Understanding ITR
When financial year (April to March) comes to an end and when the tax season approaches the term ‘ITR’ becomes a buzz word.
And that is the time when Chartered Accountants and Tax Consultants are busy in clearing out the misconception amongst the people that ‘ITR’ stands for ‘Income Tax Return’ and not ‘Income Tax Refund’.
Understanding this is very crucial for managing your taxes and ensuring your compliance.
So people, even if you do not have any ‘Refund’, still ITR filing needs to be done.
Understanding Tax Terminology
Navigating the world of taxes can feel like learning a whole new language. Jargons used for taxation can be overwhelming sometimes.
So let us break down some jargons for a better understanding of taxes.
Gross Income: It is a total of the income from all the 5 sources of income.
Taxable Income: Amount of income subject to tax after all the deductions and exemptions.
Tax Slabs: Tax slabs define the rate of Income Tax according to the amount of income.
Financial Year: Starting from 1st April and ending on 31st March.
Assessment Year: The year in which the income earned in a particular financial year is assessed.
Understanding 5 Heads of Income
When it comes to managing your taxes and filing your ITR, understanding the heads of Income is a crucial part without which classification of the Income can be a bit difficult.
Here’s a short description about 5 Income Heads:
Income from Salary: Typically refers to the Income/Salary that is received from employer while you are in an employer-employee relationship.
Income from House Property: Typically refers to the Property Rent that an individual receives if the property is given on a rental basis to a tenant.
Profits (Gain from Business/Profession): If you are involved in any business or if you are self-employeed, then the receipts of your business are classified under this source.
Capital Gains: Typically refers to the profits made by selling a capital asset.
Income from other sources: The Income which do not get classified under any of the above source is treated as Income from other sources. Typically, Interest from Bank’s Saving Account and/or Interest from Fixed Deposits.
Old Scheme v/s New Scheme
Taxation is a crucial aspect of financial planning & understanding the difference between old and new as it can play a vital role in paying the taxes.
While paying the taxes and filing your return, you need to be considerate about both the Old & New Scheme, though the New Scheme is the default one.
Here’s a short review of the Old & New Scheme
Old Regime: Old Regime allows taxpayers to avail themselves of various exemptions & deductions which include 80C, 80D etc.
Tax Slabs
Upto ₹250,000 – NIL
₹250,000 to ₹500,000 – 5%
₹500,000 to ₹10,00,000 – 20%
> ₹10,00,000 – 30%
New Regime: Introduced in budget 2020, New Scheme has eliminated all the deductions u/s 80C, 80D etc. but has increased the basic exemption limit to ₹ 300,000.
Tax Slabs
Upto ₹300,000 – NIL
₹300,001 to ₹600,000 – 5%
₹600,001 to ₹9,00,000 – 10%
₹900,001 to ₹12,00,000 – 15%
₹12,00,001 to ₹15,00,000 – 20%
> ₹15,00,000 – 30%
Analyzing Old & New Tax Scheme
Let’s further break down the Old & the New Scheme to highlight few key pointers in the both the schemes.
Tax Rates:
Old – Higher Tax Rates but with an ability of lower taxable income through various exemptions & deductions.
New – Lower Tax Rates but higher taxable income due to no deductions.
Suitability:
Old – Suitable for assessees having more investments with LIC or any other life & medical insurance company.
New – Suitable for assessees having higher income with no investments.
Rebate:
Old – Rebate is available if the taxable income is upto ₹500,000.
New – Rebate under New Scheme is applicable if income is upto ₹700,000.
Understanding different ITR Forms
Income Tax Department of India provides various forms, each catering to the needs of various sources of income.
Let us understand the various forms of ITR & their applications.
ITR 1 (Sahaj) (Individual)
– Resident up to income of ₹50,00,000.
– One House Property & other sources.
– Agricultural income up to ₹5000.
ITR 2
– Individuals & HUF not having business income.
– Income from Salary, more than 1 House Properties, Capital Gain.
ITR 3
– Individuals/HUF having business income.
Income from Salary/House Property/Capital Gain/Foreign Income.
ITR 4 (Sugam)
– Individuals/HUF/Firms (other than LLP)
– Up to ₹50,00,000
– Business income computed under 44AD, 44ADA, 44AE.
ITR 5
– Partnership, LLP, AOP, BOI.
ITR 6
– Companies
ITR 7
– Person including companies required to furnish Returns u/s 1394(A), 139(4B), 1394(C) or 1394(D).
– Trust, Political Parties, Universities etc.
Checklist for ITR Filing
ITR Filings can be overwhelming. Especially with all the documents that are required. Also collecting all the documents can be a daunting task. To help you gather/compile the documents for filing ITR, here’s a checklist that’ll be extremely helpful for you.
Personal Documents
– PAN Card.
– Aadhar Card.
– Bank Account Details.
– Operative Contact Number & E-mail ID.
Income Documents
– Form 16.
– AIS.
– 26AS.
– Business Receipts.
– Rental Income.
– Acc. Int. Certificates.
Deduction Details
– Life Insurance Premium Details.
– Mediclaim Details.
– Home Loan Statement.
– Donation Receipts etc.
Understanding the importance of Income Tax Due Dates
‘Due Date’ is the most important aspect while filing your Income Tax Returns. Never miss the Due Date of filing your Returns. Missing the deadline can cause a heavy legal & financial consequences. Let us understand how.
Late Fees: If you miss the deadline of ITR Filing, you end up paying late fees.
For Income up to ₹500,000 – ₹1,000.
For Income >500,000 – ₹5000.
Return Filed after December – ₹10,000.
Carry Forward Of Loss: If you file the returns beyond the due date, you cannot carry forward the losses of a particular Financial Year.
Interest on Tax Due: If you miss the Due Date, you end up paying Interest on the Tax due @ 1% per month from the Due Date till the date of Filing Return.
Delay in Refund: Avoiding due dates can lead to delay in processing the Income Tax Return which might result in delayed Refund, affecting the cash flows.
Avoiding Inconvenience:
Avoiding Due Dates can lead to a last minutes rush which might give rise to Return with Defects.
Why is it important to file the Returns with proper assistance?
Filing of Income Tax Return can be a complex task especially with the ever-changing tax rules.
While you may choose to file your taxes on your own, here are a few examples of why you should opt for professional help while filing your Return.
– Expert Knowledge & Experience: Tax Consultants posses expert knowledge & Expertise for filing Returns, which enable them to navigate the complexities of Income Tax easily.
– Error-Free Filings: Due dates are of great importance while filing your taxes. While filing return with tax consultants, you do not have to worry about the timely filings.
– Time-Saving & Stress-Free: Filing your return may consume a lot of your time and cause stress, especially when you are unfamiliar with the tax laws. Thus, filing return with tax consultants help you save time and reduce stress.
How to file your Income Tax Return online?
If you are an Individual earning Income from Salary, House Property, Capital Gains or have your Own Business or Self-Employed & wish to file your ITR online, here’s a list of steps you must follow to file your taxes:
– Login to your Income Tax File Portal using your User ID (PAN) & Password.
– On E-File Tab -> Click on Income Tax Return -> Click on File Income Tax Return.
– Select the Assessment Year (AY 24-25) i.e. current AY & select ‘Online Mode’.
– To file Fresh Return, Click on Start New Filing.
– Select the appropriate ITR Form.
– Fill all the tabs with appropriate income details (if salaried & filing ITR1, validate your pre-filled Return details).
– Confirm your Return Summary.
– Verify, Submit & e-Verify your Return.
Understanding different types of Taxes.
Filing your taxes is often combined with payment of various taxes in entire Financial Year. Understanding the taxes is crucial for effective filing of Return.
Here’s a list of various applicable taxes:
– Advance Tax: Also known as Pay-As-You-Earn Tax. This is a kind of a tax where people pay part of the tax throughout the year in installments instead of paying it in one go at the end of the year.
Provisions of Advance Tax are applicable if the tax amount in a FY is > 10,000.
Installments of Advance Tax can be summarised as:
15th June – 15%
15th Sep – 45%
15th Dec – 75%
15th Mar – 100%
Non-payment of Advance Tax or Short Payment of the installment can result into interest u/s 234B & 234C.
– Self-Assessment Tax: SA Tax is a crucial tax in Tax Filing ensuring that all the tax dues are cleared before filing the return.
This tax is calculated by applying the tax rates to calculated taxable income earned during a particular FY, reduced the amount of TDS and Advance Tax paid.
It is important to pay the tax before due date of filing return to avoid interest.
Importance of TDS & 26AS in Filing ITR.
The two crucial components in filing your ITR are ‘TDS‘ and ‘26AS‘.
Understanding the co-relation between TDS & 26AS is important in filing your taxes effectively.
Here are a few points highlighting the importance of TDS & 26AS.
– TDS Reconciliation: Form 26AS helps taxpayer to identify the amount of TDS deducted by different deductors. Reconciliation of TDS is of utmost importance to derive the correct amount of TDS that can be claimed in return.
– Mismatch Resolution: Any mismatch of TDS amount in 26AS and ITR can prove to be a point of scrutiny. Higher claim of TDS than in 26AS may lead to scrutiny of the same.
– Mandatory Requirement: Providing accurate TDS details and ensuring they match with Form 26AS is mandatory for filing ITR. Non-compliance may lead to penalties & legal consequences.
Deductions in filing ITR & Exemptions in ITR.
Filing ITR is not just about declaring your Income, but it is also an opportunity to maximize your tax savings through various deductions and exemptions.
Thorough understanding of deductions and exemptions can be beneficial in significant saving of taxes.
Deductions are certain amounts that get deducted while calculating taxable Income.
While Exemptions on the other hand means the Income which is exempt (which is not considered) while calculating taxable Income.
Some of popular Deductions are:
1. Deduction u/s 80C:
– LIC, Life Insurance.
– PPF, PF.
– Housing Loan Principal.
– Sukanya Samridhi Scheme.
2. Deduction u/s 80D:
– Medical Insurance Premium.
3. Deduction u/s 80G:
– Donation.
Some of the popular Exemptions are:
1. House Rent Allowance.
2. Leave Travel Allowance.
3. Interest on Housing Loan.
4. Agricultural Income.
5. Gratuity & Provident Fund.
Section 80C & ITR.
Section 80C of Income Tax Act 1961, is an important provision of IT Act 1961, which allows the taxpayer to reduce their income significantly by taking the benefit of the deductions allowed under this section.
So let’s understand Section 80C and it’s benefits.
Why Section 80C:
Section 80C includes a range of Investments where the assessee can invest for claiming the deductions in future.
The maximum deduction allowed u/s 80C for a particular FY is 150,000.
Inclusions of 80C:
– Investment in Provident Fund.
– Life Insurance Premium.
– Equity Linked Saving Scheme.
– Principal Repayment of Housing Loan.
– National Saving Certificate.
– 5 year Fixed Deposit.
– Sukanya Samriddhi Scheme.
Section 80D & ITR.
Section 80D encourages Individuals to secure health coverage along with availing the deduction while filing Income Tax.
Understanding 80D:
Section 80D allows individual & HUF to claim deduction of the premium paid towards their health.
Allowable Deduction
– Taxpayer may avail deduction of premium paid towards themselves or their spouse, children and dependent parents upto a limit of ₹25,000.
– If the age of the insured is beyond 60, then the deduction is upto ₹50,000.
– Taxpayer may also claim additional deduction of premium paid for the parents upto an amount of ₹25,000 and ₹50,000 in case of senior citizens.
Preventive Health Check-up
With all the deductions under this section, assessee may claim additional amount of deduction upto ₹5,000 incurred for preventive health check-up.
Section 80D provides significant tax benefits promoting health insurance coverage among taxpayers.
Understanding the provision of this section does not only leverage the filing of ITR, but also acts as an asset at the time of medical emergency.
Section 80G & ITR.
Section 80G of IT Act 1961 allows deduction of amount paid to certain institutions as a donation. This section encourages philantrophy while offering tax benefits.
Types of allowable donations:
– Contribution made to specific institutions, Prime Minister Relief Funds, National Defence Funds are allowed as deduction.
– Contribution made to NGOs, charitable trust societies for the cause of education of poor, under-privileged children, medical relief, preservation of environment also qualify as deduction u/s 80G.
Deduction Limit:
– 100% of deduction is allowed if the donation is made to Prime Minister Relief Funds, National Defence Funds etc.
– 50% of the deduction is allowed with qualifying limit if the donation is made to certain institution or society.
– In short, Section 80G promotes support to charitable or religious causes while taking care of the taxes.
– By making donations, you not only contribute to societal welfare, but also avail tax benefits that can significantly impact your financial planning.
