WHICH FORM SHOULD YOU USED ?

First they made it compulsory for businesses to e-file their tax returns. Then they made it mandatory for taxpayers with incomes of over Rs 10 lakh to take the online route. This year, the income tax authorities have cast a wider net and made e-filing compulsory if your taxable income is above Rs 5 lakh a year.

The lowered threshold represents one of the key changes in the tax filing rules this year. Some of these are mere tweaks, such as mentioning your bank’s IFSC number, instead of the MICR code, in the return. However, some of these variations are tectonic, such as the mandatory e-filing for incomes above Rs 5 lakh a year. In the following pages, ET Wealth explains the new rules and how they will affect the way you file your tax return this year

E-filing of tax returns has grown ten-fold since its introduction in 2006. Less than 8% of the 3.37 crore taxpayers e-filed their returns in 2007-8. Last year, 45% of the 5 crore taxpayers took the online route. That’s a big jump and the figure is expected to go up significantly this year.

The change has spawned a massive opportunity for tax e-filing portals. These websites charge individual taxpayers between Rs 200 and Rs 4,000 for uploading their tax returns. You can also do it for free on the official website of the Income Tax Department. However, private tax filing portals hand-hold the taxpayer through the process. They guide you while filling the form and even correct you if you make a mistake.

Filing tax returns online is easy. The average taxpayer won’t take more than 30-40 minutes to enter all the details and upload the return. However, the average taxpayer also harbours several misconceptions about e-filing.

Choose the right form

The online filing data reveals that more than 32% of the 2 crore individual taxpayers used the basic ITR 1, also known as Sahaj, to file their returns last year. Only 11% used the more complicated ITR 2. These statistics indicate that a lot of taxpayers who should have used ITR 2 filed their returns using the simpler Sahaj form. The income level does not matter; what is important is the source of income. For instance, if one had made capital gains or earned rent from more than one house, he should have used ITR 2.

Whether the popularity of ITR 1 was out of ignorance or a deliberate attempt to conceal income is not clear. However, the government has now changed the rules to capture a better picture of the income of taxpayers. If you received more than Rs 5,000 tax-exempt income during 2012-13, you will have to use the ITR 2 for filing your return this year.

Exempt income includes tax-free sources of income, such as the interest on PPF, tax-free bonds and dividends (see table). Also, a taxpayer is not supposed to use ITR 1 if he has foreign assets or has claimed tax relief under any double taxation avoidance treaty.

Experts are divided over the interpretation of exempt income in this regard. “This change will have a big impact on the salaried taxpayers because HRA, LTA or conveyance allowance are commonly availed of by most of them,” warns Kuldip Kumar, executive director of PriceWaterhouse Coopers. This effectively means that a vast majority of salaried taxpayers will have to use ITR 2 this year. Even if they don’t claim HRA exemption, they get LTA, or at least Rs 800 conveyance allowance per month, which is exempt.

Vineet Agrawal, director, KPMG, believes that the Rs 5,000 limit for exempt income does not include HRA, LTA and other allowances that a taxpayer receives from an employer as part of the salary package. More clarity is needed on this.

The stress on disclosure demonstrates the tax department’s resolve to plug the leakages in tax collection. The direct tax collection of Rs 5.58 lakh crore in 2012-13 fell short of the revised target by Rs 7,000 crore. Addressing a meeting of tax officials in May, Finance Minister P Chidambaram exhorted them to “target non-filers and stop-filers to widen the tax base”. Almost 12.5 lakh such “non-compliant” taxpayers have been identified by the Central Board of Direct Taxes, and almost 2 lakh notices are already on their way.

The taxpayers who have not filed or stopped filing would do well to take heed of the warning. If you have not filed your return for last year as well, you can do so now (see box). A return filed after the due date is a delayed return. If you file your delayed return before you get a notice, you have a better chance of getting away lightly. The taxman will not take you to task for not filing your returns, just a mild rap for waking up late.

Automatic choice for e-filers

For some online tax filers, choosing the right form is not an issue. “A taxpayer has to just enter what he has earned under different heads of income and the portal automatically chooses the applicable form,” says Sudhir Kaushik, co-founder and CFO of Taxspanner. com.

For instance, if the person has only income from salary and no exempt income, his return will be filed using ITR 1, but if he made some capital gains, has rental income from more than one house or his exempt income exceeds Rs 5,000, ITR 2 will be used.

However, taxpayers who upload their returns through the official Income Tax Department website will have to be more careful about the form they use. Delhi-based Kuldip Kaushik (see picture) used the ITR 1 last year, but since he had dividend income of over Rs 5,000 for the year 2012-13, he will have to use ITR 2 this year.

If a taxpayer uses the wrong form and the mistake is discovered by the tax authorities, the return may be rejected. Every year, thousands of defective returns are sent back to taxpayers. A defective return is not an earth shattering matter. If you get a notice, you will have to file a revised return within 15 days. If you meet the deadline, the return is treated as valid. Get delayed and your return will become invalid and you will have to file afresh.

“If you discover on your own that you have made a mistake in the return or used the incorrect form, you can file a revised return to rectify the mistake,” says Agrawal. Your new return will overule the previous one if the assessment has not been completed.

Check your TDS details

Before you sit down to file your returns this year, spend a few minutes to check whether the tax you paid for last year has been correctly credited to your name. The Form 26AS has details of the tax deducted on behalf of the taxpayer and can be easily checked online. Noida-based Brijendra Singh wishes he had done so last year.

The former army officer got a tax notice because of a clerical error by his bank. The TDS paid on his income from fixed deposits was credited to another PAN by mistake. Though he was eventually given credit for his TDS, Singh is not taking any chances this year. He has diligently matched all his TDS details with the entries in the Form 26AS online.

Checking your tax credit details online is child’s play if you have a Net banking account with any of the 35 banks that offer this facility. Otherwise you can go to the official website of the Income Tax Department and click on ‘View Your Tax Credit’. First-time users will have to register but it takes less than five minutes before you can log on and view your details. “It is necessary that taxpayers check their TDS when they file their returns,” says Kuldip Kumar of PwC.

Forms seek more information

If salaried people are feeling jittery about using the more detailed ITR 2, imagine what partners in firms and businessmen are going though. In an attempt to dig deeper for undisclosed income, the government has made it mandatory for partners, professionals and businessmen with an income of over Rs 25 lakh to furnish details of their assets and liabilities. There is a new ‘Schedule AL’ in the ITR 3 and ITR 4. If the taxpayer’s income exceeds Rs 25 lakh during the year, he will have to declare his assets and liabilities.

Don’t forget the ITR V

The most important form in the whole process is the ITR V. This is the acknowledgement of your return. If you file offline, this form has to be submitted along with the ITR. If you file online without digital signature, this form has to be sent to the CPC in Bangalore by snail mail within 120 days of uploading the return. This also means that for a vast majority of e-filing taxpayers, the process is not fully online. The CBDT is considering a proposal that will do away with the physical posting of the ITR V. However, till then you will have to send it by ordinary post.

Others feel that the cost of digital signature should be brought down and its usage expanded to cover other areas as well. “If e-filing has been made mandatory, the government should also make the use of digital signatures mandatory,” says Delhi-based chartered accountant Minal Agrawal Jain.

Source: Economic Times

THE TREND IS YOUR FRIEND !!!!!!!!!!!

TRADERS’ BIGGEST PROBLEM

Trading is likely the most exciting way to make a living and/or accumulate a fortune. You are your own boss and your own worst enemy. You alone must deal with the frustration of your own choices. If you lose, there is no one else to blame. You made the losing decision, even if that decision was to let someone else make your decision or to follow someone else’s approach. On the other hand, if you win, don’t have to say “Thank you” to anyone. You are not obliged to anyone but yourself. There is no politics nor anyone to whom you must cater. You are truly “sliding down the razor blade of life.” 

But here is the problem. Most of the time, the market goes nowhere. Only 25 to 40 percent of the time does the market trend, during the remaining 60 to 75 percent of the time the market goes nowhere. Most professional traders make nearly all of their profits in a trending market.

Here is our problem: we don’t want to spend out time entering and exiting a market that is going nowhere. If the market is going nowhere, then the opportunity is NO-WHERE. We want to change that to opportunity is NOW-HERE.

The Trend is your Friend

TREND AND TRADING RANGE 
Traders try to profit from changes in prices: Buy low and sell high or sell short high and cover low. Even a quick look at a chart reveals that markets spend most of their time in trading ranges. They spend less time in trends. 

A trend exits when prices keep rising or falling over time. In an uptrend, each rally reaches a higher high than the preceding rally and each decline stops at a higher level than the preceding decline. In a downtrend each decline falls to a lower low than the preceding decline and each rally stops at a lower level than the preceding decline and each rally stops at a lower level than the preceding rally. In trading range most rallies stop at about the same high and declines peter out at about the low. 

A trader needs to identify trends and trading ranges. It is easier to trade during trends than in trading ranges. 


PSYCHOLOGY OF TRENDS AND TRADING RANGE

An uptrend emerges when bulls are stronger than bears and their buying forces prices up. If bears manage to push prices down, bulls return in force, break the decline, and force prices to a new high. Downtrends occur when bears are stronger and their selling pushes markets down. When a flurry of buying lifts prices, bears sell short into that rally, stop it, and send prices to new lows. 

When bulls or bears are equally strong or weak, prices stay in a trading range. When bulls manage to push prices up, bears sell short into that rally and prices fall. Bargain hunters step in and break the decline, bears cover shorts, their buying fuels a minor rally, and the cycle repeats. 

Prices in trading ranges go nowhere, just as crowds spend most of their time in aimless mulling. Markets spend most of their time in trading ranges than trends because aimlessness is more common among people than purposeful action. When a crowd becomes agitated or excited, it surges and creates a trend. 


THE HARD RIGHT EDGE

Identifying trends and trading ranges is one of the hardest tasks in technical analysis. It is easy to find them in the middle of the chart, but the closer you get to the right edge, the harder it gets. 

Trends and trading ranges clearly stand out on old charts. Experts show those charts on seminars and make it seem easy to catch trends. Trouble is your broker does not allow you to trade in the middle of the chart. He says you must make your trading decisions at the hard right edge of the chart! 

The past is fixed and easy to analyze. The future is fluid and uncertain. By the time you identify a trend, a good chunk of it is already gone. Nobody rings a bell when a trend dissolves into a trading range. By the time you recognize the change, you will lose some money trying to trade as if the market was still trending. 

Most people cannot accept uncertainty. They have a strong emotional need to be right. They hang on to losing positions, waiting for the market to turn and make them whole. Trying to be right in the market is very expensive. Professional traders get out of losing trades fast. When the market deviates from your analysis, you have to cut losses without fuss or emotions.


THREE IMPORTANT TRENDS
You may be asking yourself the question, "What is a trend and how long does it last?" There are countless numbers of trends, but before the advent of intraday charts, there were three generally accepted durations: primary, intermediate and short-term.

The main or primary trend, is often referred to as a bull or bear market. Bulls go up and bears go down. They typically last about nine months to two years with bear market troughs separated by just under four years. These trends revolve around the business cycle and tend to repeat whether the weak phase of the cycle is an actual recession, or if there is no recession and just slow growth.

Primary Trend

Primary trends are not straight-line affairs, but are a series of rallies and reactions. These series of rallies and reactions are known as intermediate or medium term trends. 

The intermediate or medium term trend can vary in length from as little as six weeks to as much as nine months, or the length of a very short primary trend.

Intermediate trends typically develop as a result of changing perceptions concerning economic, financial, or political events. It is important to have some understanding of the direction of the main or primary trend because rallies in bull markets are strong and reactions are weak. On the other hand, reactions in bear markets are strong and rallies are short, sharp, and generally, unpredictable.

If you have a fix on the underlying primary trend, you will be better prepared for the nature of the intermediate rallies and the reactions that will unfold.

In turn, intermediate trends can be broken down into short-term trends, which last from as little as two weeks to as much as five or six weeks.

Market Cycle Model

As an investor, it is best to accumulate when the primary trend is in the early stages of reversing from down to up, and liquidate when the trend is reversing from up to down. Second, as traders, we are better off if we position ourselves with the long side in a bull market since that is when short-term uptrends tend to have the greatest magnitude. By the same token, it does not usually pay to short in a bull market because declines can be quite brief and reversals to the upside unexpectedly sharp. If you are going to make a mistake, it is more likely to come from a counter-cyclical trade.

If you're an intraday trader, you may think all of this does not apply to you, but really, it does. It is important to remember that even on intraday charts, the predominant trend determines the magnitude and duration of the shorter moves. You may not feel a three-hour rally is closely related to a two-year primary bull market move, but it is just as related as a five or six-day trend. 

Charles Dow, the author of the venerable Dow theory, stated at the turn of the century that the stock market had three trends. The long term trend lasted several years, the intermediate trend lasted several months and anything shorter than that was a minor trend. Robert Rhea, the great market technician of the 1930s, compared the three market trends to a tide, a wave and a ripple. He believed that traders should trade in the direction of the market tide and take advantage of the waves and the ripples to time your entry and exit.

CONFLICTING TIMEFRAMESMost traders ignore the fact that markets usually are both in a trend and in a trading range at the same time! They pick one time frame such as daily or hourly and look for trades on the daily charts. With their attention fixed on daily or hourly charts, trends from other time frames, such as weekly or 10 minute trend keep sneaking up on them and wrecking havoc with their plans. 

Markets exist in several time frames simultaneously. They exist on a 10 minute chart, an hourly chart, a daily chart, a weekly chart, and any other chart. Traders often feel confused when they look at charts in different time frames and they see the markets going in several directions at once. The market may look for a buy on a daily chart and a sell on the weekly chart, and vice versa. The signals in different time frames of the same market often contradict one another. Which of them will you follow? Most traders pick one time frame and close their eyes to others – until a sudden move outside of “their” time frame hits them.

A FACTOR OF FIVE

When you are in doubt of a trend, step back and examine the charts in a timeframe that is larger than the one you are trying to trade. A factor of 5 links all timeframes. If you start with the weekly charts and proceed to the dailies, you will notice that there are five trading days to a week. As your timeframe narrows, you will look at hourly charts – and there are approximately 5 to 6 trading hours to a trading day. Intra day traders can proceed even further and look at 10 minute charts, followed by 2 minute charts. All are related by a factor of five. The proper way to analyze any market is to analyze it in at least two time frames. If you analyze daily charts, you must first examine the weekly charts and so on. This search for greater perspective is one of the key principles of the Traders Edge Multiple Time Frame Trading System.

METHOD AND TECHNIQUES

There is no single magic method to identifying trends and trading ranges. There are several methods and it pays to combine them. When they confirm one another, their message is reinforced. When they contradict one another, it is better to pass up the trade.

1. Analyze the pattern of highs and lows. When rallies keep reaching higher levels and declines keep stopping at higher levels they identify an uptrend. The pattern of lower lows and lower highs identifies a downtrend, and the pattern of irregular highs and lows points to a trading range. 
    
2. Draw an uptrendline connecting significant recent lows and a downtrendline connecting significant recent highs. The slope of the latest trendline identifies the current trend A significant high or low on a daily chart is the highest high or lowest low for at least a week. As you study charts, you become better at identifying those points. Technical analysis is partly a science and partly an art. 
    
3. The direction of a slope of a moving average identifies the trend. If a moving average has not reached a new high or low in a month, then the market is in a trading range. 
    
4. Several market indicators, such as MACD and the Directional system help identify trends. The Directional system is especially good at catching early stages of new trends.

CONCLUSION

Markets change, new opportunities emerge, and old ones melt away. Good traders are successful but humble people – they always learn. The primary purpose of the market is to find immediately the exact price where there is an equal disagreement on value and an agreement on price. Speculators get paid for buying what nobody wants when nobody wants it and selling what everybody wants when everybody wants it. Remember there is no such thing as a bad trader. There is only a well trained or badly trained trader..

SOURCES : TEI