General, Income Tax, Tax

All about Income Tax Return (ITR)

all-about-income-tax-return-itr

Four Ws will brief us about the Income tax return (ITR).

WHAT?

By definition Income tax return is a document you file with the internal revenue service or the state tax board reporting your income, profit and losses of your business and other deductions as well as details about your tax refund/ tax liability.

In case of India, it simply means a form in which an individual files information about his income and tax to Income Tax Department.

There are various FORMS: ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, and ITR-7. These forms vary depending on the criteria of the source of income and category of the assesse (as per section 2(7) of Income Tax Act, 1961 it means a person by whom any tax or any other sum of money is payable under this act. But generally it is any person against whom proceedings under income tax act are going on, irrespective of the fact whether any tax or other amount is payable by him or not)

It is the Income Tax Act 1961 and income tax rules 1962 which obligates a citizen to fill returns with income tax department at the end of every financial year (1st April – 31st March).

Income tax return needs to be filed before the due date, else penalties are applicable.

Due date of filing income tax returns for FY 2017-18 (AY 2018-19):

  • 31ST July : individuals
  • 30th September: businesses (requiring audit)

WHO?

As per the Income Tax Act it is mandatory to file ITR if:

  • Gross total income exceeds Rs.2, 50,000 in FY 2017-18 (before allowing any deductions in section 80C to 80U). For senior citizens (60-80 yr) it is Rs.3,00,000 and for super senior citizens (80+) it is Rs.5, 00,000.
  • You are a company/firm.
  • Want to claim income tax refund.
  • Want to carry forward a loss under a head of income.
  • You have exempted long term capital gains from: sale of equity share/ equity oriented mutual funds/ business trust of more than Rs. 250000 in a financial year. (all these are exempt of taxes)
  • You are resident and have asset/ financial interest in an entity outside India. And resident and have a signing authority in foreign account (not applicable to NRIs or RNORs).
  • There ‘s income derived from : property under trust (charity or religious purpose or political party and research association), news agency, education and medical institution, trade union, anon- profit university/ educational institution, hospital, infrastructure debt fund.
  • You are a foreign company taking treat benefit on a transaction in India.

HOW?

Electronically filing Income tax return is known as E-filing. Following are the steps:

  1. Download the automated compliance software. For instance: Taxmann ‘s solution. It is for the easy calculation and preparation of returns.
  2. Login to E-filing website with user ID, password, date of birth/ date of incorporation and capcha.
  3. Go to E-file and click on ‘prepare and submit’. (Only ITR-1 and ITR-4can be filed online).
  4. Select the ITR Form ITR 1/ Form ITR4 and the Assessment year.
  5. Fill the details and click the ‘submit’ button.
  6. Upload DSC (digital signature certificate) if applicable.
  7. Click submit.

Return filing process will be completed.

WHY? – Why is filing income tax return importance/ beneficial?

  • Applying for loans: in case of applying for vehicle loan all major banks asks for a copy of tax returns. For instance: State Bank of India asks vehicle loan applicants for the latest salary – slip showing all deductions/ TDS certificate / FORM 16/ copy of ITR for the last 2 financial years. Even applying for HOME LOANS many banks ask for FORM 16 or even ITR receipts.
  • To claim refund : most importantly if you have a refund due from the income tax department you will have to file returns without which you will have to forgo the refund.
  • To carry forward losses: if you do not file returns you will not be able to carry forward capital losses (short term / long term), if any, in a financial year to be adjusted against capital gains made in the subsequent years.
  • Visa processing: applying for visa to undergo foreign travels also requires ITR receipts. As if you are travelling overseas, foreign consulates ask you to furnish ITR receipts for the last couples of years at the time of the visa interviews. Especially for travelling to US, UK, Canada or Europe, but for South East Asia or Middle East the visa laws are not so stringent. One must always carry ITR or income related proof as consulates specify these requirements in most cases. As ITR receipts shows some source of income in India thus will help in strengthening ones case that someone will not leave the company for good but will return back.
  • For buying high life covers / policies: nowadays buying high life covers has become very common i.e. over 50 lakhs to 1crore. These are available against your ITR documents to verify annual income.
  • Government tenders: if one has to plan to start their business and need to fill a government tender or two for the same , they will need to show them tax return receipts of the previous five years to show your financial status and whether you can support the payment obligation / or not. There are no strict rules; it generally depends on the internal rules of Government department.
  • Necessary for self – employed individuals: for all sorts of financial transaction, ITR receipts will be the only proof of income and tax payment of self employed.

As per the new Section 139AA inserted in the Income Tax Act by the Finance Act, 2017: “Aadhaar is mandatory for getting a PAN”. Possession of Aadhaar card is necessary for the continuing validity of an existing PAN and for filing returns under the Income Tax Law.

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CA Rachit Jain

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