Income Tax Return or ‘ITR’ is a form in which a person is required to file information about his/her income and taxes, which is then submitted to the Income Tax Department of the country. This form is a necessary document that carries information regarding transactions of the given financial year.
The Income Tax Act of 1961 and the Income Tax Rule 1962 oblige a person falling under the threshold of compulsory filing, to submit ITR to the Income Tax Department at the end of every financial year. This means if a person files his return for the year 2020, the information contained in the form shall be from April 1st to March 31st of the given financial year. Proper documents must be attached to the return in order for it to be considered valid in the eyes of the Income Tax Department.
ELIGIBILITY/THRESHOLD FOR FILING ITR –
The persons falling under any of the mentioned criterion need to file their tax returns with the income tax department on the date specified by the Ministry of Finance or the Department itself –
- People whose gross total income before any deductions exceeds Rs. 2.5 lakhs in a financial year. The threshold for senior citizens under this category is Rs. 3 lakhs while for super senior citizens is at Rs. 5 lakhs.
- Companies or organizations, irrespective of whether they have made a profit or incurred a loss during that period.
- Those persons who want to claim an income tax refund.
- Resident individuals who have a financial interest or asset located outside India. This does not include NRIs.
- Foreign companies taking treaty benefit on a transaction in India
- NRIs, whose income exceeds Rs. 2.5 lakhs in a financial year, which is accrued in India, need to file the return in India
These returns need to be filed before the specified due dates. These dates can only be altered through a national declaration by the finance department of the country. There are various forms catering to the different requirements of fulfillment from the Assessee, who is the person filing the return. These forms are namely – ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7.
Each person belongs to a different category in the taxable section. Hence, it becomes necessary to identify the right form for filing returns as these forms cater to separate criteria for the source of income and the category of the Assessee. Filing the wrong form may lead to no consideration for the claims or refunds as the form stands invalid in the Tax Department.
ITR FORMS –
The following forms are most commonly used for filing returns by citizens:
- ITR 1 – Also known as SAHAJ, it is an essential income tax form for Indian citizens for the filing of Returns to the department. The word ‘sahaj’ translates in Hindi to being easy. The persons who have earned their income in a financial year through salary or pension, through one house property, or through other sources like FD interest, spousal pension etc. are required to file income tax return through form ITR 1. The other sources of income do not include income through lottery, legal gambling or racecourse betting.
- ITR 2 – It is an important form for Indian residents as well as non-residents of India for filing their tax returns. The due date specified for the filing of the taxes is 31st July. Any changes in the specified date will be issued by the Income tax department or the Ministry of Finance. The financial year ends on 31st March, which gives the persons filing returns four months to file their returns in order.
- The form is available for individuals as well as Hindu Undivided families to file their returns. Person who earns their income from salary or pension, income through house property, short term and long-term capital gains or other sources like legal gambling, racecourses and lottery are eligible to file their return through this form.
- ITR 3 – This form specifically applies to individuals and Hindu undivided families who are registered partners in a firm. As per rule 12 of the Income Tax Rules 1962, this form does not apply to persons who are Proprietors in a firm. Thus, it is clear that this form is only available for those who are partners in a firm, gain income through profits of the business or gain income through salary, remuneration, bonus, commission as a partner.
- ITR 4 – This form is available to those individuals and Hindu Undivided families who gain their income from business or profession computed under the sections 44AD, 44ADA or 44AE of the Income Tax Act.
Along with selecting the most appropriate forms, there are other aspects that persons filing returns should keep in mind while submitting ITR. This is to ensure that all documents required are filed without any discrepancy in order to smoothen the process. Some of the other basics are –
- Declaration of Income – While filing the returns, it is imperative to declare all sources of income in the form. Therefore, one should be careful that these income disclosures are made under the right subheads. For example, there are 5 heads of income – Salary, House property, Business and profession, Capital gains and Other sources. It is important to allocate the incomes correctly under these heads based on their nature and source.
- Tax Deductions – Another important consideration is claiming tax benefits like tax deductions. Tax liability reduces when these deductions are element in nature, which gives taxpayers the benefit of planning taxes and expenditure.
- Payment of Tax – In order to make ITR effective, it is prerequisite to pay the full amount of tax before submitting the form to the Income Tax Department. The department only issues the acknowledgement of such forms which are complete in every sense. Non payment makes ITR defective and liable for rejection on any claim.
- Full Disclosure of Relevant Documents – Apart from segregating your income under the specified heads, it is imperative that one mentions the details necessary for the full disclosure of their worth. The technicalities should be verified by experts who offer CA services for Tax or CA services for Businesses.
- Claiming TDS – The TDS is a tax paid in advance thus it can be utilized for the liability or claim refund. Thus, it is important to ensure correctness in amount and verification. The certificate for TDS must be acquired from the diductor.
UNDERLYING BENEFITS OF FILING ITR
ITR seems like a meek responsibility to some. However, the benefits of ITR highlights its importance in a country’s financial system. It underlines the core values of the tax department and how it furnishes these returns for the betterment of citizens. Apart from helping the ministry maintain a transparent record of deployment and investment of funds and resources, ITR helps the citizens in the following ways –
1. Loan approvals become easy – The returns are a statement of financial proof of a person’s earning in a given financial year. This is why it becomes an important part of verification when a person applies for the loan. It helps in ascertaining the assets and mortgage ability of the prospect and ensures the validity of earnings. Thus, banks and Financial corporations look for this document before sanctioning loans, whether a home loan or car loan etc. They may require the ITRs of three consecutive years to study stability. The low taxable income, however, is not a concern in this regard.
2. Ownership of Foreign Assets – The law mandates that a person filing income tax returns should disclose correcting facts for the ownership of any foreign asset. This also includes the ownership of immovable property like a bank account. However, failure to follow the norms in the law may attract serious penalty and is considered a concrete economic offence.
3. Ease in Visa procedure – While travelling to foreign countries, especially developed countries United States, Canada or United Kingdom, it is mandatory to provide ITR receipts of previous years in order to show the true transactions and stability of income. Tax compliance is looked upon as necessary in such countries as they get the idea of a person’s expenditure limit during the trip and whether it shall be feasible. Therefore, it is important to file ITRs to access ease of visa processing.
4. Useful receipt – The income tax return receipt acts as an important document which needs to be kept with care to facilitate further verification as and when required. This means that ITR acts not only as a proof for income but also as an address proof for any document verification in future. Thus, by filing ITR, one can legally claim such validations.
5. Compensating Losses for future – If a person’s annual salary does not fall under the threshold for compulsory filing of returns, there is no requirement for filing the form. However, the ITR form helps in adjusting capital losses against capital gains. Upon doing so, the losses are also carried forward given that a person continues to file the returns for that period. However, it is mandated by the law that losses will be compensated only for those who file the ITR. Thus, filing ITR is beneficial for securing losses.
6. Easy to claim Tax Refunds – If deductions of certain kinds of taxes takes place, a person filing the income tax return can claim for the refund of tax. This can be availed for the financial year for which the ITR has been filed. For example, if the TDs gets deducted on the fixed deposits of bank accounts, it is necessary to file income tax returns in order to avail such tax refund. One can verify the processes by CA services for Tax or CA Services for Business.
7. Avoiding Penalty – Under the Income Tax changes effective from 2017-18, any person who falls under the threshold of filing returns based on salary or any other factor that makes him/her eligible for filing return, if refrains from doing so purposefully or indefinitely, will be levied with a penalty of rupees 10,000 under section 234F. The penalty for those earning not more than 5 lakhs is at rupees 1,000, however, that is not an excuse to avoid filing timely returns. One should be a law-abiding citizen.
8. No Interest on Tax liability – The tax not paid on the due date or before the specified date will amount to extra interest on a monthly basis for the remaining tax payable. Thus, not filing an ITR will not only lead to a penalty but will also amount to extra interest on an unpaid amount. In order to avoid any such extra expense, it is imperative to file tax returns on time.
9. Government Tender – If a person needs to start a business with a requirement for filling a government tender, tax returns receipt is important in order to show the financial stability of the person over a period of years. These are important documents to insure the person can oblige to payment requirements. High life cover policy can also be bought only after filing an ITR with a sum assured of Rs. 50 lakhs or more.
10. Freelancer – In order to avoid the funding problems and resources, the self-employed persons need to file the income tax returns in order to facilitate their financial standing in the community. This is important because Form 16 is not available for such professionals. Thus, by filing ITR, it helps in making their validation and claim stable.
Therefore, by understanding the benefits that one can claim from the filing of such returns, we can estimate that there is more ease in other related aspects of expenditure after easy online filing of such forms. The government also issues penalties in order to ensure discipline in the country’s fiscal system and transparency in resource transactions. Income Tax laws are rigid for every citizen and must be abided by in order to avail the luxury of being a tax-paying citizen.
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