What Is an Income Tax Return? Is It Mandatory to File an ITR in India?
Direct tax collections in India are setting new records. Year-over-Year (Y-o-Y), tax collections have gone up 19.41% to Rs. 14.70 lakh as of January 10, 2024. The amount has gone over the 80% tax collection goal that was set for the whole budget for FY 2023–24.
A country's growth depends a lot on its income tax. It's how the government makes most of its money. The money is used to pay people's wages, for defense, for government projects, for welfare programs, for salaries, and so on. To ensure that every taxable business pays its dues to the government, taxpayers need to file Income Tax Returns (ITR) along with the tax amount.
Find out more about what an income tax return is by reading this blog.
What is Income Tax Return (ITR)?
In income tax returns (ITRs), you file a statement of income with the government. As part of this form, you provide information about your income and investments, along with the tax that must be paid to the government. For detailed explanation, we can say that you fill out an Income Tax Return (ITR) to show how much of your gross income is taxed for the year. People use the form to officially report their income, deductions, allowances, and taxes paid. So, it figures out how much net income tax you owe for a given fiscal year.
The Income Tax Act of 1961 says that children and young adults under 60 must file tax returns if any part of their income is taxable. You also need to file an ITR if your taxable income is more than 5 lakh rupees in a financial year or if you paid your tax ahead of time. When you file your taxes, you also have to pay the taxes that are due based on your income tax slab.
Different Types of Forms of ITR
When you file your ITR, you can use one of nine different types of forms. The Central Board of Direct Taxes in India says that when you file your income tax, you must use the right form. This is a short summary of the forms:
- ITR 1 or Sahaj
Resident taxpayers who earn up to Rs. 50 lakh a year from pensions, salaries, agricultural income upto Rs. 5,000/- or income from other sources namely interest income, and one house property can use ITR 1 to file their taxes. However, all salaried persons cannot use this form as there are certain exceptions of using this form.
- ITR 2
Resident individuals and Hindu Undivided Families (HUF) who are not eligible to file Form ITR 1 or Form Sahaj may utilize this alternative form. ITR-2 cannot be utilized, however, if one's income is derived from a profession or business. Also, if you have clubbed income of any other person, ITR-2 cannot be used for filing ITR.
- ITR 3
This form is made for HUFs or individuals who get income from a proprietary profession or business. To summarize, ITR 3 forms can be filed by Hindu Undivided Families or individuals who do not qualify for ITR 1, ITR 2, and ITR 4. Individuals who receive interest, bonuses, salaries, or commissions as business income from a partnership firm are also required to file ITR 3.
- ITR 4 or Sugam
ITR 4, also known as Sugam, is applicable to all individuals/ HUF/ Firm (other than LLP) whether carrying on a business or profession. If your total income consists of presumptive business or professional income under sections 44AD, 44ADA, or 44AE, income from a single house property, salary income, and income from other sources, you may file Form ITR-4. Also If your annual income exceeds Rs. 50 lakh, you are not eligible to submit this form.
- ITR 5
Bodies of Individuals, cooperative societies, firms, artificial juridical persons, associations of persons, and local governments are all permitted to utilize this form for the purpose of filing their income taxes.
- ITR 6
ITR-6 form is used by corporate entities for filing of their income declarations with the tax authorities. This form is suitable for companies that are not seeking tax exemption under Section 11 (income from property held for charitable or religious purposes)
- ITR 7
To claim tax exemption, this form can only be used by political parties, religious or charitable organizations, colleges and universities, etc.
Is Income Tax Return Filing Mandatory?
It is mandatory to file income tax returns in India in accordance with the tax law, provided that one's income exceeds the minimum exemption limit. In certain cases, filing return is mandatory even if the annual income does not breach the minimum exemption limit. The rate of income tax imposed on taxpayers is predetermined. Failure to file tax returns in a timely manner will result in incurring late filing fees and may also affect your eligibility for travel-related loans or visas.
Who Should file Income Tax Return?
The Income Tax Act states that payment of income tax is mandatory only for individuals or entities falling within specific income brackets. In India, the following entities and organizations are bound to submit their ITRs:
- All individuals, surpassing Rs 2.5 lakh in annual income, until they reach the age of 59. For senior citizens (aged 60-79) the limit has been raised to Rs. 3 lakh and for super senior citizens (aged 80 and above) it has been increased to Rs. 5 lakh. It is crucial to highlight that the income amount must be computed before deducting the exemptions permitted under Sections 80C to 80U and other provisions outlined in Section 10.
- Firm/ LLP and every company irrespective of their turnover or income.
- Those who own assets or have a financial interest in organizations situated outside of India.
- Foreign nationals (NRIs) who accrue or earn in excess of Rs. 2.5 lakh in India during a fiscal year.
How to File ITR?
Filing for income tax is possible through both offline and online channels. Here are the methods for submitting an ITR. Procedures for filing an ITR online:
- Online Procedure:
Step-1: Go to the official page of income tax e-filing website.
Step-2: Enter your PAN number and password to access your account. If you do not already have an account, you are required to create one with the appropriate credentials.
Step-3: Now in the ‘e-file’ tab, choose ‘File Income Tax Return’.
Step 4: From the provided list, select the appropriate income category. (HUF, individual, and so forth).
Step-5: Select the appropriate ITR form and proceed with entering your bank account information.
Step-6: Check the prefilled form to examine a preview of your income tax return. You may make modifications if necessary.
Step 7: Print a confirmation copy of the completed form. For verification purposes, submit a physical copy to the Income Tax Department. An alternative method is to utilize a prevalidated bank account or an Aadhaar OTP to e-verify your income tax returns.
- Offline Procedure:
Step 1: To file ITR you need to go to the e-filling page of the website of Income Tax India.
Step 2: Download the Utility software (ZIP file) from the 'Downloads' page.
Step 3: After downloading the ZIP file, extract its content in a separate folder.
Step 4: Select the appropriate form and provide all necessary details.
Step 5: Generate and save the form preview as an XML file.
Step 6: Perform a quick double-check before calculating your final tax liability.
Step 7: Proceed to login into the Utility software and enter your PAN and password to register.
Step 8: Proceed to 'Income Tax Return' and select the Assessment Year and ITR Form Number.
Step 9: Choose 'Original/Revised Return' as the 'Filling Type'.
Step 10: After completing, choose 'Upload XML' as the 'Submission Mode.' Submit the ITR once the appropriate verification option has been selected.
Necessary Documents Required to File ITR
Form-16
It is a TDS certificate that your company gives you when the TDS is taken out of your salary. It has two parts. Part A has information about the employer and employee, such as their name, address, Permanent Account Number (PAN), and TDS information. Part B lists the employee's salary, any exemptions or reductions they are eligible for, and the amount of tax they owe on their income.
Bank/Post Office Interest Certificates
The Income Tax Act says that bank and post office savings account interest, as well as interest on regular deposits and fixed deposits, is taxed. That's why you need to show how the interest from different sources is broken down.
Form-16A and Other TDS Certificates
People who get paid a salary need to get any other TDS certificates that apply to them. Banks have to take TDS out of your fixed deposit income if it's more than Rs. 40,000 (Rs. 50,000 for older citizens). When mutual fund companies give dividends of more than Rs. 5,000 in a financial year, they have to take TDS out of the payment. In both cases, get Form-16A.
Annual Information Statement (AIS)
The Annual Information Statement (AIS) was launched by the Income Tax Department in 2021. It's a longer form than Form 26AS and has more information about your financial transactions over a year.
Form 26AS
Form 26AS is like a tax passbook which includes the information about taxes paid and deducted against your PAN. From the new income tax site, you can get this.
Proof that you invested and spent money
As proof that you invested and spent money, you should keep things like deposit certificates, demat account statements, investment receipts, and so on.
Capital Gains
Under Long Term Capital Gains, you have to pay taxes on gains of more than Rs. 1 lakh from assets in stocks, bonds, mutual funds, and real estate. To show your capital gains income, you should make sure you have the right paperwork ready.
Details of Foreign Assets
In your ITR, you must list all of your assets that are located in a foreign country. This includes bank accounts, land, and other things.
Aadhaar No.
Section 139AA of the Income-tax Act, 1961 says that you have to include your Aadhaar No. in your ITR.
Account Information
For each bank account you own, you need to list the account number, bank name, account type, and IFSC code. It is needed even if you have closed your account in the middle of the financial year.
Why should I file ITR?
A lot of people seem to believe that filing tax returns is optional, so they don't bother with them because they're too much overburdened with their work. Tax filing from this perspective is not a very healthy one.
Among the moral and social responsibilities of every citizen is the filing of taxes every year. It helps the government figure out how much and how people spend their money, and it gives people who have been taxed a way to get refunds and other types of help from time to time.
1. Filing taxes shows that you are responsible.
People who make a certain amount of money each year are required by the government to file a tax return by a certain date. The person must pay the tax that was determined. The Income Tax Department will fine people who don't pay their taxes.
People who make less than the required amount of money can file their taxes on their own.
The act of filing a return demonstrates your responsibility. Besides that, it's easier for people and companies to do business again because the tax office records their income and makes sure that any taxes that need to be paid have been paid.
2. In some cases, you have to compulsorily file taxes.
It might still be a good idea to file a return regardless of whether you qualify for mandatory filing. In most states, you need to show your tax records from the last three years in order to register real estate. It's easier to record the transaction when returns are filed.
3. The lender or credit 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 keep a steady record of filing returns as the home loan company will most likely insist on it. Actually, if you want to get a loan with your partner, you might even want to file their taxes as well. Also, credit card companies may not give you a card until they see proof of return.
Before they do business with you, financial institutions may demand to see your results from the last few years. In fact, the government might make it so that they have to, which would indirectly encourage people to file their taxes on a regular basis even if they don't have to.
4. A return is required if you want to claim losses from the past
There are many benefits to filing your taxes on time, even if you don't make the minimum amount of money that is required to file.
As In the case of businesses or individuals who don't record speculative or non-speculative losses, short- or long-term capital losses, or other types of losses on their tax return in any given year, they can't be used as an exemption in later years when figuring out their taxes. You never know when an adjustment against past losses may be needed, so file returns regularly.
5. Changes to returns might need to be made through filing returns.
If the assessee hasn't already filed the first return, he can't file an updated return later, even if he needs to. The Income Tax Act says that people who don't file their returns can be fined Rs 5,000. So while filing returns is a voluntary activity, there are times when it could hold legal effects for those who do not do so, especially if they must file a revised return in future.
