Income tax return – The Government imposes a tax on taxable income of all persons who are individuals, Hindu Undivided Families (HUF’s), companies, firms, LLP, association of persons, body of individuals, local authority and any other artificial juridical person. According to these laws, levy of tax on a person depends upon his residential status. Every individual who qualifies as a resident of India is required to pay tax on his or her global income. Every financial year, taxpayers have to follow certain rules while filing their Income Tax Returns (ITRs).
1. What is Income Tax Return?
An Income tax return (ITR) is a form used to file information about your income and tax to the Income Tax Department. The tax liability of a taxpayer is calculated based on his or her income. In case the return shows that excess tax has been paid during a year, then the individual will be eligible to receive a income tax refund from the Income Tax Department.
As per the income tax laws, the return must be filed every year by an individual or business that earns any income during a financial year. The income could be in the form of a salary, business profits, income from house property or earned through dividends, capital gains, interests or other sources.
Tax returns have to be filed by an individual or a business before a specified date. If a taxpayer fails to abide by the deadline, he or she has to pay a penalty.
2. Is it mandatory to file Income Tax Return?
As per the tax laws laid down in India, it is compulsory to file your income tax returns if your income is more than the basic exemption limit. The income tax rate is pre-decided for taxpayers. A delay in filing returns will not only attract late filing fees but also hamper your chances of getting a loan or a visa for travel purposes.
3. Who should file Income Tax Returns?
According to the Income Tax Act, income tax has to be paid only by individuals or businesses who fall within certain income brackets. Mentioned below are entities or businesses that are required to compulsorily file their ITRs in India:
- All individuals, up to the age of 59, whose total income for a financial year exceeds Rs 2.5 lakh. For senior citizens (aged 60-79), the limit increases to Rs. 3 lakh and for super senior citizens (aged 80 and above) the limit is Rs. 5 lakhs. It is important to note that the income amount should be calculated before factoring in the deductions allowed under Sections 80C to 80U and other exemptions under section 10.
- All registered companies that generate income, regardless of whether they’ve made any profit or not through the year.
- Those who wish to claim a refund on the excess tax deducted/income tax they’ve paid.
- Individuals who have assets or financial interest entities that are located outside India.
- Foreign companies that enjoy treaty benefits on transactions made in India.
- NRIswho earn or accrue more than Rs. 2.5 lakh in India in a single financial year.
4. What are the documents required to fill ITR?
It is important to have all the relevant documents handy before you start your e-filing process.
- Bank and post office savings account passbook, PPF account passbook
- Salary slips
- Aadhar Card, PAN card
- Form-16- TDS certificate issued to you by your employer to provide details of the salary paid to you and TDS deducted on it, if any
- Interest certificates from banks and post office
- Form-16A, if TDS is deducted on payments other than salaries such as interest received from fixed deposits, recurring deposits etc. over the specified limits as per the current tax laws
- Form-16B from the buyer if you have sold a property, showing the TDS deducted on the amount paid to you
- Form-16C from your tenant, for providing the details of TDS deducted on the rent received by you, if any
- Form 26AS – your consolidated annual tax statement. It has all the information about the taxes deposited against your PAN
- TDS deducted by your employer
- TDS deducted by banks
- TDS deducted by any other organisations from payments made to you
- Advance taxes deposited by you
- Self-assessment taxes paid by you
- Tax saving investment proofs
- Proofs to claim deductions under section 80D to 80U (health insurance premium for self and family, interest on education loan)
- Home loan statement from bank
5. What is the importance of e-filing?
Electronic filing or e-filing is a process that involves submitting tax returns over the internet. This is done using a tax preparation software that has been pre-approved by India’s Income Tax Department.
E-filing has several benefits that have made the online system of tax payment increasingly popular. The taxpayer has the liberty to file a tax return from his or her home, at any convenient time, during a specific period in a financial year.
Even though it is not mandatory for certain individuals to file ITRs, it can be beneficial for them. Here’s a look at what benefits individual who file their ITR can enjoy:
- While claiming a refund: There is a good possibility that there has been tax deduction at source (TDS) on the name of an individual who makes an income or investment in India. If the taxpayer wishes to claim a refund on the TDS (as per the tax laws), then he or she needs to file the ITR for the same.
- Ease in documentation verification: Income tax returns help you prepare documents that establish your income chart, which can be used while applying for loans. This is because the application for loans checks your eligibility based on your income. An ITR document gives a detailed picture of your total income besides being the most accepted document during visa and loan applications.
- As proof of income: Income Tax Return documents serve as income proof and help your insurer understand the compensation required to be paid in case of accidental death or disability. Since it is submitted to a government body, it is considered to be a verified and official document.
To file your ITRs, you can either directly fill the form online or take help from a professional. The Income Tax Return form is called ‘Sahaj’ and can be downloaded from the Income tax department’s official website or filled up online. Once you complete filing your return, an ITR-V form will be generated as an acknowledgement. This form needs to be verified within 120 days of filing your returns.
6. Which ITR Form should you fill?
The official website of the Income Tax Department lists several forms that taxpayers may be required to fill up based on their income. While some of these forms are easy to fill, others require additional disclosures such as your profit and loss statements. To help you better understand the forms available, here’s a quick guide:
- ITR-1: Sahaj or ITR- 1 is to be filed individuals being a resident (other than not ordinarily resident) having total income upto Rs.50 lakh, having Income from Salaries, one house property, other sources (Interest etc.), and agricultural income upto Rs.5 thousand.
- ITR-2: This form should be filed by Individuals and HUFs not having income from profits and gains of business or profession.
- ITR-3:This form is for individuals and HUFs having income from profits and gains of business or profession
- ITR-4: (Sugam): If your business attracts presumptive income for you, then you need to fill this form. This form is to be filed by Individuals, HUFs and Firms (other than LLP) being a resident having total income upto Rs.50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA or 44AE.
7. How to check ITR status online?
Once you have filed your income tax returns and verified it, the status of your tax return is ‘Verified’. After the processing is complete, the status becomes ‘ITR Processed’.
If you wish to know which stage your tax return is after filing it and want to check your ITR status online, here’s how you can do it in easy steps.
Without login credentials
You can click on the ITR status tab on the extreme left of the e-filing website.
You are then directed to a new page where you have to fill in your PAN number, ITR acknowledgement number and the captcha code.
Once this is done, the status of your filing will be displayed on the screen.
With login credentials
Login to the e-filing website.
Click on the option ‘View Returns/Forms’
From the drop down menu, select income tax returns and assessment year
Once this is done, the status of your filing (whether only verified or processed) will be displayed on the screen.
Keeping the Income Tax Department informed about your income and taxability will keep you on the right side of the law and prevent any blocks in your financial competency. Now that you know whether or not you compulsorily have to file your ITR, you need to ensure that you complete the process before the deadline every year.
8. Why should I file my Income tax return?
A lot of individuals seem to think that filing tax returns is voluntary and therefore dismiss it as unnecessary and burdensome. As we will see, this is not a very healthy perspective on tax-filing.
Filing tax returns is an annual activity seen as a moral and social duty of every responsible citizen of the country. It is the basis for the government to determine the amount and means of expenditure of the citizens and provides a platform for the assessee to claim refund, among other forms of relief from time to time.
1. Filing returns is a sign you are responsible
The government mandates that individuals who earn a specified amount of annual income must file a tax return within a pre-determined due date. The tax as calculated must be paid by the individual. Failure to pay tax will invite penalties from the Income Tax Department.
Those who earn less than the prescribed level of income can file returns voluntarily. Filing returns is a sign that you are responsible. Not just that, it also makes it easier for individuals and businesses to enter into subsequent transactions since their income is recorded by the tax department with applicable tax, if any, having been paid.
2. Filing returns is mandatory in some cases
Even if your income level does not qualify for mandatory filing of returns, it may still be a good idea to voluntarily file returns. In most states, registration of immovable properties requires advancing as proof the tax returns of last three years. Filing returns makes it easier to register the transaction.
3. Your loan or card company may want to see your return
If you plan to apply for a home loan in future it is a good idea to maintain a steady record of filing returns as the home loan company will most likely insist on it. In fact, you may even consider filing your spouse’s returns if you want to apply for a loan as a co-borrower. Likewise, even credit card companies may insist on proof of return before issuing a card.
Financial institutions may insist on seeing your returns over the past few years before transacting with you. In fact, the government may make it mandatory for them to do so, thereby indirectly nudging individuals to file returns regularly even when it’s voluntary.
4. If you want to claim adjustment against past losses, a return is necessary
Filing returns on time has many advantages regardless of whether you draw the prescribed level of income necessary to file returns.
Various losses incurred by an individual or a business, both speculative as well as non-speculative, short term as well as long term capital losses and various other types of losses not recorded in the tax return in a financial year, cannot be shown for exemption in subsequent years for the purpose of tax calculation. So it’s best to file returns regularly, because you never know when you may want to claim an adjustment against past losses.
5. Filing returns may prove useful in case of revised returns
In case the assessee hasn’t filed the original return, he cannot subsequently file a revised return, even when he really needs to. Under the Income Tax Act, non-filing of returns can attract a penalty of Rs 5,000. So while filing returns is a voluntary activity, there are times when it could hold legal implications for those who do not do so, especially if they must file a revised return in future.
9. What are the Advantages of filing Income tax return online?
1. Prompt processing:
The acknowledgment of Income Tax Return (ITR) is quick. More importantly, refunds, if any, are processed faster than paper-filed returns.
2. Better accuracy:
E-filing software with built-in validations and electronic connectivity is seamless and minimizes errors considerably. Paper-filings can be prone to errors. Also, when any paper-based form is migrated to the electronic system, there is a possibility of human error in data entry.
No time and place constraint in filing returns online. E-filing facility is available 24/7 and you can file anytime, anywhere at your convenience.
Better security than paper filings since your data is not accessible to anyone either by design or by chance. With paper filings details of your income can fall in the wrong hands at your chartered accountant’s office or in the Income Tax Department’s office.
5. Accessibility to past data:
You can easily access past data while filing returns. Most e-filing applications store data in a secure manner and allow for easy access at the time of filing subsequent returns.
6. Proof of receipt:
You get prompt confirmation of filing, both at time of filing and subsequently, via email on your registered email id
7. Ease of use:
E-filing is friendly and the detailed instructions make it easy even for individuals not very conversant with the internet