual chore.

Asked whether the department would think about doing away with Income Tax returns for employees, who had no other income apart from salaries in a financial year, Central Board of Direct Taxes chairman Sudhir Chandra said the department would certainly consider the proposal.

He agreed that for a substantial chunk of salaried employees, savings bank interest is the only additional income and that in most cases, this not substantial.

This proposal, if approved, will benefit a large section of people and would reduce the I-T department’s workload in a big way.

Of the country’s 35 million taxpayers, roughly half are salaried employees.

The proposal to do away with returns for salaried taxpayers was earlier internally mooted within CBDT a few years ago.

The argument in favour of the proposal was that income records for this class of taxpayer were available with both employers and banks.

Chandra also promised small taxpayers another major relief. He said the I-T department is planning to release all small-value refunds before March 31.

“I will ask my officials to give most refunds by the end of the current financial year,” he said. “We will try to clear most refunds in a month. At least small refunds can be given by March 31,” Chandra added. The newly-appointed chairman said he would communicate this to his officials. Some of the refunds will be given to taxpayers directly through State Bank of India under the refund banker scheme. Under this, tax refunds are sent to taxpayers by State Bank of India, either through the electronic clearing service mode or in physical form. The scheme was launched four years ago in Delhi and Patna and later extended to other cities.

In 2009-10, the I-T department gave over Rs 58,000 crore (Rs 580 billion) in refunds, which was 50 per cent more than the previous year.  CBDT has increased its target for processing refunds to Rs 70,000 crore (Rs 700 billion) in the current financial year. Refunds increased by 19.5 per cent to Rs 44,000 crore (Rs (Rs 440 billion) up to December, 2010.  The I-T department has opened a Central Processing Centre in Bengaluru for faster processing of claims for electronically-filed returns. It will roll out three more centres in the Manesar, Pune and Kolkata.

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  1. Amit Pithadia says:

    I did not understood. I person having salary. he will deposit in the bank then there will be definetly interest income. Even though it is little then also still…there is no person who dont deposit income in the bank..

  2. s p. singh bhalla says:

    How about pensioners having negligible pensions and small consultancy with less than 2 lakh annual income? Where do they fall?

  3. Prakash says:

    Good decision. But employees are habitual in not disclosing the income from other sources, even the interest earn from saving banks or accrued on FD’s or NSC. Account sect. of employers are also not worried about fake claims made by employees for claiming deductions. It is seen that no employees are showing income from transactions of real estate or rental income from house.
    Even though this facility is given will they be faithful?

  4. Dadhwal says:

    The term “Salary” means Salary from present employer and pension from previous employer. At present employer can not allow some rebates which are claimed by salaried class in IT return. The orders have to be changed now and the employer shall have to be empowered to allow all deductions and rebates applicable.

  5. rugram says:

    Is it not most likely that on who earns a salary (gross or net of taxes) of Rs. 5 lacs a year will have some other income such as on fixed deposits, dividend (though presently not taxable) or housing loan? How would exemption from filing a return help? Also, how does the employer verify the accuracy of the information (of other income) as declared by the employee?
    Theoretically, the proposal may sound attractive but I would think this is not practicable.

  6. Jugal Kishore Singh says:

    Dear Sir,
    ‘SALARIED’ persons exempted from filing ‘RETURNS’, up-to salary of Rs.5.00 lakh shall include ‘PENSIONERS’ too?


  7. Amish Srivastav says:

    As in the calculation of TDS,to be deducted by the employer, certain deduction are not allowed to the employer to be made from assesee’s income while calculating his total income.
    therefore, it may cause certain refunds due to assessee, for which he should certainly file a return to claim for.
    further, the language used is, Salary Earned less than Rs. 5,00,000/-, it means :
    (i) gross salary earned before any deductions made(after exemption u/s sec. 16),and;
    (ii)person earning rs. 5,00,000 or more, shall be liable to file return.

  8. Ram says:

    First it is Income Rs.5 Lakhs. Automatically it is the TDS should have been deducted and Form 16 is fully filled in by the Employer who deducts such TDS. Normally Employer deducts TDS based on his salary and there will be no refund or tax payable. If refund is due then you have to file IT Return to get the refund. This happens when Employer give a cut off date for claiming deductions say by March 1, or so but the employee put money in savings account after this date. So automatically you will claim refund. In these cases IT Returns are to be filed to claim redund.

  9. R.L.Garg says:

    who will be responsible for testifying the genuinenessw of the rebates claime3d by the tax payers who are exempted for filing their returns. Examptions claimed under House Rent Allowance by showing some rent payment receipt. w2ho is responsible to verify the cirrectness of nthe and genuineness of such receipts,

  10. gopal waingankar says:

    Dear Sir,

    Income less than 5 lakh means what? is it taxable income? or is it gross income before all exemptions? please clarify.



  11. Avinash says:

    Dear Sir,
    I have one query, as per this article, if my income is less than Rs.5lacs, i don’t need to file IT Return. but if there is tax refund in my Form 16. How could I get my refund wihtout filing IT return.

    Thanking you,
    Aviansh Verma

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