The abbreviation ITR refers to Income Tax Return. As the term implies, Income Tax is a tax imposed on the total income earned during a financial year, and it serves to inform whether the individual has paid the required tax to the Department of Income Tax. If a person pays excess tax, they can claim an Income Tax Refund under the IT Act, 1961.
Income Tax is regulated by the Income Tax Act, 1961. According to this act, every individual is liable to pay Income Tax at a prescribed rate if their total income exceeds the specified threshold. The Ministry of Finance sets the Income Tax Rates each year in the Finance Act.
Who needs to file an ITR?
The following entities must file an Income Tax Return if their total taxable income exceeds the prescribed threshold in a financial year:
- Individuals
- Hindu Undivided Families (HUFs)
- Firms
- Limited Liability Partnerships
- Associations of Persons
- Bodies of Individuals
- Companies
- Local authorities
- Any other Juridical Person
Tax liability is dependent on the residential status of an individual. Any resident of India is required to pay tax on their total global income.
Sources/Heads of Income - Section 14 of the Income Tax Act, 1961:
- Income from Salary
- Income from House Property
- Income from Capital Gain/Loss
- Income from Business & Profession
- Income from Other Sources
Documents Required for ITR Filing:
- Form 16 (A/B/C/D)
- Latest Bank Statement
- Form 26AS
- Bank Account Details
- Deduction Certificate (if any)
- Login User ID & Password (Income Tax e-filing Portal)
- PAN
- Aadhar
- Interest Certificate (if any)
- Latest Financial Statement (In case of Company)
- Investment Detail (if any made under section 80)
- Statement of Capital Gain or Loss
ITR Forms and their Applicability:
- ITR-1: For a Resident Individual having Income less than Rs 50 Lakh, covering Salary/Pension, One House Property, and Other Sources.
- ITR-2: For any individual or Hindu Undivided Family (HUF) with income more than Rs 50 Lakh, or having more than one House Property, Capital Gains, Foreign Income/Holding Foreign Assets, Holding Equity Shares of Private Company, or Holding Directorship in a Company.
- ITR-3: For any individual or Hindu Undivided Family (HUF) having income under the head Business or Profession and maintaining Full Books of Accounts.
- TR-4: For any individual (Being Resident), Hindu Undivided Family (HUF), or Firm, covering Income from Business/Profession Computed under Presumptive Taxation Scheme.
And the list continues with ITR-5, ITR-6, and ITR-7, each for specific entities or scenarios.
Implications of not filing ITR:
Failure to file ITR when legally required can result in penalties prescribed under the law. Fee under section 234F of the IT Act is applicable for default in furnishing Return of Income, with different amounts based on the timeline of filing.
Benefits of Filing ITR:
- Contribution to Nation Building
- Avoidance of Penalties
- Availment of Deductions
- Facilitation of Loan Approval
- Provision of Income and Address Proof
- Expedited VISA Processing
- Adjustment of Losses in Subsequent Years
- Encouragement of Investments
- Demonstration of Being a Law Abiding Citizen
Income Tax Slab:
The tax slab rates vary based on the Income Tax Act's sections. For example, Section 115BAC introduced new tax slab rates applicable from the financial year 2020-2021. These rates offer optional tax slab rates to eligible taxpayers, with different rates for different income brackets.
Eligibility Criteria for New Tax Slab Rate:
Only individuals and Hindu Undivided Families (HUFs) have two options of slab rates for a financial year. They can opt for existing tax slab rates along with applicable tax deductions and exemptions or choose new tax rates under section 115BAC without any deductions and exemptions.
The above summary condenses the provided information into a more succinct overview.