14 Jan 2020

Towards the end of each financial year in India, taxpayers provide personal information consisting of their tax-filing status and dependent information in the form of an Income Tax return. Though this appears to be a quick task, there goes a significant preparation towards filing before the deadline. What must a taxpayer keep in mind to complete the ITR filing process?

The taxpayer must understand that income tax returns allow them to schedule their tax payments, calculate any tax liability, and request a refund for overpaid taxes. Taxes act as the main source of income for the Government. They are essential to maintain deficits and the optimum cash flow in an economy.

A taxpayer must also have easy access to documents like Aadhar Card, bank details, Form 16, Form 16A/16B/16C, Form 26AS, investment proofs, home loan statement, and statement on capital gains.

Who must file an Income Tax return? Clarifying a common misconception

There are various tax rates with respect to income brackets which decide the final taxation amount for a taxpayer. According to the Income Tax Department of India, individuals who earn an income of INR 5 Lacs or less are exempted from paying the taxes. Some taxpayers misinterpret the idea that if their income is not taxable, they need not file an ITR. However, the rule states that an individual has to file his income tax return if the gross taxable income for general taxpayers is above INR 2.5 Lacs. For senior (60+) and very senior citizens (80+), the exemption limit is INR 3 Lacs and INR 5 Lacs, respectively.

Everything you need to know about Income Tax returns

Source: Economic Times

Which form must a taxpayer fill to file an income tax return?

An ITR 1 or SAHAJ is to be filled by those with income from salary or pension, one house property, or from sources like interest, dividends, et al. This form can’t be filled by the taxpayers who are carrying forward losses, whose income exceeds INR 50 Lacs, who hold foreign assets, whose agricultural income exceeds INR 5000, who have taxable income gains, have income from business or profession, and earn from more than one house property.

Form ITR 2 is filled by those with income from salary or pension, one house property, capital gains, other sources, as a partner in a firm, foreign assets and agricultural income of over INR 5000. This form is not applicable to those who have income from business or profession.

Claiming Deductions - Sections 80C, 80D, 80EE etc

In India, Income tax deductions are commonly viewed in harmony with Section 80C of the Income Tax Act, 1961. However, a variety of sections under the Income Tax Act provide taxpayers with deductions. The amount paid as medical insurance premium (medi-claim) is eligible for deduction under Section 80D. Under section 80DD, the deduction is available to a taxpayer for the expenditure with regards to caring for disabled persons who are dependent on him. If the taxpayer has taken an education loan from any financial institution for themselves, their spouse, children, or a student for whom the taxpayer is a legal guardian, they can claim deductions under section 80E for the interest paid on the loan amount. Under section 80EE, the deduction is available to an individual for the amount paid as interest on a home loan. The maximum deduction that can be claimed under this section is Rs 50,000 per annum. An individual can claim a deduction of Rs 1.5 lakhs in a year under Section 80C for investments in financial instruments like tax-saving fixed deposits, PPF and EPF.

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Penalties on missing deadline for ITR filing

The amount of late ITR filing fee depends on the amount of tax and the amount of duration exceeded. From last year onwards, the penalty for late filing of Income Tax return is up to a maximum of INR 10,000. The Government has provided relief to small taxpayers. If the gross annual income does not exceed INR 5 Lacs, the maximum penalty is INR 1,000.

Having understood the nuances of income tax return, you must ensure that the aforementioned preparation helps you in filing ITR smoothly and on-time. Additionally, send your ITR V for verification to the income tax department within 120 days of filing your returns.

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