The term “income tax” refers to a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations.
Income taxes are a source of revenue for governments. They are used to fund public services, pay government obligations, and provide goods for citizens. In addition to the federal government, many states and local jurisdictions also require that income tax be paid
“The hardest thing to understand in the world is Income Tax” - Albert Einstein -
ITR-what is it?
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 an 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.
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.
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:
Ø 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.
Ø All registered companies that generate income, regardless of whether they've made any profit or not through the year.
Ø Those who wish to claim a refund on the excess tax deducted/income tax they've paid.
Ø Individuals who have assets or financial interest entities that are located outside India.
Ø Foreign companies that enjoy treaty benefits on transactions made in India.
Ø NRIs who earn or accrue more than Rs. 2.5 lakh in India in a single financial year.
v 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
£ a) TDS deducted by your employer
£ b) TDS deducted by banks
£ c) TDS deducted by any other organizations from payments made to you
£ d) Advance taxes deposited by you
£ e) 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
v What is Form 26AS?
Form 26As is a vital document showing the portion of tax deducted at source on payments/investments made by individuals, employees and freelancers. This enables the taxpayers to claim refunds for any additional tax or overdue tax payments made.
The new Form26AS, which is applicable from AY2022-23, has been refurbished to make it easier to file income tax returns online as well as encourage compliance with any tax regulations.
£ An important feature of the new Form26 AS is its statements of financial transactions. As the name implies, these are statements where the taxpayers recall all major financial transactions, they have made which would be to their benefit while filing their returns.
£ The new format of 26AS will also show your Aadhar card details, date of birth, email and house addresses, your date of birth and also your mobile number.
£ It will indicate whether there are any tax proceedings which are pending or completed with the tax authorities.
v How to link Aadhar to Income Tax returns?
It is compulsory for every individual taxpayer to quote their Aadhar number while filing tax returns. He/she is also required to link their PAN (permanent account number) card to tier Aadhar number. One cannot file a tax return either digitally or manually unless the Aadhar number is quoted. Senior citizens can file their tax returns manually but those below 80 years of age have to file it electronically.
To link your Aadhar number to your income tax return-
£ Type or write down the number in the additional spaces provided in the new ITR forms provided in the Income Tax website.
£ If you have applied for an Aadhar number but have not received it, you can use the 28-digit enrolment ID in place.
£ The Aadhar number gets automatically populated in the ITR forms if it has been electronically added before.
v 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:
1. 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.
2. 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.
3. 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.
v 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:
1. ITR-1: Sahaj or ITR- 1 is to be filed individuals being a resident (other than not ordinarily resident) having total income up to Rs.50 lakh, having Income from Salaries, one house property, other sources (Interest etc.), and agricultural income up to Rs.5 thousand.
2. ITR-2: This form should be filed by Individuals and HUFs not having income from profits and gains of business or profession.
3. ITR-3: This form is for individuals and HUFs having income from profits and gains of business or profession
4. 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 up to Rs.50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA or 44AE.
5. ITR-5: LLP, AOP, and BOI are both acronyms for alliance companies. LLPs, partnership companies, AOPs, and BOIs will file ITR-5s to disclose profits from their businesses and professions, as well as some other sources of income.
6. ITR-6: Is a tax return used by businesses to report revenue from industry or occupation, as well as all other forms of income.
ITR-7:Is the federal tax return for businesses, partnerships, and trusts that continue to be excluded from paying income tax.