All taxpayers in India are required to submit an ITR or Income tax return to the Income Tax Office every financial year. A taxpayer’s tax liability is determined basis the income earned. Further, an individual can claim income tax refunds if his/her returns demonstrate that excess tax has been paid in a given year. In this article, we will mainly focus on individual taxpayers.
The Income Tax Department of India requires taxpayers to file an Income Tax Return form so that they can have sufficient information about taxpayers’ earnings and the taxes owed in the previous financial year.
A taxpayer must mandatorily file income tax returns if his/her income is above the basic exemption limit, as per existing Indian tax norms. Non-submission or delay in ITR submission attracts penalties. So, how can one ensure successful ITR filing?
Here are some points to keep in mind for successful tax filing for individuals.
1. Select the correct ITR form
Selecting the correct applicable ITR form is crucial, and this depends on various factors, like the taxpayer’s income source, residential status, etc.
For example, Form ITR-1 can be used only by a resident individual with net income from salary of up to Rs. 50 lakhs, single house/property and income from other sources. A non-resident taxpayer or someone who is not an ordinary resident or those with capital gains cannot use this form for ITR.
2. Cautiously using prefilled ITR forms
Since ITR forms can now automatically import information like personal details, salary income, interest income, dividend income, etc. of the taxpayer, the pre-filled forms are available to be used. However, it is important for individuals to verify this information and make changes to income if relevant information is not auto-populated.
3. Select between new and old tax regimes as per benefits
A new optional tax regime was introduced as part of the Finance Act, 2020. Taxpayers can use this by foregoing certain prescribed exemptions and deductions in the old regime. Hence, one can choose either the old or new tax regime while filing tax returns.
If you are a salaried taxpayer, you can change the regime while filing ITR even if you have already declared a different regime to your employer at the start of the financial year.
4. Use Form 26AS for prepaid tax verification
Taxpayers must verify any information on prepaid taxes such as advance tax, TDS or tax deducted at the source, and self-assessment tax using Form 26AS. In case of any misinformation in the form, one must notify the employer or other payers to make relevant corrections. This will ensure successful income tax return filing.
5. Check exempt income
‘Schedule EI’ must be used by taxpayers to report any exempt income like agricultural income, income of minor child, income not eligible for tax under the Double Taxation Avoidance Agreement, etc.
6. Avoid duplication due to change of employment
If a salaried taxpayer changes jobs in between a financial year and has furnished relevant salary details to the new employer, he/she can get a consolidated Form 16 and 12BA from the current employer for filing ITR. This can help in avoiding any shortfall in TDS, duplication of exemption and deduction benefits, etc.
7. Know the mandatory disclosures
Below-mentioned disclosures of investments and assets must be furnished in ITR:
- Details of all accounts held with Indian banks
- Details of any unlisted equity shares held
- Information on any directorship position held in any Indian or foreign companies.
- If an individual’s total income is above Rs. 50 lakhs, details of specified assets like land, movable assets, financial assets, etc. and liabilities must be disclosed
- Resident individuals must furnish details of any assets held in foreign countries
8. Check eligibility for mandatory ITR filing
As per the Finance Act, 2019, ITR filing is mandatory for select individuals who may not have taxable income but fulfil certain criteria as specified by the act. Such individuals must file ITR if they carry out one of the below-mentioned high-value transactions during a financial year:
- Electricity bill payment of more than Rs. 1 lakh
- Current account deposits above Rs. 1 crore
- Expenses of more than Rs. 2 lakhs related to overseas travel for self or any other person
- Know the impact of non-filing of ITR within due date
9. Know the impact of non-filing of ITR within due date
Many taxpayers may be unable to file ITR within the due date due to various reasons, like absence of documentation or information, personal exigencies, etc. No matter the reason, if the ITR filing deadline is not met, there can be consequences as per the IT Act. Some of them include late filing fees, interest payment on balance tax liability, non-eligibility to carry forward certain losses, etc.
It is essential for all taxpayers to check their taxable income against limits mentioned in the IT Act and verify all relevant documents/information for accurate computation of payable tax/ refunds to be received. The above-mentioned points can help one in filing ITR accurately without facing penalties or other unwanted consequences.
Form 26As is an important document that has information on the TDS or tax deducted at source for payments/investments made to individuals, employees and freelancers. This form is used during ITR filing by taxpayers to claim refunds against any additional tax paid.
It is mandatory to state Aadhaar number while filing ITR. An individual’s PAN must be linked to the Aadhaar card and PAN has to be quoted while filing returns.
Individuals must use the ITR 1 or Sahaj form for filing ITR, provided he/she is a resident with total salary income of maximum Rs. 50 lakhs, has a single house property and maximum agricultural income of Rs. 5,000.
After filing income tax returns and verifying it, one can see the status of ITR online as ‘Verified’. Once the ITR processing is complete, the status is changed to ‘ITR Processed’. This can be checked on the IT website using login credentials.