Income tax is an important source of revenue for the government, used to fund public services, infrastructure, and social welfare programs. For taxpayers, understanding how income tax works and what their responsibilities are, can be a bit complicated. An important aspect of this is the Income Tax Return (ITR). Filing an ITR is a compulsory process for certain individuals and organisations in India.**
Here is a complete guide to what is income tax return, its importance, various forms, and the process of income tax return filing.**
What is an Income Tax Return (ITR)?**
The full form of ITR is Income Tax Return. An ITR is a form through which taxpayers declare their income, expenses, and taxes paid during a financial year to the Income Tax Department. The primary purpose of income tax return filing is to ensure transparency in financial transactions and compliance with tax laws. Filing an ITR allows taxpayers to calculate the tax liability, claim refunds (if applicable), and report any exempt income.
Difference Between ITR and Tax Payment
It’s important to differentiate between paying income tax and filing an ITR. Tax payment refers to paying the tax owed to the government based on the taxpayer’s income, while income tax return filing involves submitting a detailed report of income, deductions, and taxes paid. Filing an ITR is mandatory, even if no additional tax is payable, and non-compliance can result in penalties.
Why is ITR Important?**
Filing an ITR is crucial for both individuals and businesses for the following reasons:
- It serves as proof of income, which is necessary for availing loans, applying for visas, or purchasing a life insurance policy.
- It ensures compliance with the law and helps avoid penalties.
- It enables taxpayers to claim refunds for any excess tax paid.
- Regular ITR filing contributes to building a financial history, which is valuable for credit applications.
Who Needs to File an ITR?**
In India, the following individuals and entities are required to file an ITR:
- Individuals whose annual income exceeds ₹2,50,000 under old regime and ₹7,00,000 under new regime (basic exemption limit).
- Senior citizens (above 60 years) with income exceeding ₹3,00,000 under old regime and ₹7,00,000 under new regime.
- Super senior citizens (above 80 years) with income exceeding ₹5,00,000 under old regime and ₹7,00,000 under new regime..
- Businesses and professionals with taxable income.
- Companies, partnerships, and trusts, regardless of income.
- Individuals wanting to claim tax refunds.
- Anyone with foreign income or assets.
- NRIs with income earned in India.
Comparison of ITR Forms**
Below is a comparison of the various IT Return forms applicable in India:
ITR Form
| Applicability
| Eligible Taxpayers
|
ITR-1
| Salaried individuals
| Individuals with income up to ₹50 lakh
|
ITR-2
| Income from capital gains or multiple sources
| Individuals and HUFs
|
ITR-3
| Income from business or profession
| Individuals and HUFs
|
ITR-4
| Presumptive income scheme
| Small businesses and professionals
|
ITR-5
| Partnerships and LLPs
| Partnerships, LLPs, and associations
|
ITR-6
| Companies
| Companies not claiming tax exemptions under section 11.
|
ITR-7
| Trusts and non-profits
| Charitable and religious organisations
|
Types of ITR Forms in India**
The following is a list of the various IT Return forms available in India:
ITR-1 (Sahaj) for Salaried Individuals
ITR-1 is for individuals earning income from salary, one house property, and other sources (such as interest). It is applicable to those with a total income of up to ₹50 lakh.
ITR-2 for Individuals and HUFs Not Having Income from a Business or Profession
ITR-2 is for individuals and HUFs with income from capital gains, multiple house properties, or foreign income. It is not for those with business or professional income.
ITR-3 for Individuals and HUFs Having Income from Business or Profession
This form is used by individuals and HUFs earning income from a business or profession, including freelancers and professionals.
ITR-4 (Sugam) for Presumptive Income Scheme
ITR-4 is for small taxpayers under the presumptive taxation scheme, such as businesses with a turnover of up to ₹2 crore or professionals with receipts up to ₹50 lakh.
ITR-5 for Partnerships and LLPs
ITR-5 is for partnerships, LLPs, associations, and bodies of individuals.
This form is applicable to companies not claiming exemptions under Section 11.
ITR-7 for Trusts and Non-Profits
ITR-7 is for entities such as charitable trusts, political parties, and religious institutions.
Key Components of an Income Tax Return**
The main components of an ITR include:
- Personal information (name, PAN, address).
- Income details from all sources (salary, business, property, capital gains).
- Tax deductions and exemptions claimed under various sections.
- Taxes paid (TDS, advance tax, self-assessment tax).
- Bank account details for refunds, if any.
Step-by-Step Guide to Filing ITR in India**
The following steps can be followed at the time of filing the ITR in India:
Step 1. Gather Documents: Collect your Form 16, bank statements, and investment proofs.
Step 2. Use the Income Tax Calculator: Calculate your taxable income and tax liability using an online income tax calculator to ensure a margin with lesser error.
Step 3. Log in: Access the official government Income Tax portal.
Step 4. Select the Appropriate ITR Form: Choose the form applicable to your income type.
Step 5. Add Details: Enter the income, deductions, and taxes paid.
Step 6. Validate and Submit: Verify all the entered data and submit the form.
Step 7. E-Verify the Return: Complete the process using Aadhaar OTP, net banking, or other methods.
Important Deadlines and Penalties for ITR Filing**
It is vital to finish all tax-related activities and processes well before the deadline. The ITR filing deadline for individuals is July 31st. Late filing of ITR can lead to a penalty of up to ₹5,000. Failure to file in time can result in interest under Section 234A and legal consequences.
Documents Required for Filing ITR**
The essential documents include:
- PAN card.
- Form 16 (for salaried individuals).
- Bank statements.
- Investment proofs (life insurance policy, ELSS, and other similar products).
- Form 26AS for TDS details.
Deductions Under ITR Filing**
Taxpayers can claim deductions under various sections under old regime:
- Section 80C: Investments in PPF, EPF, life insurance policy, and other such options.
- Section 80D: Health insurance premiums.
- Section 80G: Donations to charitable organisations.
Benefits of Filing an Income Tax Return on Time**
Filing an ITR on time offers the following benefits:
- Faster tax refunds.
- Avoiding penalties and interest.
- Eligibility for loans, credit cards, and visas.
- Building a strong financial history.
How to Track Your ITR Status?**
To track your ITR status:
1. Log in to the Income Tax e-filing portal.
2. Click on “View Returns/Forms.”
3. Enter your PAN and assessment year. Check the status.
By following this guide, taxpayers can understand what income tax return is and simplify the process of income tax return filing in India. Regular compliance ensures a smooth financial journey and helps in avoiding unnecessary penalties.**
FAQs**
What happens if I miss the ITR deadline?
Missing the deadline can attract penalties, interest, and legal consequences.
Can I revise my ITR after filing?
Yes, you can revise your ITR before the assessment year ends.
What is Form 26AS? How is it linked to ITR?
Form 26AS is a consolidated tax statement displaying the TDS, advance tax, and refunds. It is needed for ITR filing.
Is it mandatory to e-verify my ITR?
Yes, e-verifying is necessary in order to complete the process of filing the ITR.
How can I file my ITR by myself?
You can file it online on the Income Tax portal. Once you understand how to file your income tax return online, select the correct form, enter the details, and verify the return.
When should an ITR be filed?
An ITR must be filed by the 31st of July of the assessment year.
What happens if I don't file an ITR?
Non-filing of ITR can result in penalties, interest, and scrutiny from the Income Tax Department.
** Tax exemptions are as per applicable tax laws from time to time.