What is ITR & How to File Income Tax Return?

Updated on: 18 July 2023

An income tax return is a form that allows you to declare your earnings, investments, and taxes to be paid. It is defined by the Government of India and should be submitted to the Income Tax Department.

Key takeaways

• An Income Tax Return (ITR) is a document used to rep report details about your income and taxes to the Income Tax Department.
• Visit the Income Tax e-Filing portal at https://www.incometax.gov.in/iec/foportal/.
• Log in to the e-Filing portal by entering your user ID (PAN), password, and the provided captcha code. Then, click on ‘Login’.
• Access the ‘e-File’ menu and click on the ‘Income Tax Return’ link.
• In the ‘Taxes Paid and Verification’ tab, choose the appropriate verification option.
• Finally, click on ‘Submit’ to submit your ITR
• ort details about your income and taxes to the Income Tax Department.
• If an individual’s gross taxable income during a particular, fiscal year exceeds the maximum amount not chargeable to tax, they are required to file an ITR in the prescribed form.

Every individual, business owner or salaried employee should file income tax returns through different ITR forms provisioned by Government. Your earnings include salary, interest, dividends, capital gains and so on.

What is Income Tax Return?

An Income Tax Return (ITR) is a document used to report details about your income and taxes to the Income Tax Department. The amount of tax a taxpayer owes is determined based on their income. If the return indicates that excess tax has been paid within a given year, the individual is eligible to receive a refund from the Income Tax Department.

According to income tax laws, individuals or businesses that earn any income during a financial year are required to file a return annually. This income can be derived from various sources such as salary, business profits, income from property, dividends, capital gains, interests, or other channels.

Different Types of ITR Forms

If you are unaware of the whole ITR process, don’t worry. We will help you understand the whole process step-by-step. Before we go there, let’s understand the different types of ITR in India.

ITR 1

This form must be used if your income is earned through a salary or pension. Additionally, if you have income from house property or other sources, excluding lottery winnings or income earned through horseracing, you need to file this ITR form.

If your annual income exceeds ₹50 lakh or you own foreign assets, you cannot file using this form. Moreover, the form may not be used for taxable capital gains, income from multiple properties, agricultural income exceeding ₹5,000, or income from a profession or business.

ITR 2

If your annual income from house property, salary or pension, or other sources exceeds ₹50 lakh, you must file your ITR using this form. If you club the income of your spouse or children with your annual income, you must file income tax using form ITR 2. However, this form will not be used if your income includes professional or business earnings.

ITR 3

An individual who earns an income from a business is eligible to file income using form ITR 3. The form may also be used if your earnings include income from pension, salary, or other sources.

ITR 4

If you have opted for the presumptive income scheme under sections 44AD, 44ADA, and 44AE, you must use Form 4 to file your income tax ITR. However, if your total annual turnover is more than ₹2 crores, you must file your income tax using Form 3.

ITR 5

ITR 5 Form is used to file income tax by Limited Liability Partnerships (LLPs), a Body of Individuals (BOIs), and an Association of Persons (AOPs).

ITR 6

ITR 6 Form must be filed electronically by companies not exempt under section 11, which provides guidelines for income from property held for religious or charitable uses.

ITR 7

Any individual or company that must furnish income tax ITR under sections 139 (4A), 139 (4B), 139 (4C), and 139 (4D) must file returns using ITR 7 form. You may easily file your ITR form online, also known as e-filing, which makes the entire procedure simple, quick, and hassle-free.

Who Should File the Return of Income?

If an individual’s gross taxable income during a particular, fiscal year exceeds the maximum amount not chargeable to tax, they are required to file an ITR in the prescribed form. However, they must remember that the taxable income must be calculated before the eligible exemption is available for long-term capital gains on listed securities up to ₹1 lakh and other deductions under Chapter VI-A of the Act.

How to Start Filing Income Tax Returns Online?

If you are new to the world of online tax filing or simply want to learn how to get started. By following these instructions, you will be able to navigate the online tax filing process efficiently and confidently.

1. Visit the Income Tax e-Filing portal at https://www.incometax.gov.in/iec/foportal/.

2. Log in to the e-Filing portal by entering your user ID (PAN), password, and the provided captcha code. Then, click on ‘Login’.

3. Access the ‘e-File’ menu and click on the ‘Income Tax Return’ link.

On the Income Tax Return page, your PAN will be automatically populated.

Proceed to select the ‘Assessment Year’, ‘ITR Form Number’, ‘Filing Type’ (Original/Revised Return), and ‘Submission Mode’ (Prepare and Submit Online).

4. Click on ‘Continue’.

5. Carefully read the instructions and fill in all the applicable and mandatory fields of the Online ITR Form.

6. In the ‘Taxes Paid and Verification’ tab, choose the appropriate verification option.

Select one of the following options to verify your Income Tax Return:

• I would like to e-Verify.
• I would like to e-Verify later within 120 days from the date of filing.
• I don’t want to e-Verify and would like to send the signed ITR-V through normal or speed post to “Centralized Processing Center, Income Tax Department, Bengaluru - 560 500” within 120 days from the date of filing.
• Click on the ‘Preview and Submit’ button to verify all the entered data in the ITR.

7. Finally, click on ‘Submit’ to submit your ITR

Tips to Help You File ITR Online

Filing your Income Tax Return (ITR) online offers a convenient and efficient method for meeting your tax responsibilities. To help you navigate the process smoothly, here are some tips:

Know The Basic Rules

Before you file your returns online, you must understand the basic rules and changes that may have been made for the current year. Use a tax calculator to know the tax rates to calculate your tax liability accurately.

Modifications to The ITR Forms

The Income Tax Department has modified the various forms in the current year. Before you file your returns online, understanding these changes will ensure you can complete the procedure without any trouble.

Decide On the Appropriate ITR Form

As discussed above, there are multiple forms, and you must know the one you need to file. You must read the various rules and regulations to know the form you must use to file your income tax return.

Verify Form 26AS

You must verify that the tax credit statement (Form26AS) details are accurate. This form provides details on the tax deducted at source (TDS) by your employers and others.

Check Minor Details

Specific headings, like interest, may be slightly complicated. Moreover, salary misreporting is another standard error. You must check all these minor details to avoid any issues in the future.

Missed Out Deductions

The Income Tax Act provides several tax benefits of filing ITR and deductions. You must take advantage of the income tax deductions to minimize your tax liability.

Benefits of ITR

While the process of filing taxes may seem daunting, it offers numerous benefits to taxpayers. Read ahead to explore some of the key advantages of filing income tax returns.

Compliance with the Law

Filing income tax returns ensures compliance with the tax laws of a country. By accurately reporting your income and paying the required taxes, you are fulfilling your civic duty as a responsible citizen. It helps maintain the integrity and stability of the tax system, benefiting society as a whole.

Avoidance of Legal Consequences

Failing to file income tax returns can result in legal consequences and penalties. By filing your taxes on time and accurately, you minimize the risk of audits, fines, and other legal complications. Staying on the right side of the law saves you from unnecessary stress and potential financial losses.

Claiming Tax Deductions and Credits

One of the significant benefits of filing income tax returns is the opportunity to claim various tax deductions and credits. Deductions, such as those for education expenses, medical bills, and home loans, can significantly reduce your taxable income, lowering the overall tax liability. By taking advantage of these deductions and credits, you can maximize your tax savings and potentially receive a refund.

Building Financial Records and Eligibility for Loans

ITR serves as an important financial document that showcases your income history. Consistently filing tax returns helps build a record of your financial transactions, which can be valuable when applying for loans, mortgages, or credit cards. Lenders often require income tax returns as proof of income stability and creditworthiness. Filing ITR demonstrates financial responsibility and enhances your chances of securing loans at favorable terms.

Access to Government Benefits and Services

Income tax returns are also essential for accessing various government benefits and services. Many government programs, such as social security, healthcare benefits, and subsidized housing, require individuals to submit their tax returns as part of the eligibility criteria. Filing ITR ensures that you can take advantage of these programs and receive the benefits you are entitled to.

Is it mandatory to file Income Tax Return?

In India, individuals and businesses are required to file an Income Tax Return (ITR) if their income exceeds the designated basic exemption limit. The basic exemption limit varies depending on the taxpayer’s category, including individuals, senior citizens, and companies.

How Do You Compute Total Taxable Income for ITR Purposes?

To determine the amount of income tax owed by an individual, the entire taxable income must first be calculated. The entire taxable income is classified into five types:

Income from Salaries

The first category covers salary and pension income. Employer’s salary/pension is taxable under this heading. Form 16 (TDS certificate) or salary/pension slips can be used to obtain information about your salary/pension received during a specific fiscal year.

Individuals with salary/pension income are eligible for several tax exemptions and deductions. House Rent Allowance (HRA), Leave Travel Allowance (LTA), and other tax breaks are available. These tax breaks will be accessible if they are paid for by the employer. Furthermore, salaried/pensioners are eligible for a standard deduction for salary/pension income.

Income from House Property

Any rental income from a house is calculated under the heading ‘Income from residential property.’ There is a concept of self-occupied rent, presumed to be on rent when calculating taxable income under the heading, ‘income from dwelling property.’ If the taxpayer lives in the house alone, it is considered self-occupied. If a taxpayer owns more than two dwelling properties that are not rented, the house is regarded to be rented. If the house is rented or presumed to be rented, the individual may claim a standard deduction of 30% for municipal taxes paid.

Income from Capital Gains

Capital gains are generated by selling land, residential property, equity shares, mutual funds (equity and debt), gold jewelry, and other assets. Capital gains are categorized as either short-term or long-term based on how long the individual kept the asset.

The holding durations of various asset classes differ. For example, in order for gains to be classified as long-term, equity-oriented mutual funds must be held for more than one year. Similarly, for capital gains to be classified as long-term, a dwelling must be kept for more than two years. Long-term and short-term capital gains are taxed at various rates depending on the asset class.

Income from Business/Profession

Individuals generating money through a business or as a freelancer or consultant must record their earnings under the heading ‘Income from business/profession.’ An individual running a business might claim certain expenses on their income tax return to reduce their taxable income and thus their income tax.

Income from Other Sources

The fifth income category includes all incomes that are not disclosed in the other categories. These include interest income from fixed deposits, RBI taxable bonds, family pensions, pensions from insurance company policies, dividends, and so on.

Documents Required to Fill ITR

Filing an Income Tax Return (ITR) is an important annual obligation for taxpayers. It is a formal declaration of their income and allows the government to assess the tax liability of individuals, businesses, and other entities. To ensure a smooth and accurate filing process, it is crucial to have all the necessary documents at hand.

Personal Details

To begin the process of filing an ITR, individuals must provide their personal information. These details typically include:

a) PAN Card: Permanent Account Number (PAN) is a unique 10-digit alphanumeric code issued by the Income Tax Department. It serves as an identification number for taxpayers and is mandatory for filing an ITR.

b) Aadhaar Card: Aadhaar is a 12-digit unique identification number issued by the Unique Identification Authority of India (UIDAI). Linking Aadhaar with PAN is mandatory for filing ITR.
c) Bank Account Details: Provide accurate information about your bank accounts, including the bank name, account number, and IFSC code, for receiving any tax refunds.

Income Documents

It is crucial to report all sources of income while filing an ITR. Ensure you have the following income-related documents:

a) Form 16: As a salaried employee, your employer will furnish you with Form 16, which encompasses comprehensive information about your salary, deductions, and the amount of Tax Deducted at Source (TDS).

b) Salary Slips: Keep your salary slips handy, as they provide a detailed breakup of your earnings, allowances, and deductions.

c) Bank Statements: Collect bank statements for all your accounts to record any interest earned on savings accounts, fixed deposits, or other investments.

d) Form 16A/16B/16C: If you have earned income other than your salary, such as interest income, rental income, or income from freelance work, you may receive these forms from the payers.
e) Capital Gains: If you have sold any property, stocks, or other investments, gather the necessary documents to calculate your capital gains, such as sale deeds, share transaction statements, or mutual fund statements.

Deduction and Investment Proofs

To claim deductions and exemptions on your taxable income, it is important to maintain proof of the following:

a) Investment Proofs: Keep records of investments made under various sections like 80Cv (PPF, NSC, ELSS, etc.), 80D (health insurance premiums), and 80G (donations to eligible institutions).

b) Home Loan Statement: If you have a home loan, retain the statement showcasing the principal and interest amounts paid during the financial year.

c) Medical Bills: Preserve medical bills and receipts to claim deductions on medical expenses incurred for self, family members, or dependents.
d) Rent Receipts: If you are claiming House Rent Allowance (HRA), ensure you have rent receipts from your landlord.

Form 26AS

Form 26AS is a consolidated statement that reflects the tax credits available to you. It shows the TDS deducted by your employer, banks, or any other deductor. Verify Form 26AS before filing your ITR to avoid any discrepancies.

What is New in the ITR Forms?

The updated Income Tax Return (ITR) forms have incorporated a fresh disclosure mandate pertaining to “Income from retirement benefit accounts.” Taxpayers are now required to reveal any taxable income for which they had previously claimed relief under section 89A of the Income Tax Act in prior years.

Wrapping Up

Once you file the returns online with digital copies of the required documents, you must verify the same. Failing to do so renders the filing incomplete, and you may have to pay the penalty for late filing.

FAQs