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Income Tax Filing: 10 necessary guidelines that you must be aware of
June, 17th 2024

For salaried individuals and those whose accounts aren’t subject to audit, the deadline to submit income tax returns for the financial year 2023-24 (Assessment Year 2024-25) is July 31, 2024. In recent years, the government has taken steps to simplify the tax filing process for taxpayers. Here are some initiatives aimed at achieving this goal:

  • Pre-filled ITRs: The Income Tax Department automatically populates tax return forms with information obtained from employers, banks, and investment entities. This initiative saves time and minimises errors during the filing process.
  • Streamlined ITR forms: Different Income Tax Return (ITR) forms cater to various taxpayer categories. Forms like ITR-1 (Sahaj) and ITR-4 (Sugam) are tailored to individuals with straightforward income sources such as salary, pension, and interest earnings, making the filing process simpler.
  • Online submission: The Income Tax department encourages taxpayers to file their returns online. This approach offers convenience and reduces reliance on physical paperwork.

By adhering to straightforward tips and guidelines, taxpayers can guarantee accurate filing of their returns, thereby minimising the likelihood of queries from the income tax department and averting other related issues.

Selecting the right ITR form

It’s crucial to choose the appropriate ITR form for precise tax filing and to steer clear of delays or penalties. Selecting the correct ITR form is essential as it facilitates accurate income reporting, enables you to claim eligible deductions and tax credits, and diminishes the chance of receiving a “defective return" notice from the Income Tax department due to incorrect form submission.

Several factors affect the choice of ITR form:

  • Income sources: The nature of your income (such as salary, business income, capital gains) significantly influences the selection.
  • Residential status: Your residential status in India (whether you are a resident, non-resident, etc.) dictates the relevant tax regulations applicable to you.
  • Other considerations: Additional criteria like the type of business, foreign income, and agricultural income can also impact the decision regarding which form to use.

Here is a quick rundown of a few widely used ITR forms:

  • ITR-1 (Sahaj): This form is the most straightforward option and is suitable for residents who have income from one house property, pensions, salaries, other sources (not including winnings from lotteries and races), and agricultural income up to Rs. 5000.
  • ITR-2: Intended for individuals who are residents of the country and Hindu Undivided Families (HUFs) who have income from a range of sources, such as capital gains, business income, foreign income, and ownership of multiple residential properties.
  • ITR-3: Generally utilised by HUFs and individuals in business or related professions.

Choosing the right tax regime matters

The tax regime that an Indian taxpayer chooses is crucial. From the fiscal year 2023–24 (Assessment Year 2024–25), the streamlined tax system—also referred to as the new tax regime—was replaced by the default tax regime under the Union Budget 2023. The current tax system allows taxpayers to continue filing their taxes. Through a choice on the ITR form, people can choose not to participate in the new system.

The Income Tax Department’s website provides tax calculators that let users determine their tax obligations under various regimes depending on their income and allowable deductions, which can aid in decision-making. This tool assists in determining which regime offers individual taxpayers the most benefits.

Income reconciliation before filing ITR

Before finishing your tax return, you must reconcile your income. That’s why this is important:

  • For accuracy and completeness: Reconciliation guarantees the accuracy and completeness of all income sources by identifying and accurately reporting them. Revenue reported on Forms 16/16A (salary income), 26AS (tax credit statement), and Annual Information Statement (AIS) (income from other sources) are all included in this.
  • Preventing discrepancies: If you fail to file your income taxes, there may be differences between your tax return and the data that the Income Tax department has gathered from different sources. Penalties, interest costs, and inquiries could follow these irregularities.

Here’s how to successfully balance your income step-by-step:

  • Collect documents: AIS (accessible on the Income Tax Portal), Form 26AS from the Income Tax Department’s website, and Form 16/16A from your employer(s) for the relevant fiscal year.
  • Compare revenue sources: Using these documents, compile a list of all of your sources of income, including your salary, interest income, capital gains, and rental income.
  • Cross-check amounts: Look over the income amounts for each source of income that are stated in each document. Ensure consistency with every record.
  • Find discrepancies: If you come across any, investigate the primary cause. Inconsistencies may arise due to legitimate reasons (like delayed credit) or they may indicate unreported income.
  • Clarify discrepancies: To offer clarification during tax filing, collect supporting documentation (such as investment receipts and updated TDS certificates) for any real discrepancies.
  • Report missing income: To avoid penalties, disclose any unreported income you come across when filling out your tax return.

Entering TCS details

In India, Tax Collected at Source (TCS) is a crucial component of tax filing. It functions as a mechanism whereby a seller withholds from the buyer, during specific transactions, a predetermined percentage of tax. The vendor then gives the Income Tax Department this amount of tax. Applications for TCS include reservations for foreign travel, automatic purchases, and specific financial transactions.

Your Form 26AS (tax credit statement) and AIS, which are accessible on the Income Tax Department website, provide details about your TCS deductions. You can claim credit for this tax amount when filing your ITR form if you have received TCS deductions. Your total tax liability is decreased as a result of this activity.

It is critical to verify that all TCS deductions made during the year are correctly represented on your Form 26AS and AIS. In the event of any discrepancies, you can contact the seller that deducted the TCS to correct the records. By claiming credit for TCS deductions, you avoid double taxation on the same income, lowering your overall tax bill and potentially qualifying for a refund. The appropriate TCS rate varies according to the kind of transaction, and not all transactions require TCS deductions.

Minimising tax credits while filing ITR

Tax credits comprise taxes (such as advance tax, self-assessment tax, TDS, and TCS) that are deducted or paid in advance during the year. You can be sure that you are only paying your net tax liability if you accurately report them in your ITR. A complete record of all tax deductions and payments made by you (advance tax, self-assessment tax) and on your behalf (TCS and TDS) can be found on Form 26AS (tax credit statement) and AIS, which are available online at the Income Tax Department.

It’s crucial to accurately provide all relevant information when inputting these tax credits into your ITR form, including:

  • Account Number for Tax Deduction and Collection (TAN): The TDS deductor—typically your employer—is indicated by this code.
  • Deposit date: The precise day on which the tax money was deposited.
  • Challan serial number: A special identification number attached to every challan for tax payment.

Before filing your ITR, make sure there are no inconsistencies between the tax credit information provided in Forms 26AS and AIS and your personal records (such as TDS certificates, advance tax challans, and so forth).

Claim past losses

Utilising eligible losses presents a valuable avenue for reducing your tax burden in India. Here’s a breakdown of the key considerations:

  • Tax advantage of losses: By reporting business losses, capital losses, and certain other qualifying losses, you can offset your taxable income. This may result in reduced taxes owed or even a tax refund.
  • Current and prior year losses: Losses incurred during the current financial year (Assessment Year) can be claimed in your current ITR filing. Additionally, eligible unclaimed losses from previous years can also be utilised in your current ITR.
  • Carry forward of unutilized losses: The Income Tax Act permits the carry forward of unclaimed losses for a specified duration (depending on the type of loss). Reporting these unutilized losses in the appropriate section of your ITR form ensures that you retain the opportunity to apply them in subsequent years.

Various types of losses come with distinct carry-forward periods. For example, business losses typically have an eight-year carry-forward period, whereas capital losses are subject to specific regulations based on whether they are short-term or long-term. It’s important to maintain accurate records of your income and expenses to validate any claimed losses.

Declaring assets created in foreign lands

Disclosure of foreign assets and income is imperative for Indian taxpayers who are either residents or ordinarily residents (RORs). To confirm information about offshore investments, the Income Tax Department is increasing transparency and sending notices. Foreign assets owned by ROR taxpayers must be reported on their ITR.

A separate schedule (Schedule FA) for revealing details about foreign assets is included with the ITR form. This covers all bank savings accounts, investments, real estate, and other overseas holdings that are owned at any point during the fiscal year.

Non disclosure of foreign assets may lead to fines and possibly legal action. If information submitted to the Income Tax Department through international agreements differs from your ITR, there may be grounds for investigation and possible tax repercussions.

Submitting the right bank account details

Make sure your bank account details are accurate and up to date when completing your ITR form in India to potentially receive a tax refund. You are entitled to a tax refund from the Income Tax Department if, after calculating your taxes and applying deductions and credits, you find that you overpaid. You must include your bank account information on your ITR form to receive your refund electronically. This comprises:

  • Account number: Provide the specific account number of the bank where you wish to receive the refund.
  • IFSC Code: Include the Indian Financial System Code (IFSC) of your bank branch. This code facilitates electronic fund transfers.
  • Name of the bank: Mention the name of the bank where your account is held.

You must designate an active, verified bank account. Through a verification procedure, the Income Tax Department might pre-validate the details of your bank account. Additionally, confirm the accuracy and completeness of your bank account information thoroughly before filing your ITR. You can pre-validate your bank account via the Income Tax Department’s e-filing portal to save processing delays. Make sure that during the processing period, the bank account you designate for the refund is active and valid.

File your ITR before the deadline

Filing your ITR form on time is critical to avoid different issues. Here’s a summary of the key points you should be aware of.

  • Financial fines: Failure to fulfil the deadline results in late filing costs and possible fines. The amount fluctuates depending on your income and the length of time you wait to file.
  • Loss of tax benefits: You risk missing out on claiming specific tax breaks, such as the simplified tax regime, or carrying capital losses forward to offset future profits.
  • Delayed refunds: If you’re owed a tax refund, filing late can drastically delay receiving it.

Prioritising the timely submission of your ITR is strongly suggested to avoid these negative consequences.

Verify your ITR details

After filing your ITR, the final step is to verify its legitimacy. This verification must be done within 30 days of submitting, which is a significant change implemented in August 2022. It is critical to be updated about the amended deadline. You have a few convenient verification options:

  • Aadhaar OTP: If your Aadhaar mobile number is associated with your income tax account, this approach is popular and quick.
  • Net Banking: Verify your pre-validated bank account through the internet banking platform.
  • Physical ITR-V: Although less usual nowadays, you can still send a signed copy of the ITR-V form obtained after filing to the CPC Bangalore office. However, this option is slower and requires physical mailing.

Your ITR becomes null and void if you don’t authenticate it within 30 days. This could result in difficulties getting tax refunds, potential penalties, and delays in the procedural process. Prompt verification ensures that your ITR is processed effectively and without complications.

While many of you might already be familiar with the basic procedures for filing your ITR form, it’s crucial to keep all your income-related documents organised for quick access during the filing process. Make sure to thoroughly explore and claim all the tax deductions and exemptions you qualify for to reduce your tax liability. Additionally, settle any outstanding tax dues before submitting your return.

Finally, it’s recommended to refer to the Income Tax Department website or seek advice from a tax professional for comprehensive information and any specific requirements relevant to your individual circumstances.

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