Understanding India’s Income Tax Laws: A Guide to Filing Income Tax Returns

Introduction: India’s income tax laws are designed and enforced by the government to levy taxes on taxable income earned by individuals, Hindu Undivided Families (HUFs), companies, firms, LLPs, associations of persons, bodies of individuals, local authorities, and other artificial juridical persons. These laws consider a person’s residential status to determine the tax liability. Residents of India are required to pay taxes on their global income. Every financial year, taxpayers must adhere to specific rules while filing their Income Tax Returns (ITRs).

What is an Income Tax Return (ITR)? An Income Tax Return (ITR) is a form used to provide information about your income and tax to the Income Tax Department. The tax liability of a taxpayer is calculated based on their income. If the return shows that excess tax has been paid during the year, the individual is eligible to receive an income tax refund from the Income Tax Department.

As per the income tax laws, individuals or businesses that earn any income during a financial year must file their returns. Income can be in the form of salary, business profits, income from house property, dividends, capital gains, interests, or other sources.

Tax returns must be filed by the specified deadline. Failure to do so may result in penalties.

Is it mandatory to file Income Tax Return? As per Indian tax laws, it is mandatory to file income tax returns if your income exceeds the basic exemption limit. Failing to file returns on time can attract late filing fees and also affect your eligibility for loans or travel visas.

Who should file Income Tax Returns? According to the Income Tax Act, the following entities or businesses are required to compulsorily file their ITRs in India:

1. Individuals below 60 years of age whose total income for a financial year exceeds Rs. 2.5 lakh. For senior citizens (aged 60-79), the limit increases to Rs. 3 lakh, and for super senior citizens (aged 80 and above), the limit is Rs. 5 lakh. These income thresholds should be calculated before factoring in deductions allowed under Sections 80C to 80U and other exemptions under Section 10.
2. All registered companies that generate income, regardless of whether they have made any profit during the year.
3. Individuals or businesses wishing to claim a refund on excess tax deducted or income tax paid.
4. Individuals who have assets or financial interests located outside India.
5. Foreign companies enjoying treaty benefits on transactions made in India.
6. Non-Resident Indians (NRIs) earning or accruing more than Rs. 2.5 lakh in India in a single financial year.

Documents required to file ITR: To file your ITR, it is important to gather all the relevant documents. Here are some commonly required documents:

1. Bank and post office savings account passbook, PPF account passbook.
2. Salary slips.
3. Aadhar Card, PAN card.
4. Form-16: TDS certificate issued by your employer, providing details of the salary paid to you and any TDS deducted.
5. Interest certificates from banks and post offices.
6. Form-16A: If TDS is deducted on payments other than salaries, such as interest received from fixed deposits, recurring deposits, etc., over the specified limits as per current tax laws.
7. Form-16B: If you have sold a property, showing the TDS deducted on the amount paid to you.
8. Form-16C: From your tenant, providing details of TDS deducted on the rent received by you.
9. Form 26AS: Your consolidated annual tax statement, which includes information about TDS deducted by your employer, banks, or other organizations, as well as advance taxes and self-assessment taxes paid by you.
10. Tax-saving investment proofs.
11. Proofs to claim deductions under sections 80D to 80U (health insurance premiums, interest on education loans, etc.).
12. Home loan statement from the bank.

What is Form 26AS? Form 26AS is a vital document that shows the portion of tax deducted at source on payments or investments made by individuals, employees, and freelancers. It enables taxpayers to claim refunds for any additional or overdue tax payments made.

The new Form 26AS, applicable from AY 2020-21, has been redesigned to facilitate easier online filing of income tax returns and encourage compliance with tax regulations. The new format includes statements of financial transactions, where taxpayers provide details of major financial transactions made, which can benefit them while filing returns.

Form 26AS also displays Aadhar card details, date of birth, email and residential addresses, and information about any pending or completed tax proceedings.

How to link Aadhar to Income Tax returns? It is compulsory for every individual taxpayer to quote their Aadhar number while filing tax returns. Individuals are also required to link their PAN card to their Aadhar number. Tax returns, whether filed digitally or manually, cannot be submitted without quoting the Aadhar number. Senior citizens can file their tax returns manually, but those below 80 years of age must file them electronically.

To link your Aadhar number to your income tax return:

1. Type or write down the number in the additional spaces provided in the new ITR forms available on the Income Tax website.
2. If you have applied for an Aadhar number but have not received it, you can use the 28-digit enrollment ID as a substitute.
3. If your Aadhar number has been electronically added before, it will automatically populate in the ITR forms.

One-time verification of past ITRs by September 2020: The Income Tax Department of India has allowed a one-time verification of previously filed returns until September of the current year. Previously, taxpayers were given only 120 days to verify returns from the date of filing. The one-time verification provision until September 2020 is for taxpayers who have not verified their tax returns for the assessment years 2015-16 to 2020-21.

Taxpayers usually have to send a signed ITRV slip by post or digitally to the CPC in Bengaluru for verification. Verification confirms that the details provided in the filed returns are true and correct. Failure to verify returns can result in penalties.

What’s new in the ITR forms? The new income tax return forms incorporate relief measures announced due to the COVID-19 pandemic. These forms were recently notified by the Central Board of Direct Taxes. Key features of the new forms include:

1. Wider scope of taxpayers: The tax net has been expanded to include individuals, HUFs, and partnership firms that have deposited more than Rs. 1 crore in a bank, incurred personal travel expenses of Rs. 2 lakh or more, or paid a power utility bill of more than Rs. 1 lakh.
2. Separate schedule: A separate schedule called Schedule DI has been introduced in the new forms to enable taxpayers to indicate the amount invested or spent on which they seek a tax rebate.
3. Removal of the amendment prohibiting joint owners of a house from filing tax returns together.

Importance of e-filing: E-filing, or electronic filing, is the process of submitting tax returns over the internet using pre-approved tax preparation software endorsed by India’s Income Tax Department. E-filing offers several benefits, making it an increasingly popular method of tax payment. Some advantages of e-filing include:

1. Convenience: E-filing allows individuals to file tax returns from their homes at any time during a specific period in a financial year.
2. Accuracy: E-filing software includes built-in validations and electronic connectivity, minimizing errors. In contrast, paper filings can be prone to errors, particularly during data entry.
3. Prompt processing: E-filed returns are processed faster than paper filings. Refunds, if applicable, are also processed quickly.
4. Confidentiality: E-filing provides better security than paper filings, as your data is not accessible to unauthorized individuals.
5. Accessibility to past data: E-filing applications store data securely, allowing easy access when filing subsequent returns.
6. Proof of receipt: E-filing provides immediate confirmation of filing through email or messages.
7. Ease of use: E-filing platforms are user-friendly, with detailed instructions for easy navigation, even for individuals with limited internet expertise.
8. Electronic banking: E-filing facilitates direct deposit for refunds and direct debit for tax payments, providing convenience to taxpayers.

Advantages of filing Income Tax Returns: Filing income tax returns offers several advantages, including:

1. Claiming tax deductions: Filing returns allows individuals to claim tax deductions under various sections of the Income Tax Act, reducing their tax liability.
2. Refund eligibility: If excess tax has been deducted or paid during the year, filing returns enables individuals to claim a tax refund.
3. Adjustment of losses: Filing returns facilitates the adjustment of capital gains and losses. Individuals can carry forward capital losses for future tax calculations.
4. Loan and credit card applications: Filing returns regularly increases eligibility for loans and credit cards. Lenders often require proof of returns for verification purposes.
5. Proof of income: Income tax return documents serve as income proof and can be useful for insurance purposes, loan applications, and official verification, as they are considered verified and official documents.

How to check ITR status online: After filing your income tax returns, it is essential to know the status of your tax return to ensure its processing. Here are two methods to check your ITR status online:

Option One – Without login credentials:

1. Visit the e-filing website and click on the ITR status tab.
2. Fill in your PAN number, ITR acknowledgment number, and captcha code on the new page.
3. The status of your filing will be displayed on the screen.

Option Two – With login credentials:

1. Log in to the e-filing website.
2. Click on the option ‘View Returns/Forms.’
3. Select income tax returns and the assessment year from the dropdown menu.
4. The filing status (verified or processed) will be displayed on the screen.

Filing your income tax returns on time is essential to stay compliant with tax laws and avoid penalties. Whether it is mandatory or voluntary for you to file ITR, ensure that you complete the process before the annual deadline.

How to Download Income Tax Return? To download your income tax return after filing, follow these steps:

1. Log in to the Income Tax India website (https://portal.incometaxindiaefiling.gov.in/e-Filing/UserLogin/LoginHome.html?lang=eng).
2. Click on the “View Returns/Forms” option.
3. Select “Income tax returns” from the dropdown menu.
4. Details of all the years for which returns are filed will be displayed.
5. Click on the acknowledgement number to download the ITR-V.
6. Open the downloaded document and enter your password to access it. The password is your PAN number in lowercase along with your birthdate. Example: PAN – asijp2345p Birthdate – 31/12/1980 Password – asijp2345p31121980

Once downloaded, you need to send the printed and signed ITR-V form to the CPC in Bengaluru within 120 days of e-filing. Alternatively, you can also choose the e-verification option for income tax return verification, which can be done through Aadhar OTP, net banking, ATM, or other methods.

Why should I file my Income tax return? Filing tax returns is not merely a voluntary act but a responsibility of every citizen. It serves multiple purposes:

1. Responsibility and compliance: Filing tax returns showcases responsible citizenship and ensures compliance with tax regulations.
2. Loan and credit card applications: Regularly filing tax returns enhances your eligibility for loans and credit cards. Financial institutions often require tax returns as proof of income and financial stability.
3. Adjusting losses: Filing returns enables the adjustment of losses, allowing individuals to carry forward capital losses and offset them against future gains.
4. Proof of income: Income tax return documents serve as income proof and are crucial for insurance claims, visa applications, and official verifications.
5. Claiming tax deductions: Filing returns allows individuals to claim tax deductions under various sections of the Income Tax Act, reducing their tax liability.

Precautions while filing ITR: When filing your ITR, it is important to take the following precautions:

1. Avoid last-minute filing: Filing returns at the last minute increases the chances of making mistakes. Filing ahead of the deadline reduces stress and allows time for thorough verification.
2. Ensure accuracy: Double-check all calculations and figures to avoid errors. Collect and organize all relevant documents, such as Form 26AS, bank statements, and TDS certificates, to accurately determine taxable income.
3. Report all sources of income: Disclose all sources of income, including interest from fixed deposits and other passive income. Failure to disclose income can lead to legal consequences.

Form 26AS and its importance: Form 26AS is a crucial document that contains details of various taxes deducted from your income by entities such as banks, employers, or insurance agencies. It is a consolidated credit statement issued at the end of each financial year under Section 203AA of the Income Tax Act, 1961.

Form 26AS also provides information about advance tax or self-assessment tax paid during the year, tax collected at source, and any refunds due. It is essential to cross-check Form 26AS to ensure the accuracy of tax deducted and paid during the financial year. This can help rectify errors caused by incorrect permanent account numbers (PAN) or faulty TDS receipts.

If I have paid excess tax, how will it be refunded to me? To claim a refund for excess tax paid, follow these steps:

1. File your income tax return within the stipulated time, as refunds can only be claimed by filing a return.
2. The Income Tax Department calculates your refund eligibility automatically based on the information provided in the ITR form.
3. Click on the “Taxes Paid and Verification” button to view the refund amount in the “Refund” row.

If you are eligible for a refund, the Income Tax Department will process it after completing the return processing. The refund amount will be credited to your bank account through the electronic refund system (ECS) or by issuing a refund cheque.

Who is eligible for income tax return? The eligibility for filing an income tax return depends on various factors. Generally, the following individuals or entities are required to file income tax returns:

1. Individuals: Individuals with a taxable income exceeding the basic exemption limit are required to file income tax returns. The exemption limit is Rs. 2.5 lakh for individuals up to 59 years of age, Rs. 3 lakh for senior citizens (aged 60-79), and Rs. 5 lakh for super senior citizens (aged 80 and above). The income amount should be calculated before considering deductions allowed under Sections 80C to 80U and other exemptions under Section 10.
2. Companies: All registered companies, regardless of profit or loss, must file income tax returns.
3. Refund claim: Individuals who wish to claim a refund on excess tax deducted or paid during the year are required to file income tax returns.
4. Assets outside India: Individuals who have assets or financial interest entities located outside India are required to file income tax returns.
5. Treaty benefits: Foreign companies that enjoy treaty benefits on transactions conducted in India are required to file income tax returns.
6. Non-resident Indians (NRIs): NRIs who earn or accrue more than Rs. 2.5 lakh in India during a single financial year are required to file income tax returns.

It is essential to determine your specific eligibility based on your income, residential status, and other factors to ensure compliance with income tax laws.

What is e-verification of income tax return? E-verification of income tax return is the process of verifying the validity and legitimacy of an electronically filed tax return. Previously, after filing returns electronically, taxpayers had to send the physical copy of ITR-V (Income Tax Return Verification) to the CPC (Centralized Processing Centre) in Bengaluru within 120 days of e-filing. However, e-verification allows taxpayers to complete the verification process online, eliminating the need to send physical documents.

E-verification can be done through various methods, including net banking, Aadhaar OTP, bank account number, or other options provided on the government’s e-filing portal. Once e-verification is completed, there is no need to send the physical ITR-V to the CPC.

E-verification ensures a streamlined and efficient process, reducing paperwork and saving time for taxpayers.