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Income Tax Returns In India: A Complete Guide

Income Tax Returns Guide

Filing Income Tax Returns (ITR) is like doing the laundry. It may be unpleasant but it is compulsory. In fact, filing your ITR is the most important financial task to be fulfilled every year.

All Individuals, organisation, firm, or association in India are required to file their Income Tax Returns (ITR). Income tax is applied to the taxable income of all individuals and paid on all sorts of income such as your job wages, profits from businesses and even returns you derive from investments such as interests, dividend, property etc. The taxes you pay this year are for what you earned last year. The higher income you earn, the more tax you pay.

If you are seeking information about Income Tax Returns; you may not be alone. Many individuals, especially, first-timers, are unable to decode it. So, here’s a quick guide to help make your taxes, less taxing.

What is Income Tax?

Income Tax is a direct tax levied by the Government on the money earned over the said financial year. It is a statement filed as per the provisions of the Income Tax Act, reporting one’s income, profits, losses and other deductions as well as details about tax refund or tax liability. The tax liability is calculated based on the income, tax slab the person falls under and other factors such as savings, investments, rebates etc. The amount of tax you need to pay depends on two main factors:

The income you earn – How much income you earned during the previous year i.e. previous year from 31 March to 30 April.
Tax reliefs – Any deductions and reliefs you are eligible for.

What are the sources of Income on which tax is leviable?

Income from salary
Profits and gains from business and profession
Income from house property
Income from capital gains through sale of assets
Income from bonus and allowance
Income from bank interest on deposits
Income from other sources such as dividend, royalty and lottery etc.

What are the deductions that can reduce your taxable income?

Deductions can be expenses, donations and reliefs you’ve incurred throughout the year that you can claim to reduce your taxes. Your final tax bill will be reduced based on the deductions and reliefs you qualify for.

Common deductions and reliefs include:

Rental Property expenses
Employment and business expenses not reimbursed to you by your company
Medical expenses
Charitable donations

Who must file Income Tax Returns?

All citizens of India including an NRI who earn more than Rs.2,50,000 annually are required to pay Income Tax. Total Income includes income from salary, house property, business income, capital gains or any other taxable income.

Individuals below 59 with an annual income of Rs.2.5 Lakh
Individuals between 60 years to 80 years with an annual income of Rs.3.0 Lakh
Individuals above 80 years with an annual income of Rs 5.0 Lakh
individual having income from foreign countries or assets in foreign countries or having signing authority in any account outside India
NRIs earning income in India
Registered organisations, companies and firms
Foreign Companies having investments in India

Is it mandatory to file Income Tax Returns?

If you work and your annual income is above Rs. 250,000/- you are required to file for Income Tax and declare your income from all sources. Failure to do so will get you caught in an unintentional tax trap that exceeds your tax-free threshold.

What does Assessment Year mean?

The assessment year is the year followed by the financial year. For FY 2021-22, the assessment year is 2022-23.

When do I file Income Tax Returns?

The financial year in India runs from 1st April to 31st March of the next year. The ITR process in India begins with an Income Tax declaration and ends with Income Tax Return filing. Filing is different from paying. Filing means informing the Government how much you earned in the last year and what tax reliefs you’re eligible for. You need to pay when the tax bill arrives. Most residents in India start receiving emails to file Income Tax from early June. These emails serve as reminders of compiling all your necessary documents to file for your taxes.

The last date for filing the ITR for taxpayers has been extended to March 31 2022.

Types of Income Tax Returns:

ITR-1 or SAHAJ

Annual Income – Up to INR 50 Lakh
Applicable to – ROR (Resident and Ordinarily Resident) Individuals. Not applicable to a person who is a director of a company or has invested in unlisted shares.
Income from – Salary/pension, one house property, agricultural income up to Rs.5000, other sources (bank savings, interest etc and does not include winning from lottery or income from race horses).

ITR-2

Annual Income – Total Income more than INR 50 Lakh
Applicable to – All Individuals
Income from – Capital gains, more than one house property, foreign income/assets etc.

ITR-3

Annual Income – No prescribed income threshold
Applicable to – All individuals
Income from – business or profession.

ITR-4

Annual Income – Total Income up to INR 50 Lakh
Applicable to – For NOR and ROR individuals
Income from – business or profession.

Documents required to file your Income Tax Returns:

Aadhaar Card
PAN Card
Salary Slips
Form 16 – It is a certificate under section 203 of the Income-Tax Act, 1961 issued by the Employer to the Employee as an acknowledgement that tax has been deducted from the employee’ salary and deposited with the income tax department. Form 16 is the most essential document for filing Income Tax Returns. If your annual earning is more than the basic exemption limit (Rs 2.5 Lakh), your employer is required to deduct TDS from your Salary and deposit it with the Government. It is also known as TDS (Tax Deducted at Source) Certificate or Salary/Income Certificate.
Form 16A from banks and post office – Includes interest received from different sources such as saving account, fixed deposits etc.
Form 26AS – Also known as Annual Consolidated Statement or ACS, it is a consolidated annual tax statement that contains all tax-related information of the taxpayer including TDS (tax deduction at source), advance tax, etc.
Investment Proofs – Receipts of tax-saving investments like life insurance premiums, investment in Public Provident Fund (PPF), 5-year FD receipts, mutual funds investment (ELSS) etc.
Interest Income Proof – This document gives details regarding the amount of interest earned in a financial year on fixed deposits (FDs), saving accounts etc.

Advantages of filing Income Tax Returns:

Income Proof – Income Tax Returns serve as an income proof. While salaried persons get Form 16 from their Employers as proof of their income, self employed persons like businessmen, consultants, freelancers and partners do not get Form 16. Therefore, ITR receipts become an even more important document for self-employed for all sorts of financial transactions.
Easier Loan Processing – Lenders consider your Income Tax Returns as the most authentic document. It a sound document to establish your creditworthiness, when you are applying for a credit card or house, car, education or personal loan. At the time of loan application, banks and other financial institutions need to ascertain your financial condition and check your eligibility and quantum of loan which mainly depends upon your annual income.
Visa Processing – If you are planning an international trip, most Embassies and Consulates require applicants to submit the ITR of last three (3) years for their visa application. It is a mandatory document especially for US visa, UK visa, Schengen visa, Canada visa, Australia visa and New Zealand visa among others. Your Income Tax Returns gives a clear picture about your current financial status and income level. It ensures that you take care of all the expenses on your trip. Submitting ITR proves that the applicant has a well established stable life in their home country, strengthening their visa case.
Interest on Refund – You are eligible to claim a refund in case the tax paid is higher than the amount of tax liability
Claim Refunds Faster – If TDS has been cut or If you have a refund due from the Income Tax Department, you will have to file the ITR to claim refund of the same. If you file your return early, your refund will be processed earlier than those who wait until the end.
Address Proof – Proof of residence is a document that confirms where you live. Income Tax Returns serves as an address proof.
Recover past Losses – When your Income Tax Returns is filed on time, you are eligible to claim losses incurred against income earned during the relevant year with future capital gains and can carry forward unadjusted losses to the subsequent year. If you fail to file your returns on time, unadjusted losses (with some exceptions) cannot be carried forward to future year.
Claiming Relief under Sections 90, 90A and 91 – If you have moved out of India to another country for employment or still have some financial interest in India, there may be a possibility that you would not only be taxed in the new country that you have moved to but might also be taxed in India. The double taxation relief or DTAA available under Sections 90, 90A and 91 of the Income Tax Act is an agreement between countries to ensure that taxpayers do not end up paying taxes twice on the same. You can only claim such relief when you file your returns.
Buying a High Premium Policy – If you plan to buy a term policy with sum insured of Rs.50 lakh or more, you are required to file Income Tax Returns. Insurance companies ask for ITR receipts in order to determine whether the insured will be able to pay their premiums at the pre-determined frequency.

How to file Income Tax Returns (ITR)?

There are 2 ways of filing – e-filing and via a paper return. Most people generally choose the e-filing route for convenience. Individuals using offline mode need to use the Offline Utility for ITRs. If you file your tax online, you will get your refund within two weeks. And it might take approximately six weeks to receive your refund by mail.

**How to file Income Tax Returns Online?**

The easiest and the most secure way to file your taxes is online through the website.

Gather the documents such as TDS certificate/Form 16, salary slips, interest certificates etc for reference while filing returns online.
Visit the Income Tax e-Filing Website.
Register/Log in to Income Tax Portal. If you are a new user, click on ‘Register yourself – select user type, fill the required details & validate the registration. If you are a existing user, click on ‘Login here’ and login with your user ID (PAN number), password and captcha.
After registering/login, click on ‘My account’ and choose the applicable Assessment year and ITR Form as per your eligibility.
Select the submission mode as ‘Prepare and Submit Online’ to proceed.
If you have filed Income tax return before. it will advise you to select details that you want to prefill. Choose the necessary information and click on continue.
Fill out the required details in Form 16 under tabs like – General Information, Income Details, Tax Details, Tax paid and verification.
Re-check the entered details before submitting.
Click on preview and submit.
After final submission, your ITR will be uploaded. Verify the ITR either electronically through Aadhaar OTP or Electronic Verification Code (EVC) or offline by sending across a signed printout of the ITR V to CPC, Bengaluru within 120 days from the e-filing date.
After successful upload of the ITR, an acknowledgement of ITR V will be sent to the registered email ID.
The IT department will process the returns and update you via email or SMS.

How to check ITR status online?

There are two ways to check Income Tax Return status online:

Using Login Credentials.
Using Acknowledgement number without login credentials.

Using Login Credentials:

Visit the Income Tax e-Filing website.
Log in to your account by entering PAN as user ID, and your password
Click on the ‘e-file’ tab. Under the ‘e-file’ tab, select ‘Income tax returns’ and then select ‘View Filed returns’.
Select the assessment year for which you want to see the status of ITR.
If the Income Tax Return for the respective year is processed, then the status will be shown as ‘ITR Processed’. On the other hand, if the Income Tax Return is not processed, then the status will be shown as ‘Successfully e-verified’ till the time tax department processes your ITR.

Using Acknowledgement number without login credentials:

Visit the Income Tax e-Filing website.
Under quick links, click on income Tax Return Status.
Enter the e-filing acknowledgement number of your ITR-V for the concerned assessment year, and registered mobile number. Click on continue.
Enter OTP sent to your registered mobile number.
You will get to know the status of your return for the concerned Assessment Year.
In case you see the message “ITR-V received”, no need to do any further processing.
If you see the message, “ITR-V not received” on your screen, it means you have failed to send your ITR. In such a case, you will have to e-verify your return using EVC or physically send your ITR-V to CPC, Bangalore.
If you have not filed your ITR, you will get the message, “ No E-Return has been filed for this Pan and Assessment Year or e-filing Acknowledgement number ”.

Late Payment of Tax:

Failure to file Income Tax Returns on time or not filing it at all has severe legal implications. Filing your ITR after the due date can make you liable to pay a maximum penalty up to Rs 10,000/-. Complete refusal to pay taxes may also result in legal action being taken. Therefore, it is important to file ITR before the expiry of the deadline to avoid unnecessary fines and missing out other benefits such as carry forward of losses etc.

Should I file my own Income Tax or use a Tax Agent?

Individuals can file their own returns in India themselves or can take help from a registered tax agent for additional expertise. Seeking expert assistance is always an added advantage.

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