KNOW WHO SHOULD FILE ITR AND ADVANTAGES OF ITR
Any person as described under to section 2(31) of Income tax act are required to file Income tax return if their total net income falls under the taxable category. Person includes
(ii) Partnership Firms
(v) Association of person or body of individuals whether incorporated or not
(vi) Local authorities
(vii) Any other artificial judicial person not falling under any of the above sub sections
TAXABLE CRITERIA FOR DIFFERENT SETS OF PERSONS AND FORM APPLICABILITY
1. Individuals: The basic exemption limit for resident individuals who are below the age of 60 years is Rs. 2,50,000, exceeding 60 years of age or more but less than 80 years of age Rs. 300,000 and who are 80 years of age or more, it is INR 500,000 during any time during the assessment financial year. ITR 1-4 depending upon the sources of income is required to be furnished by an individual.
2. Partnership firms including LLP: It is mandatory for every partnership firm to file the return of income irrespective of amount of income or loss at the rate of 18.5 of total income with 4% of Health and education cess. Besides, a partnership firm is liable to pay an income tax surcharge of 12% if the total income exceeds Rs.1 crores. ITR 4 & 5 is applicable to partnership firms.
3. HUF: Every HUF who earns more than Rs. 250000 during any financial year needs to file ITR. HUF needs to furnish their income tax returns under ITR 1 to 4 is applicable on HUF.
4. Company: Every company irrespective of the amount of income or loss during the financial year must file their ITR return in form 6 and 7 according to their sources of Income. If the company is earning less than 250 crores the taxable rate is 25% and 30% if their net total income is more than Rs. 250 crores with an health and education cess at 4%. Besides, a company is also liable to pay an income tax surcharge of 5% if the total income exceeds Rs.1 crores
5. Association of persons or Body of Individuals: If the net taxable income of any one of the members of AOP/ BOI exceeds Rs. 250000 it will be held liable to pay taxes as the same taxable rates as applicable on individuals. The AOP needs to show their ITR returns under ITR 5.
ADVANTAGES / BENEFITS OF FILING ITR:
1. For Loan Approval : Filing the ITR will help individuals, when they have to apply for a loan as its serves as a proof of income statement. You need to submit your 3 years ITR returns for getting loans from the bank.
2. To claim tax refund: You need to file your ITR mandatorily to claim TDS refunds during the financial year
3. Acts as Income & Address Proof: Self-employed individuals who do not have salary slips can use their Income Tax Return as proof of your Income and Address.
4. Quick Visa Processing Most embassies & consultants require your tax returns for the past couple of years at the time of the visa application. These are considered to be the most important documents while filing Visa applications.
5. To Carry Forward previous year Losses: If you file the return within the original due date, you will be able to carry forward losses to subsequent years, which can be used to set off against the income of subsequent years which will help you reduce your tax liability of the future income.
6. To Avoid tax Penalty: If you fail to file your tax returns on time, then a penalty of up to Rs.5,000 can be imposed on the taxpayer till 31st Dec and post which 10K till 31st of March. Again it depends upon the current situation.
IMPORTANCE OF FILING ITR:
Here are some important aspects or things to keep in mind, one should be aware before filing the ITR
I. Knowing whether you need to file ITR
This is again one of the most important aspect- knowing if you are required by law to file the ITR or not. Though it depends on a lot of factors, I am trying to list the most important ones here:
a. Your taxable income exceeds the exemption limit which is Rs 2.5 lakhs for normal taxpayers, Rs 3 lakhs for Senior citizens (i.e. aged 60-80 years) and Rs 5 lakhs for Super senior citizens (aged 80 & above). If you are earning income which is more than the exemption limit, you are required to file the ITR.
Important thing to note here is, one need to consider the income before availing any eligible deduction under Section 80C to 80U.
So, if you earn say 4 lakhs a year and you have invested 1.5 lakhs in 80C eligible instruments. So, basically you don’t have to pay any tax, still you are required to file the ITR as your taxable income (4 lakhs) is more than the exemption limit (2.5 lakhs)
b. If you are holding any foreign assets: Ordinary Residents holding foreign assets which requires specific disclosures in ITR. Foreign assets could be foreign bank accounts, foreign properties, financial assets, signing authority, etc.
c. Individuals paying electricity bill over Rs 1 lakh during the FY are required to file ITR mandatorily.
d. Individuals who have deposited more than Rs 1 crore in one or more bank accounts during the FY
e. Individuals who have spent more than Rs 2 lakhs on overseas travel for themselves or for any other person during the FY.
Also, one has to file ITR for the following cases:
You need to file ITR to claim losses
You need to file ITR for claiming refund of taxes (for instance: to claim refund of TDS)
You need to file ITR even if you don’t have any tax liability (for instance your tax liability is fully covered by the TDS deducted by employer, you are still required to file ITR)
II. Choosing the correct ITR form
Choosing the correct ITR form is one of the first & most important aspect to ensure the ITR is filed accurately. There are a lot of forms available as furnished below along with the short description (these are available in the income tax e-filing portal itself). One must carefully choose the ITR form.
III. Declaring income in full and in the accurate way
One need to declare all the incomes (whether those are exempt or taxable) in the ITR accurately in order to avoid any mistakes in the ITR which warrants income tax notices. Following could be some aspects to keep in mind:
a. Declaring the income under the correct head
The most important aspect of filing an accurate ITR is to declare the income under the appropriate head. We have 5 heads of income viz. Salary, House property, Business & Profession, Capital gains and Other sources. It is pertinent to understand the nature of income one is earning which aids in accurate reporting under the correct head
b. Reconciling the income and taxes with form 16/16A & 26 AS
Form 26 AS, among other things, has the details about the taxes deducted (TDS & TCS) on your income and the advance taxes paid by you. Thus, it acts as a quick reference to arrive at the taxable income. Not reporting income which are reported in 26 AS attracts income tax notices. Also, the income needs to be reported under the correct head. 26AS also states the section under which TDS is deducted, which might help in furnishing income under correct head.
Form 16/16A has the details about the tax deducted in a comprehensive way (especially for salaried individuals) as it has the details about the component of salary which helps a great deal in working out the ITR
It is important to verify & reconcile the details in 26AS in order to ascertain & get rectified any errors that might be there due to incorrect reporting in their TDS return by the deductor.
c. Declaring exempt income
It is often presumed that we do not need to declare the exempt income as there is no tax on it. This is not at all true, it is mandatory to report even the exempt income in the ITR. So, it is very important to determine the various components of exempt income, why the income is exempt and how to report it.
d. Declaring interest income
Interest income is one such income, which taxpayers do not pay heed to. It is often not declared especially in those cases where the TDS on interest income is not deducted. This is not at all a good & safe practice. One must declare all types of interest income in the ITR. In order to declare the interest income properly, one need to understand it’s taxability, as some type of interest incomes are not taxable, some enjoy deduction and some are fully taxable. Thus, it needs to be treated accordingly
e. Reporting income from multiple employers
Often, we change our job in the middle of the year and thus we have salary income from multiple employers. It is important to consider & report the income from all the employers in the ITR.
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