One’s income is split into 5 classes — income from Salary, income from home property, income from business revenue, income from investments/capital belongings, and income from different sources
KEY HIGHLIGHTS
- Filing income tax returns is mandatory where the gross total income of an individual is more than Rs 2.5 lakh
- Income earned from salary and pension is taxable under this head of income
- Income earned from renting a house property is taxable under this head of income
New Delhi: Income tax return filing is one of the most important financial tasks every year. Although the last day to file ITR is generally is July 31, the deadline for ITR filing for the financial year 2020-21 has been extended to September 30, 2021, keeping the Covid situation in view.
Although nearly two months are left for the deadline to end, it is always recommended to complete the task as soon as possible and not to wait for the last minute to avoid chances of any error caused due to last minute rush. The income tax department last month launched a new e-filing portal (www.incometax.gov.in) to speed up the processing of tax returns. The I-T department will soon launch a mobile application, having all the features of the new portal.
If you are filing ITR for the first time, here are 9 key things you need to keep in mind:
1. ITR form selection: It is important to select the applicable ITR form depending upon the taxpayer’s residential status and income earned from various sources for an accurate filing. If the taxpayer uses the wrong tax return form, their return will not be processed and they may receive a defective return notice from the tax department. The tax department has already notified the changed ITR forms. This year, ITR 1 form will not be applicable for a person who had paid TDS for cash withdrawal under Section 194N. Those employees who have deferred tax on employee stock options (ESOPs) also can not use ITR 1 form. So choose the right form before filing return.
2. Choosing between new tax regime or old tax regime: Two tax regimes: From the current financial year, a new concessional tax regime has been introduced. Now, taxpayers will get the opportunity to select between the old and new tax regimes while filing the tax return. Under the new tax regime, a person will have to pay tax at concessional rates if they forego all tax exemptions, deductions and rebates. If you are a salaried individual and would like to change the option communicated to the employer, it can be done at the tax return stage.
Choosing a tax regime is of higher importance for business owners as they can do it only once. Once they choose their tax regime, it can not be changed every year. However, salaried individuals with income from salary, house property and other income can change it every year.
3. Prefilled ITR forms: The tax department has introduced a new utility named JSON for pre-filling tax return forms for FY21. Currently, only tax return forms ITR 1, 2 and 4 have been released. These forms can import and pre-fill data from the e-filing portal. The pre-filled data include personal details, salary income, dividend income, interest income, capital gains and all the information available in Form 26AS. This would aid taxpayers in ease of filing ITR as most of the essential details would already be captured therein.
You need to verify the information pre-filled in the form and make necessary additions of income not reported in the tax return. However, in case the information is incorrect, reach out to the bank/ payor of income etc. to correct the data in quarterly TDS returns/other filings so that accurate information is resultantly reflected in your Form No. 26AS.
4. Planning and Collating: Before you sit down to file your return, you must collate all the relevant information and documentation required for ITR filing process to avoid any misreporting or inaccurate reporting of income. Make sure that all sources of income, including the exempt income such as PPF, is duly reported in the tax return. Before filing the ITR, reconcile all sources of income with the data reported in Form 16, Form 26AS.
Make sure to verify prepaid taxes including tax deducted at source (TDS), advance tax and self-assessment tax with Form 26AS. Any discrepancy therein should be notified either to the employer (in case of salary income) or other payers (in case of other incomes) or banks (for advance tax/ self-assessment tax payments) for necessary rectification which is essential for seamless processing of the tax return by the tax department.
5. Balance taxes payment: In order to avoid any error, evaluate your tax liability in advance and make the necessary tax payments within the due dates. This will help you avoid levy of interest applicable on delayed tax payments. Once you have determined your total taxable income, post including income under all heads and claiming necessary deductions available under Chapter VI-A of the Act, applicable tax rates should be applied to compute the total tax liability.
Any taxes due on the tax return after claiming credit of prepaid taxes should be paid including applicable interest, if any, before filing ITR. If such self-assessment tax exceeds Rs 1 lakh, it should be paid before 31 July 2021 to avoid additional interest liability even though the tax return filing deadline is extended to 30 September 2021.
6. Disclosure of various assets and financial investments forms required for an ITR:
- Specified details of all Indian bank accounts
- Specified details of unlisted equity shares
- Details of directorship held in Indian or foreign companies.
- Schedule Assets and Liabilities: Details of specified assets [such as land, building, movable assets etc.), financial assets (bank deposits, shares & securities, cash in hand, etc.)] and corresponding liabilities are to be disclosed in case the total income of an individual exceeds Rs 50 lakh.
- Schedule Foreign Assets: Ordinarily Resident individuals are obligated to furnish details of their assets held outside India (both as an owner and as a beneficiary) as per specified disclosure guidelines.
7. Mandatory filing of an ITR even if income below taxable bracket: Finance (No. 2) Act, 2019 mandated ITR filing for select individuals who fulfill certain specified criteria during the relevant FY, even if such individuals’ income is not in taxable bracket. They would be required to furnish the same if they enter high-value transactions during the relevant FY in case of:
- Payment of electricity bills aggregating over Rs 1 lakh;
- Deposit of more than Rs 1 crore in aggregate in one or more current bank accounts;
- Spent more than Rs 2 lakh in aggregate on overseas travel for self or any other person.
8. Change of employment: In case a taxpayer has furnished requisite salary, income details earned from previous employer(s) to the current employer, a consolidated Form 16 and 12BA can be issued by the current employer basis which an ITR can be filed. Otherwise, it may lead to shortfall in TDS owing to duplication of slab benefit, deductions, exemptions provided by all employers. In this case, additional taxes due on the return along with applicable interest should be paid before filing the tax return.
9. Missing ITR filing deadline: If a taxpayer is not able to furnish the ITR by due date owing to multiple reasons such as non-availability of relevant documents/ information, lack of time, personal exigencies, etc, there may be varied consequences under the Income Tax Act such as levy of late filing fee, payment of interest on balance tax liability, ineligibility to carry forward certain losses, etc. Make sure to file your return by the deadline.
It is worth adding that a resident individual below 60 years of age earning up to Rs 2.5 lakh per annum is exempt from income tax. A person has to file Income Tax Returns (ITR) if they have a gross total income exceeding the tax exemption limit.
For individuals aged above 60 years but less than 80 years (senior citizens), this exemption limit is Rs 3 lakh and for individuals aged above 80 years (super senior citizens), the exemption limit is Rs 5 lakh. Even if you are not required to file ITR by law if your income is below the tax exemption limit, it is advisable that you still file your tax return as it has several benefits.
