Income tax filing is a crucial aspect of financial management for individuals and businesses in India. It not only ensures compliance with the law but also helps in claiming refunds and availing various deductions and benefits. This guide provides an in-depth look at the income tax filing process in India, covering its importance, eligibility, types of income, filing procedures, and common pitfalls to avoid.
Importance of Income Tax Filing
Filing income tax returns (ITR) is required for individuals and entities with earnings above a specified threshold. The significance of filing ITR extends beyond legal compliance. It serves several purposes:
Proof of Income: ITR serves as a documented proof of income, which is essential for obtaining loans, visas, and other financial services.
Refund Claims: Taxpayers can claim refunds for excess tax paid or deducted at source.
Carry Forward Losses: Filing ITR on time allows taxpayers to carry forward losses to subsequent years, reducing future tax liabilities.
Avoiding Penalties: Non-filing or late filing can attract penalties and interest, which can be avoided by timely compliance.
Government Benefits: Filing ITR makes individuals eligible for various government schemes and subsidies.
Eligibility for Filing Income Tax Returns
The eligibility criteria for ITR filing in Coimbatore vary based on the type of taxpayer and income levels:
Individuals:
Below 60 years with an annual income above Rs.2.5 lakh.
Between 60 and 80 years with an annual income above Rs.3 lakh.
Above 80 years with an annual income above Rs.5 lakh.
Businesses and Firms: All companies and firms, regardless of profit or loss, must file ITR.
Self-Employed Professionals: Professionals such as doctors, lawyers, and freelancers must file ITR if their income exceeds the basic exemption limit.
NRIs (Non-Resident Indians): NRIs must file ITR if their income in India exceeds Rs.2.5 lakh.
Types of Income
Income is classified into five major heads under the Indian Income Tax Act:
Income from Salary: Includes wages, pensions, and annuities.
Income from House Property: Rental income from residential or commercial properties.
Income from Business or Profession: Profits earned from business or professional activities.
Income from Capital Gains: Earnings from the sale of capital assets like property, stocks, and bonds.
Income from Other Sources: Includes interest income, dividends, lottery winnings, etc.
Types of Income Tax Returns
The Income Tax Department has prescribed different forms for filing ITR, depending on the type of taxpayer and income source:
ITR-1 (SAHAJ): For individuals with income from salary, one house property, and other sources (excluding lottery and racehorse winnings) up to Rs.50 lakh.
ITR-2: For individuals and Hindu Undivided Families (HUFs) without income from business.
ITR-3: For individuals and Hindu Undivided Families (HUFs) with income from a proprietary business or profession.
ITR-4 (SUGAM): For individuals, HUFs, and firms (other than LLPs) opting for the presumptive income scheme under Section 44AD, 44ADA, or 44AE.
ITR-5: For firms, LLPs, AOPs, BOIs, and others.
ITR-6: For companies that are not claiming exemption under Section 11.
ITR-7: For persons including companies required to furnish returns under Sections 139(4A), 139(4B), 139(4C), or 139(4D).
Steps to File Income Tax Returns
Filing income tax in India can be done both online and offline. Here are the steps for e-filing:
Register on the Income Tax Portal:
Access the official income tax e-filing portal.
Register using your PAN as the user ID.
Form Selection:
Choose the appropriate ITR form based on your income sources and eligibility.
Document Collection:
Gather all necessary documents, including Form 16, Form 26AS, TDS certificates, interest certificates, and investment proofs.
Form Filling:
Log in to the e-filing portal.
Fill in the required details in the selected ITR form. Use the pre-filled XML to auto-populate fields.
Tax Calculation:
Compute your total income and tax liability. Use the online tax calculator provided by the IT department.
Tax Payment:
Pay any remaining tax liability using the e-payment facility.
Verification:
Verify your ITR through Aadhaar OTP, net banking, or by sending a signed ITR-V to the CPC, Bangalore.
Acknowledgement:
Once verified, you will receive an acknowledgment on your registered email.
Deductions and Exemptions
Several deductions and exemptions can reduce the taxable income:
Section 80C:
Investments in PPF, EPF, NSC, life insurance, ELSS, and principal repayment of home loans. Maximum deduction: Rs.1.5 lakh.
Section 80D:
Premiums paid for health insurance for self, spouse, children, and parents. Maximum deduction: Rs.25,000 (Rs.50,000 for senior citizens).
Section 24(b):
Interest paid on home loans. Maximum deduction: Rs.2 lakh.
Section 80E:
Interest paid on education loans. No maximum limit.
Section 80G:
Donations to specified charitable institutions.
Section 10(14):
Allowances like house rent allowance (HRA), leave travel allowance (LTA), and others.
Common Mistakes to Avoid
Incorrect Personal Information: Ensure that all personal details, such as PAN, name, and address, are correct.
Wrong ITR Form: Selecting the wrong ITR form can lead to the rejection of the return.
Mismatched TDS Details: Cross-check TDS details with Form 26AS to avoid discrepancies.
Failure to Report All Income: Report all sources of income, including interest income and capital gains.
Missing Deductions: Ensure to claim all eligible deductions and exemptions.
Not Verifying ITR: The filing process is incomplete without verification. Verify within 120 days of filing.
Non-compliance
When you fail to pay Business tax, then you have to face non-compliance.
Types of Non-Compliance
Non-Filing of Income Tax Returns (ITR)
Late Filing of ITR
Non-Payment or Late Payment of Tax
Under-Reporting or Misreporting of Income
Failure to Maintain or Furnish Documentation
Penalties for Non-Compliance
1. Non-Filing or Late Filing of IT Return
Late Filing Fee (Section 234F):
Rs.5,000 if the return is filed after the due date but before December 31 of the assessment year.
Rs.10,000 if the return is filed after December 31 of the assessment year.
For taxpayers with a total income of up to Rs.5 lakh, the maximum penalty is Rs.1,000.
Interest on Due Tax (Section 234A):
Interest at 1% per month or part of the month is charged on the amount of tax outstanding from the due date of filing until the date the return is actually filed.
2. Non-Payment or Late Payment of Tax filing
Interest for Non-Payment or Delay in Payment of Advance Tax (Section 234B):
Interest at 1% per month is levied. This is levied if 90% of the assessed tax is not paid by the end of the financial year.
Interest for Deferment or Delay in Payment of Advance Tax (Section 234C):
Interest at 1% per month is levied for deferment of advance tax installment payments.
3. Under-Reporting or Misreporting of Income
Penalty under Section 270A for Under-Reporting Income:
It amounts to 50% of the tax payable on under-reported income.
200% of the tax payable in cases of misreporting of income.
Examples of Misreporting:
Misrepresentation or suppression of facts.
Failure to record investments in books.
Claiming expenses not substantiated by evidence.
Recording false entries in the books.
4. Failure to Maintain or Furnish Documentation
Penalty for Failure to Maintain Books of Accounts (Section 271A):
Rs.25,000.
Penalty for Failure to Furnish Information or Documents (Section 271AA):
2% of the value of the international transaction or specified domestic transaction.
5. Failure to Report Specified Financial Transactions
Penalty for Non-Reporting of Financial Transactions (Section 271FA):
Rs.100 per day of default.
Prosecution for Severe Non-Compliance
In cases of severe non-compliance due to failure in income filing, the Income Tax Department may initiate prosecution proceedings, which can result in imprisonment and fines:
Failure to File Returns (Section 276CC):
Imprisonment for 3 months to 2 years if the tax evaded exceeds Rs.25 lakh; the term can extend from 6 months to 7 years.
Will-ful Attempt: Evade Tax (Section 276C):
Imprisonment for 6 months to 7 years and a fine if the amount of tax, penalty, or interest evaded exceeds Rs.25 lakh; otherwise, imprisonment for 3 months to 2 years and a fine.
Failure to Deposit Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) (Section 276B):
Imprisonment for 3 months to 7 years and a fine.
Conclusion
Filing income tax returns is an essential responsibility of every taxpayer in India. It ensures legal compliance, financial transparency, and eligibility for various benefits. By understanding the process, selecting the correct ITR form, and avoiding common mistakes, taxpayers can efficiently manage their tax obligations. Timely and accurate filing not only avoids penalties but also contributes to the nation’s economic development.