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Filing Income Tax Returns (ITR) may be cumbersome, but its benefits far outweigh the momentary inconvenience. According to the income tax laws, filing ITR is mandatory for some and voluntary for others, however, filing it is essential regardless of the category one falls under.
ITR is a tax return form used by taxpayers to report their income and assets to the Indian Income Tax Department (Indian Revenue Authorities). It has details related to the taxpayers’ personal and financial data. ITR is essentially a type of self-declaration by the taxpayer of their income, assets and applicable taxes paid. While it is mostly filed in the electronic mode, there is an option for senior citizens to file it manually as well.
Every person real or artificial, incorporated or otherwise subject to certain exemption limits is liable to file ITR. As per the law, a taxpayer may be a person, artificial judicial person, body of individuals (BOI), Hindu undivided family (HUFs), association of persons (AOP), firm, trust, company, or a society.
Since ITR forms are attachment-less forms, taxpayers are not required to attach any documents such as proof of investments, tax deducted at source (TDS) certificates, etc., along with return of income filed electronically or manually. However, it is advisable to maintain these documents and furnish them before the tax authorities when required, especially in situations like assessment, inquiry, etc.
The process is completed when the ITR filed by the taxpayer is e-verified through OTP generated using the Aadhaar registered mobile number or using internet banking.
The income tax law mandates taxpayers of certain categories to file ITR within the due dates. Below is the ITR filing criteria for taxpayers in India:
1) Individuals with gross annual income above exemption limits as mentioned below:
| Particulars | Amount |
|---|---|
| For individuals below 60 years | INR 2.5 lakh |
| For individuals above 60 years but below 80 years | INR 3 lakh |
| For individuals above 80 years | INR 5 lakh |
2) Every company and firm (irrespective of their profit or loss)
3) An individual, being a resident and ordinary resident in India, if he or she:
4) A person who has deposited an aggregate amount of more than INR 1 crore in one or more current bank accounts.
5) A person who has incurred an aggregate expenditure of more than INR 2 lakh on foreign travel for self or any other person.
6) A person who has incurred an expenditure aggregate of more than INR 1 lakh towards electricity consumption.
As per the data released by the government, for tax year 2018-19, around 7 crore [1] ITRs were filed by taxpayers in India.
ITR is filed on a financial year (tax year) basis for each tax year (i.e., from April 1 to March 31) within below specified due dates:
| S. No. | Type of taxpayer | Due date |
|---|---|---|
| 1 | Taxpayers required to furnish transfer pricing report (applicable for specified transactions with associated enterprises) | November 30 following the end of relevant tax year* |
| 2 | • Company • Any other taxpayer required to get accounts audited under any law • Working partner of the partnership firm whose accounts are required to be audited |
October 31 following the end of relevant tax year# |
| 3 | Others | July 31 following the end of relevant tax year** |
*The due date to file ITR for tax year 2020-21 has been extended to January 31, 2022
#The due date to file ITR for tax year 2020-21 has been extended to January 15, 2022
** The due date to file ITR for tax year 2020-21 has been extended to December 31, 2021
Filing ITR within the stipulated due dates enables one to carry forward losses of the current year to the next financial year.
It is mandatory to fully pay applicable taxes to file ITR. Filing ITR beyond the due date leads to the additional interest of 1% every month or part of the month during the time of delay under Section 234A of the Act on the remaining unpaid tax. It is advisable to pay taxes and file the ITR within prescribed timelines.
Late fees up to INR 10,000 may be charged on the filing of ITR beyond the stipulated timelines. It is in addition to other penalties that may be levied under the Act.
Currently, there are seven ITR forms i.e. ITR 1 to ITR 7 to file tax returns by different sets of taxpayers. The ITR form applicable for any taxpayer depends upon various factors like legal status and category of taxpayer, amount of income earned, sources of income earned, etc.
The below table highlights the applicable ITR form for a taxpayer:
| ITR form | Applicable to: |
|---|---|
| ITR-1 (Sahaj) | • Individuals qualifying as ordinarily residents and having a total income of up to INR 50 lakh. • Having income from salaries, one house property and income from other sources including agricultural income up to INR 5,000. |
| ITR-2 | • Individuals and HUFs with income like that specified for ITR 1 with below additional sources of income/criteria: - More than one house property, or - capital gains, or - lotteries, or - holding foreign assets, or - director in any company, or - holding investments in unlisted equity shares • Applicable to all type of individual taxpayers i.e., ordinary residents, not ordinary residents and non-residents |
| ITR-3 | Individuals and HUFs with income like that specified for ITR 2 and having income from profits and gains of business or profession |
| ITR-4 (SUGAM) | Individuals, HUFs, and firms (other than LLPs) qualifying as ‘ordinary residents’ with income like that specified for ITR 1 and also, having income from business and profession which is computed under specific provisions of law i.e., deeming provisions (Section 44AD, 44ADA or 44AE of the Income Tax Act, 1961 (the Act)) |
| ITR-5 | • Applicable to AOP, limited liability partnership (LLP), BOI, estate of deceased, artificial juridical person, business trust, estate of insolvent and investment fund • Not applicable to individual, HUF, company, and person filing Form ITR-7 |
| ITR-6 | Companies other than companies having income from property held for charitable or religious purposes and claiming exemption under Section 11 of the Act |
| ITR-7 | Taxpayers (including companies) required to furnish returns under specific provisions of the Act (like charitable or religious trust, political party, scientific research association, news agency, hospital, trade union, university, college, or other institutions such as an NGO or similar organisations etc.) |
Non-compliance with this requirement may result in multi-fold penal consequences for the taxpayers in India.
Apart from the mandatory requirement, in case the income of taxpayer does not cross the exemption limit specified (up to which ITR filing is not mandatorily required), it is advisable for taxpayer to file the ITR to reap the below benefits:
Regular ITR filing is documented evidence of steady income and an indication that the individual has been paying taxes religiously. Financial institutions seek ITR filings of previous years to approve loans and other credit lines such as overdrafts, credit cards, cash credits and bill discounting facilities. Moreover, it also plays a vital role in ascertaining the credit history of a taxpayer through the Credit Information Bureau (India) Limited (CIBIL) score.
ITR is legitimate proof of one’s income and is often considered by several host countries while processing visas. Although not mandatory, it ensures the ease of obtaining visas.
ITR filings can also serve as proof of income and address. Contrary to employed individuals who receive salaries and are in possession of tax withholding certificates, ITR filings come in handy to those who are self-employed and do not have any income proof to produce.
Income tax refunds are common, and millions of taxpayers claim them each year. Taxpayers who paid more than their tax liability are eligible to claim a refund. Term deposit interests or dividend income may be exempt for those with income below the exemption limit. Regardless of the exemptions, withholding of taxes is a likelihood. The refund of taxes withheld from income may be claimed by ITR filing.
For high-value transactions or foreign transactions, especially the sale or transfer of assets, one is required to furnish a tax clearance certificate under Section 281 of the Act. Filing regular ITR is a prerequisite to obtaining this tax clearance certificate.
ITRs of the previous few years are deemed important to qualify if one is intending to undertake any government projects through the filing of tenders. It is one of the decisive factors to make one eligible to apply for such tenders.
In essence, ITR provides details of income earned throughout the years and their sources. These details play a significant role during high-value transactions especially related to property purchase, investments, etc., at a later stage
In the case of a deceased taxpayer, ITR serves as a record that provides details of their assets and liabilities throughout their lifetime. This can in turn help in the amicable distribution of these assets to their legal heirs.
The filing of ITR is an important obligation cast by the law on the taxpayers. It is important for the taxpayers to report their income and assets in ITR and pay applicable taxes within the stipulated timelines.
Over the last few years, there has been a substantial increase in the number of tax return filings. The government has also introduced several measures to encourage more filing of ITRs by the eligible taxpayers.
These measures include revamping the income-tax portal, pre-filled forms having auto-populated data from permanent account number (PAN), withholding tax returns, other reporting by financial institutions, etc. It has also helped the government in tracking tax defaulters.
While the filing of ITR has many financial and non-financial benefits in terms of relative ease of access to loans, avoidance of interest and penalties, the claim of tax refund, hassle-free visa processing, etc., it is also the social responsibility of every tax payer.
It is pertinent to note that with various databases getting linked like Income Tax department, GST authorities, SEBI, and tax authorities receiving information from various sources like overseas tax jurisdictions under information exchange agreements etc, coupled with the increased automation and digitization, most of the information is or will be readily available with the tax authorities. Therefore, there is no escaping the tax man.
This article was originally published in Forbes.