Income Tax Return Filing in India- Some Points to be kept in mind

Income Tax Return 

Every person earning any income in India are require to do their tax computation and  Income Tax Return Filing or ITR filing every year, in case, it has taxable income more than prescribed limit.

Income tax return reflects the true financial worthiness of any person and also the tax collected by government are utilized in various social wellbeing and nation building exercises. Therefore, it is the responsibility of every citizen to compute their tax liability, pay their taxes honestly and file their Income Tax return.

In this article we have highlighted some important points to be kept in mind while doing Income Tax Return Filing in India.    



Due Date

ITR filing must be completed on or before the due dates prescribed, otherwise, a person will be liable to pay penalty, interest. Also, current year losses cannot be allowed to be carried forward in case returns are filed after the due dates.

Residential status of a person

Determination of correct residential status of any person is very important since levy of taxes depends upon residential status of the person. For instance, in case a person is Resident, His Indian as well as Income earned outside India would become taxable in India. In case of Non Resident, only income earned in India is taxable in India. Also, a person becomes Resident or Non Resident in India on the basis of His number of days of stay in India.

Selection of Correct ITR Form

Every Year, Central Board of Direct taxes prescribed ITR forms for filing ITR and it is very important that correct ITR forms are used for filing tax return. Currently there are seven ITR forms notified by Tax authority of India for ITR filing in India. Out of these, ITR 1 to 4 are applicable to individuals/HUFs, while ITR 5 is for Partnership Firms and LLP, ITR 6 is for Companies other than those claiming exemptions and ITR 7 is normally used for filing Income tax returns of NGOS, Trust, Society, Political parties etc.

Mandatory filing of an ITR in certain cases

Finance (No. 2) Act, 2019 notified mandatory filing of ITR return for select individuals who fulfill certain specified criteria during the relevant FY, even if such individuals are not mandated to file an ITR by virtue of having taxable income. They would be required to furnish the same if they enter high-value transactions during the relevant FY as under:

·         Payment of electricity bills exceeding 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.

Selection of New tax regime or old tax regime

The Finance Act, 2020 has notified a new optional tax regime for taxpayers with modified tax slabs and rates for filing ITR in India. Person has the option to choose from the old and new tax regimes for filing the tax return. However, under new regime, taxpayer cannot claim any exemption and deduction

 Compilation of Documents

Compile all necessary document required for filing return like Form 26AS, Form 16, bank statement, interest certificate, investment proofs for which deductions is to be claimed, books of account and balance sheet and P&L A/c (if applicable), etc. It should be noted that all the documents should be read carefully.

Reconciliation of return with information in Form 26AS and AIS

Nowadays, Income Tax Department has all the necessary information about all the financial transactions done by any taxpayers through outside agencies like Banks, Mutual Funds, CDSL, ROC etc which are obligated to provide such information by filing annual information return to the tax department.

All such information’s of the tax payers are reflected in form 26AS and Form AIS on the tax department portal. Therefore, it is very important that while filing Income Tax Return, all such transactions as are appearing in form 26AS and Form AIS must be shown in the tax return, otherwise, tax department would issue an Income Tax Notice and may start the Income Tax Assessment proceedings against the tax payer.

Not to Skip interest income earned on bank deposit

Normally, while filing Income Tax Return, the tax payers ignore showing interest earned on savings bank deposit. One should not make mistake of skipping the interest income, No matter how small the interest income is, it should always be included in total taxable income. Interest earned up to Rs. 10,000 is allowed as deduction under 80TTA.

Deduction for investment made under 80C, 80CCC & 80 CCD is restricted to Rs 1.50 lakh

Taxpayer is allowed deduction under 80C for various expenditure and investment made by him, like tuition fees paid for their children, repayment of principal amount on housing loan taken, and amount deposited under Sukanya Samriddhi Yojana and various others. And, under 80CCC and 80CCD (1) deduction is allowed for contribution to specified pension fund and employee’s contribution to NPS respectively. However it should be noted that deduction under 80C, 80CCC, and 80CCD (1) is restricted to only Rs. 1.5 laces only.

There is an additional deduction of Rs. 50,000 under 80CCD (1B) for contribution made to NPS by employee.

Income of spouse or minor child may have to be clubbed with the income of taxpayer

It should be noted that income of spouse in certain cases or minor child of the taxpayer is clubbed with the income of taxpayer; therefore in such scenario, correct computation of tax liability shall be done and ITR shall be filed after paying proper taxes.

Bank details in case of refund

In all those cases where the tax payer is entitled to get refund, ensure that correct bank details are provided, otherwise, refund may be credited in wrong bank account and further process of refund would get complicated.

E-verification of return

Once the Income Tax return is uploaded on the portal, it must be ensured that proper e-verification of the return has been done. Such verification can be done in number of ways like on basis of OTP received in registered mobile number or by way of sending the signed copy of acknowledgement i.e ITR V by post  at CPC Bangalore within 120 days of Income tax return filing.

 

Location: India, USA

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