How To File Your Income Tax

The season of income tax filing is here and so is the hurry to save taxes.

By following the right procedure of submitting your income, declaring your tax deducted at source and filing your Income Tax Return (ITR) form on time, you can save a lot of time and taxes.

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Why Do You Need to File Your Taxes?

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As mandated by the law, as a legal citizen of a country every individual and entity must file their taxes without fail. To know your tax liability, you should meet certain criteria based on income level, property ownership, and other assets such as stocks, mutual funds and other investments.

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Your taxes fund public services such as education, healthcare, infrastructure and defence. The process of filing taxes becomes a formal record of your income. It can be useful for future financial requirements such as loan applications or visa processing.

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If you fail to file taxes, it can lead to serious consequences from heavy fines to imprisonment in severe cases. And if you have paid more tax than you owe (through TDS, for example), filing your return is the only way to claim a refund.

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What Are The 5 Heads of Income?

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Income tax comprises five primary heads of income- salary, income from house property, profits and gains of business or profession, capital gains and income from other sources.

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Income Source 1: Salary

This includes your earnings from employment, bonuses, perquisites and other allowances. Most of your salary components are taxable leaving a few allowances that are either exempt or have a threshold limit to their taxability.?

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Tax deducted by your employer at the source also known as TDS is based on specific income tax slabs. Employers use Form 16 to document the salary, you are being paid and tax deducted on your behalf. As a relief for salaried individuals, there are many deductions such as standard deduction (up to a limit of ?50,000), professional tax paid and entertainment allowance, if any.

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Income Source 2: Income from House Property

This income source includes rental income from the property you own. The rental income you receive is the Gross Annual Value (GAV). From this, you deduct the municipal taxes paid, a 30% deduction for repair and maintenance and interest on the loan taken, if any.

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As per the Income Tax Act, you must declare all property income and expenses in your Form 16. Even if you don’t rent it out, notional rent has to be considered.

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Income Source 3: Profits and Gains of Business or Profession

It includes the profits from any business or profession you own. All expenses related to the business are deductible. You can even claim deductions on depreciation on the assets pertaining to the business. Small businesses can opt for this scheme under sections 44AD, 44ADA, and 44AE, which allows them to declare income at a prescribed percentage of turnover.

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Income Source 4: Capital Gains

Capital gains are the profits from the sale of property or investments. They can be short-term or long-term gains, based on their holding period. For example, property held for more than 24 months is considered long-term.

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Income Source 5: Income from Other Sources

This source is for all the income not covered by the other heads. For example, interest from savings accounts, income from post office savings scheme, fixed deposits, dividends, lottery winnings and gifts, if any.

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Who Needs to File Income Taxes?

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The following individuals are required to file ITRs:

– Individuals with an annual income above the income tax exemption limit, which is ?2.5 lakhs for those under 60 years of age, ?3 lakhs for senior citizens above 60 years of age and below 80, and ?5 lakhs for super senior citizens above the age of 80.

– Indian residents and Non-Resident Indians (NRIs) who earn income that falls under the government’s tax jurisdiction.?

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What are the Necessary Documents Required to File Taxes?

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These are the documents that you require while filing your ITR:

– PAN and Aadhaar card

– Bank statements

– Form 16

– Donation receipts

– Stock trading statements from the broker platform

– Insurance policy receipts

– Aadhaar registered mobile number for e-verifying the return

– Interest certificates from banks

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How Do I Choose the Right ITR Forms?

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There are 7 ITR forms to choose from:

ITR-1 (SAHAJ): For resident individuals with income up to ?50 lakh from salaries, one house property, other sources and agricultural income up to ?5,000.

ITR-2: For individuals and HUFs not having income from business or profession, including those with capital gains or foreign assets/income.

ITR-3: For individuals and HUFs with income from profits and gains of business or profession, including those working as partners in a firm.

ITR-4 (SUGAM): For resident individuals, HUFs and firms with presumptive income from business or profession under sections 44AD, 44ADA, or 44AE under income tax.

ITR-5: Used by entities other than individuals, HUFs and companies, such as partnerships and LLPs.

ITR-6: Exclusively for companies that do not claim exemption under section 11 (income from property held for charitable or religious purposes).

ITR-7: For persons including companies required to furnish returns under sections 139(4A), 139(4B), 139(4C) and 139(4D) such as trusts, political parties and academic institutions.

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What is Form 16?

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Form 16 is a certificate issued by employers to their employees under the Income Tax Act 1961. It provides a summary of the salary paid and taxes deducted from it during the year.

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What Are the Deadlines for Filing Your Taxes?

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The tax filing deadline is typically on July 31st of the assessment year (AY for FY 2023-24 is the next financial year i.e., FY 204-25) for individuals. There are different deadlines for various ITR forms.

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How Can You File Taxes Online?

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By following these steps you can e-file your ITR.

Step 1: Register

You can file taxes online through the official income tax department website. First, you need to create an account in the income tax’s official website or click on ‘Login’, if you don’t have an existing account.?

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Step 2: Verify

Then, verify your account with your phone number and email address. Most importantly your PAN must be linked to your bank account to get your ITR in time.?

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Step 3: Choose ITR Assessment Year and Status

After verifying your details, go to ‘File Income Tax Return’ and click on the ‘e-File’ tab > ‘Income Tax Returns’ > ‘File Income Tax Return’. Next, select the ‘Assessment Year’ (click on ‘Assessment Year’ as ‘AY 2024-25’ if you are filing for FY 2023-24). After that choose the filing type, either ‘original return’ or ‘revised return’.

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Step 4: Select the Status and ITR Form

Choose your applicable filing status such as individual, Hindu Undivided Family (HUF) or firm. Now, select the appropriate ITR type. There are various forms such as ITR 1 to ITR 4 for individuals, HUFs and businesses. For example, use ITR 2 if you have income from capital gains.

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What Deductions Am I Eligible For?

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Deductions reduce your taxable income and are available for many investments and expenses. Here is a list of deductions that you can be eligible for under the Income Tax Act:

Section 80C- Deductions for up to ?1,50,000 on eligible payments

Section 80CCC- Insurance premium

Section 80CCD- National Pension Scheme (NPS)

Section 80TTA- Interest on savings account

Section 80GG- House rent paid

Section 80E- Interest on education loan

Section 80EE- Interest on home loan

Section 80D- Medical insurance

Section 80DD- Disabled dependent

Section 80DDB- Medical expenditure

Section 80U- Physical disability

Section 80G- Donations to charitable institutions

Section 80RRB- Royalty of a patent

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How Do You Check the Status of Your Tax Refund?

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You can check the status of your tax refund online through the income tax department’s portal by logging into your account. You’ll need your Permanent Account Number (PAN) and the year for which you want to check the refund status.

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What is Tax Harvesting?

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Tax harvesting, also known as tax-loss harvesting, is a strategy used to minimise taxes on capital gains. So, you sell securities that have a loss and replace them with similar investments to maintain the portfolio’s asset allocation and expected return. Hence, you “harvest” a loss, which can be used to offset taxes on both capital gains and annual income.

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Equity Linked Savings Scheme (ELSS) is a popular tax-saving investment option in India.

They have a mandatory lock-in period of three years. After the lock-in period, any gains from the sale of ELSS shares are subject to long-term capital gains tax if they exceed ?1 lakh in a financial year. And if you have other investments that are at a loss, you could sell these investments to realise the loss and use it to offset any capital gains from ELSS or other investments. Therefore reducing your capital gains tax liability.

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