Filing Income Tax Returns: The Ultimate Guide To ITR

Filing Income Tax Returns (ITR) is an important responsibility of every Indian citizen and the companies operating in India. Under the Income Tax Act 1961 , it is a legal obligation that mandates taxpayers to report their income and financial transactions during each financial year.ITR filing means working in compliance with the tax laws of the nation and encourages transparent financial transactions. It helps ensures accurate reporting of a person's income and warrants citizens to contribute to the growth of the nation.For an individual, ITR filing is proof of income and is mandatory for loan applications, property transactions, visa processing, and many other legal procedures. Furthermore, ITR filing establishes individual and businesses' financial history and credibility, enabling financial institutions to accurately assess creditworthiness.While many people consider it a difficult task, filing ITR benefits both citizens and the country's economic development.At the individual level, filing ITR boosts chances of access to credit, apart from helping us claim tax deductions and exemptions and reduce tax liability. Thus, it helps us optimise tax outflow and retain a substantial chunk of our hard-earned money.At the state level, it helps the government raise funds for operations, check data on the income of its citizens and if tax is being paid correctly.Income tax filing is an important responsibility of every taxpayer, and for this, it is essential to understand the filing process. Here, we aim to provide a comprehensive walkthrough to the ease the filing of income tax returns in India. We will demystify the diverse types of income that fall under IT purview, the structure with slabs, deductions, exemptions, and rebates available under the Indian Income Tax Act.

The Government of India levies a category of direct tax on income generated by individuals, Hindu Undivided Families (HUFs) , firms, companies, and other entities within the nation. This is called Income tax. Some of the ways income can be generated for tax purposes are:

• From salary: It covers income earned by individuals through employment (e.g., basic salary, allowances, bonus, etc.).
• From property: It refers to rental income generated from owned properties post deductions.
• From business or profession: This encompasses profits and gains from businesses, professions, and freelancing activities.
• From capital gains: It relates to profits generated through the sale of capital assets (like property, stocks, or mutual funds).
• From other sources: Here, all income gained that is not covered in the above categories will be included (e.g., interest, dividends, lotteries, etc.).

The government calculates income tax on a progressive tax slab system, wherein tax levied rates increase with increasing income. The tax slabs vary for individuals below 60 years, senior citizens (60 years or above, but below 80 years), and super senior citizens (80 years or above), as well as under new and old tax regimes.Tax deductions, exemptions, and rebates are vital in reducing the overall tax liability. The Indian Income Tax Act extends various provisions to avail these benefits like:

• Section 80C: Deduction for investments in instruments like provident fund , life insurance premiums, and National Savings Certificates .
• Section 80D: Deduction for medical insurance premiums.
• Section 24(b): Deduction for interest on housing loans.

These help you assess accurate financial position, calculate tax liability, and ensure compliance with income tax regulations.

• Gross total income – is the total income generated from all sources before any deductions or exemptions.
• Taxable income – is the income on which tax is payable after considering exemptions, deductions, and rebates provisioned under the law.
• Net income – is the quantum of income a company generates after deducting all expenses, including tax liabilities.
• Net tax payable - is the final tax amount payable to the government after deducting all the applicable deductions, exemptions, and rebates.

As per IT law, it is mandatory for an individual to file ITR if the taxpayer’s total gross income is above the basic exemption threshold. The gross income covers that from salary, pension, property, interest, capital gains, etc. This threshold depends on the old or new income tax regime opted for by the taxpayer, as well as the taxpayer’s age.At the beginning of the financial year, employees can choose one of the two tax regimes and intimate their employer. This option is available every year; however, a tax slab regime chosen for the financial year cannot be changed during that year for TDS purposes, but can be changed while filing income tax returns . For business or professional income, the option to choose the tax regime is available just once for a specific business.In Budget 2023, under the new income tax regime, the exemption limit is Rs. 3 lakh. For income over Rs. 3 lakh up to Rs. 5 lakh, tax is 5%. And for income between Rs. 6-9 lakh, the applicable tax rate is 10%.

To file ITR, you can seek professional assistance from a charted accounted/tax professional. You can file ITR offline or online (e-filing) by following detailed step-by-step instructions given on the official income tax website ( https://www.incometax.gov.in/iec/foportal/ ). To file ITR, you must –

• Determine your tax category (like individual, HUF, partnership firm, company, or other applicable categories)
• Gather required documents (Form 16 - issued by your employer, bank statements, investment proof, rent receipts, etc.)
• Choose the correct form among various ITRs
• Calculate your taxable income
• Compute tax liability

• Every accounting year in India opens on 1 April and closes on 31 March. Consider a case when you are filing returns for income earned during the year 2022-23, that is the financial year (FY) for tax filing purposes, while the year income is assessed, or the assessment year (AY) is 2023-24. Therefore, on the tax filing website, AY will be 2023-24, and FY will be 2022-23.
• You must choose an ITR form to file your tax returns depending on the category of taxpayers you fall under.

For more details, read Ready To File ITR For The First Time? Here Are 5 Things You Should Know

• ITR-1 is for resident individuals with income below Rs. 50 lakh from salary, pension, one house property, etc.
• ITR-2 is for income of over Rs. 50 lakh from sources mentioned in ITR-1 and other sources such as capital gains, foreign income, more than one house property, holding directorship in a company, or unlisted shares.
• ITR-3 is for all the income sources of ITR-2 and other sources like business, profession, partnership in a firm, and presumptive income of less than Rs. 50 lakh.
• ITR-4 is for all the income sources under ITR-1 with a presumptive income of over Rs. 50 lakh as salary, pension, one house property, and other sources
• ITR-5 is for LLPs, BOIs, firms, and AOPs
• ITR-6 is for companies that do not seek Section 11 exemption. Companies are mandated to file returns online only under ITR-6.
• ITR-7 is for people/businesses that have furnished returns under the following Sections- 139(4A), 139(4B), 139(4C), 139(4D), 139(4E), or Section 139(4F).

For more details, read What are the various types of ITR forms? All employers must provide Form 16 to their employees if their annual income is above the exemption limit. It gives you a clear understanding of the tax Deducted at Source (TDS) by the employer.

Form 16 serves as a record of TDS. It gives a detailed overview of the total tax paid by a salaried employee during a financial year. It contains the following information required during tax filing: taxable salary, allowances under Section 10, and deduction breakup, among others.In addition, it helps government authorities and financial institutions check salary breakups.The eligibility salary for Form 16 is Rs. 2.5 lakh per annum.

There are three types of Form 16s – Form 16, Form 16A, and Form 16B. All three are certificates of tax deducted at the source of income generation.Form 16 is a certificate of deductions employers provide to their salaried employees (those being paid over Rs. 2.5 lakh per annum).Form 16A is a certificate of tax deducted at the source for income not falling under the primary salary. (Income here includes returns on investments including FDs and rental income over Rs. 50,000 a month; for FDs, it is the financial institutions that give the Form 16 to the investor, and for rents, it is the tenant who gives it to the landlord).Form 16B is a certificate of gains made by selling an immovable (non-agricultural) property.

Before filing ITR, check online for Form 26AS. It is available on the tax filing website or by logging into your net-banking account; it is available under the option "Tax Credit/Form 26AS/TDS Details/TRACES.Form 26AS gives complete information on TDS paid on salary and other sources. It provides details about TDS, tax collected at source, advance tax payable, deductions on high-value transactions, self-assessment tax payments, tax deducted for the sale of property, and details on refunds, among other deductions. The assessee can use it to verify if the TDS data is correct.

ITR-1 or Sahaj Form should be filed by taxpayers whose primary income source is a monthly salary. However, the annual income must be Rs. 50 lakh or below. A permanent resident of India generating income from salary or pension or one house property or any other source barring lotteries, racehorses, gambling, etc., can fill ITR-1. If you receive a tax exemption up to Rs. 5,000, you can file ITR-1.The following documents are required to file ITR-1

• PAN Card
• Aadhaar Card number
• Form 16
• Bank statement
• TDS certificates from your bank
• Statement for interest earned from fixed deposits
• Documents Related to Tax Exemption Under Section 80 (Insurance Payment, Provident Fund, Home Loan Payment, Children’s Tuition Fee, Charges Incurred via Registration and stamp duty , etc.)

Also Read: Tips For Filling Salary Details in ITR1

The following taxpayers cannot use the ITR-1 Form:

• Total income is above Rs. 50 lakh
• Have Taxable Capital Gain
• Earn income from business or profession
• Earn income from more than one house property
• If you are a director of a company
• If you invested in an unlisted company and have its equity shares
• If you have assets outside India or have foreign income
• TDS was deducted under section 194N
• If you have brought forward loss or want to carry forward loss

ITR-2 is to be filed by taxpayers with a salary as their primary source, earning over Rs. 50 lakh per annum. An individual or one who is a part of an HUF should also file ITR-2. The following are the criteria to file ITR-2:

• Generating income from salary or pension
• Earning rental income from more than one property
• Earns total income of over Rs. 50 lakh
• Earning income from other sources like lotteries, racecourse, gambling, etc.
• Having an agricultural income of over Rs. 5000
• Earnings through Short-Term and Long-Term Capital Gains
• Generating income from partnership firm

Also Read: Points to Note While Filling Salary Details in ITR 2

ITR-2 cannot be used by the assessee when the total income covers Income from Business or Profession for the A.Y. 2023-24.

After reviewing the details, one must verify and submit their ITR. The income tax department will send ITR-V or an Income-Tax Return Verification form when an ITR filed online has no digital signature.A hard copy of this single-page document must be signed and posted to the CPC in your city, or verification can also be done online using your Aadhar and bank account. The ITR V process must be completed within 120 days of filing returns. Only after you submit this document can the tax department start processing the return.

In India, we pay tax once. ITR only gives details of the income during a year, and it must be filed when non-salaried people pay tax. In the case of salaried people, TDS is deducted every month, and it is the employer’s responsibility to deposit the tax collected to the Government. Salaried people also file ITR only once.However, there is no limit on the revisions to your ITR. The first ITR filed is called the original ITR, and the ones filed subsequently are revised ITRs. Although you can revise your returns multiple times, it paves the way for the possibility of scrutiny from the department.

The due date for ITR filing is 31 July of each year. There is always a last-minute rush, so ensure you file your returns well before the due date. If you fail to file your ITR by 31 July, you are liable to pay a penalty under Sections 234A and 234F of the IT Act if there are unpaid dues.Non-filing of ITR can result in imprisonment, and the term differs between three months to two years. In case of higher tax liability, the imprisonment can even go up to seven years.

In case you delay filing ITR, then you are liable to -

• pay interest under section 234
• pay a fee under section 234F

In addition, you cannot carry forward loss barring the loss under head Income from House Property; or claim exemption under sections 10A and 10B or deductions under Chapter VI-A - Part-C.

The biggest advantage of filing ITR is tax refunds. If your tax paid during the year is more than the liability computed after subtracting deductions, exemptions, and rebates, then you can claim refunds. First, taxpayers must file ITR accurately to claim refunds. One must furnish the correct bank account details with IFSC codes for a seamless refund process.Next, the IT department verifies the ITR and processes the refund. Once the refund is processed taxpayer gets an intimation on the refund amount and/or adjustments made to tax liability. The taxpayer must verify the accuracy.Refunds are usually processed within a 20-40 days of filing returns. It is directly credited to the taxpayer's bank account via electronic transfer. One can also opt for a refund cheque or provide a pre-validated bank account.

The Indian Income Tax Department conducts tax assessments to examine and verify the accuracy and comprehensiveness of the ITR filed by taxpayers. Types of assessments as per the Income Tax Act are:

• Scrutiny Assessment - A tax return is chosen for a detailed examination.
• Best Judgment Assessment - Taxpayers have received notices and reminders but still do not file ITR.
• Limited Scrutiny Assessment – Here, a specific issue in an ITR is verified in detail.
• Income Escaping Assessment - Tax authorities feel that a taxpayer's income was not disclosed precisely.

Now that the process of filing income tax returns is demystified, it is easier to comply with the nation's tax laws and fulfil the obligations. By paying taxes, you support your government's initiatives and contribute to the development of the nation.Filing ITR accurately and in a timely fashion ensures transparency and accountability. It acts as a certificate for your creditworthiness. It also ensures that your tax outflow is optimised, and you can save the maximum amount of your hard-earned money.Filing returns is not only a legal obligation of a law-abiding citizen but also a responsibility to the nation.Ready to make the most of your money? Start your tax planning journey now!