Income Tax Return
ITR stands for Income Tax Return. It is a prescribed form through which the particulars of income earned by a person in a financial year and taxes paid on such income are communicated to the Income-tax Department. ITR helps you claim deductions and thereby determines your annual tax liability. Filing your tax returns is mandatory when you earn an amount that qualifies as taxable as per the income tax slabs determined by the government. However, you can also file your returns voluntarily if your income is below the threshold as it helps you qualify for loans and partake in other similar transactions.
Let us take a look at some of the reasons and understand why filing of tax returns is important to an individual:
- The main reason to file ITR in India is because the government mandates it beyond a certain income. As a responsible citizen of the country, you must understand your tax obligations and comply with set of rules in a timely and lawful manner.
- Producing proof of tax returns, even voluntarily, helps with availing certain financial products and services. Typically, for loans and other credit options, you are required to show tax returns of the past three years in order to qualify.
- Losses incurred in previous years cannot be shown for exemption at a later stage, it helps to have them on record via income tax returns filing. Doing so allows you to reduce your tax liability against in the subsequent years.
- Financial stability is known to be a prerequisite for visa approval for certain countries. The consulates of countries like US, UK, Canada among others require copies of your tax returns for the past few years for processing your visa application. Hence, do not forget to file your tax returns on a regular basis.
- Filing returns adds to your credibility and trustworthiness. In contrast, the consequences of not filing your return on time can be unfavourable.
Eligibility to file ITR
As per the Income Tax Act of 1961 following categories of individual can file ITR:
- Individual who is under 60 years of age and earns a total income of Rs. 2.5 lakh or more in a financial year is required to file ITR
- Individual between the ages of 60 and 80 years with total annual income of Rs. 3 lakh or higher
- Individual over the age of 80 years with total annual income great than Rs. 5 lakh
- Individual who wishes to carry forward losses that have been incurred
- Any Indian resident who owns an asset or has any financial link to an international entity
Different Types of ITR Forms
There are 7 types of ITR forms for filing of income tax returns. Being individual, you should know the below 4 types of forms which is specifically applicable to individual category:
· ITR-1: Individual being a Resident who earn an income from Salary, Pension, 1 House Property, Interest or any other form up to Rs. 50 lakh in a financial year are eligible to use this form (also Agricultural Income up to Rs. 5 thousand).
· ITR-2: Individual whose income is not from the profit of a business or a profession and who cannot use form ITR-1 is eligible to use this form.
· ITR-3: Individual whose source of income is from the profits of a business or profession in a financial year are eligible to use this form.
· ITR-4: Individual who qualify under the presumptive taxation scheme, earning less than Rs. 50 lakh from a notified profession or under Rs. 2 crore from a business income, are eligible to use this form.
Below table summarises the various types of ITR and helps the individual to select the correct ITR form:
What happens if you don’t file Income Tax Returns?
Tax evaders can come under scrutiny, receive notices and bear the burden of heavy penalties. In the event of extreme cases, the IT department can also initiate criminal action. This may include the following:
Late Fees:
The penalty you incur for not filing tax returns depends on two main factors: the income and the number of days it has been due since the due date for filing. Based on these parameters, you can be penalised anywhere between Rs. 1,000 and Rs.10,000 if your income is below Rs. 5 lakh. If you earn more than Rs. 5 lakh, you may be penalised between Rs. 5,000 and Rs. 10,000.
Penalty:
In case you have not reported any income at the time of filing ITR and this unreported income is later discovered by the Income Tax Department, then later a penalty of 50 per cent /200 per cent for under-reporting /mis-reporting of income.
Prosecutions:
An individual can be prosecuted under section 276CC of the Income Tax Act with imprisonment and fine for wilful failure/default in filing the income tax return.
Conclusion
Filing of return is your duty and earns for you the dignity of consciously contributing to the development of the nation. Filing an Income tax return doesn’t only help you in doing income tax compliance or only for getting exemption. As discussed above, it indeed helps you in many different ways. So get ready to file a return even if your income is below the minimum income to file tax return in India.
Disclaimer:
The contents of this article are for information purposes only and do not constitute advice or legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point in time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of the statute, latest judicial pronouncements, circulars, clarifications and other factors before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / Simplify Business and Tax Consultants are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
AUTHOR BIO
Name: CA Natesh Rao B.
Qualification: Chartered Accountant in Practice
Firm: Rao N & Associates | Chartered Accountants
Location: Bengaluru
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