Income Tax Return filing? Why should I do it

As the months of June and July roll in, so does the buzz about e-filing Income Tax return. We often hear about its importance and how the Indian government is promoting it through various campaigns. But let us admit it; most of us have had basic questions about it, like

• Do I really need to e-filing Income Tax return?
• What benefits do I get?
• Do I get a refund or end up paying more?

I was once in the same boat, struggling to understand the process and its significance. Over time, I found answers and solutions to these questions, and now I am eager to share my knowledge about e-filing Income Tax return and its intricacies through this blog.

Let us start with the basics.

FY Vs AY (Financial Year Vs Assessment Year)

In the context of e-filing Income Tax return in India, the Financial Year (FY) and Assessment Year (AY) are two essential terms:

1. Financial Year (FY): The financial year refers to the 12-month period during which financial transactions and income are accounted for. In India, it starts from April 1st and ends on March 31st of the following year. For instance, FY 2024-2025 starts on 1st April 2024, and ends on 31st March 2025.
2. Assessment Year (AY): The assessment year is the year immediately following the financial year in which you assess and file your income tax returns. It is during the assessment year that your income is evaluated, taxed, and assessed for the relevant financial year. For example, for the FY 2024-2025, the corresponding AY would be 2025-2026.

To clarify, during the financial year, you earn income and engage in financial transactions, while the assessment year is when you file your income tax returns based on the income earned during the preceding financial year.

Is it Mandatory to File Income Tax Return?

Filing Income Tax Return is an essential civic responsibility of every Indian citizen with taxable income.

• Your annual income exceeds the basic exemption limit.
• You have earned income from foreign sources, own assets abroad, or have specific financial transactions, regardless of income level.

The Income Tax Act, 1961, mandates the filing of income tax returns, serving as a significant pillar of the country's revenue generation and economic stability. In this post, we will explore the importance of income tax return filing for Indian citizens and highlight the benefits it brings to individuals and the nation as a whole.

What is the Deadline for Filing Income Tax Return?

Usually, the filing deadline is July 31st of the assessment year. Please refer to the official website of the Income Tax Department for any updates on the deadline

Benefits of Filing Income Tax Return

Filing income tax return is not just a legal requirement, it is also an opportunity for Indian citizens to showcase their financial responsibility, avail refunds and deductions, and contribute to the nation's growth. By filing returns on time and accurately, individuals not only comply with the law but also enjoy several benefits that positively impact their financial well-being. Let us delve into the benefits in more detail.

1. Legal Compliance and Avoiding Penalties:
Filing income tax returns is a legal obligation for eligible individuals in India. Non-compliance can result in penalties, fines, and even legal consequences. By filing your income tax return on time and accurately, you demonstrate your commitment to being a responsible citizen.
2. Unlock Financial Opportunities:
Income tax returns serve as a valid and recognized proof of your income. This documentation is often required for various purposes such as applying for loans, securing visas, buying property, or even starting a business. It strengthens your financial credibility and provides a transparent view of your financial position, facilitating smoother transactions and reducing any doubts about your financial stability.
3. Claiming Refunds and Deductions:
Filing income tax returns enables individuals to claim tax refunds and deductions. If you have paid more tax than necessary or have eligible deductions, such as investments in specified instruments, medical expenses, or housing loan interest, you can request a refund or reduce your taxable income. Filing returns ensures that you receive these rightful benefits, putting your hard-earned money back into your pocket.
4. Boost Your Financial Credibility:
Filing income tax returns contributes to building a robust credit history. Lenders, such as banks and financial institutions, often assess an individual's creditworthiness (CIBIL score) based on their income tax returns. A consistent record of timely and accurate filing reflects financial responsibility, making it easier for you to obtain credit cards, loans, and other financial services.
5. Contributing to Nation-Building:
Filing income tax returns is a fundamental way to contribute to the development and progress of the nation. Tax revenues generated through income tax enable the government to invest in infrastructure, education, healthcare, and other essential public services. By fulfilling your tax obligations, you play an active role in nation-building and supporting initiatives that benefit society and people.
6. Avoiding Scrutiny and Ensuring Transparency:
In recent years, the Indian government has taken several steps to increase transparency and curb tax evasion. Filing income tax returns diligently helps individuals stay off the radar of tax authorities and minimizes the chances of scrutiny or audits. By maintaining a transparent financial record, you build trust with the tax authorities, ensuring a hassle-free tax compliance experience.

What Documents are Required to File Income Tax Return?

Before beginning the ITR filing process, it is advisable to gather the following necessary documents and information.

• Permanent Account Number (PAN)
• Aadhaar number (for linking with PAN)
• Form 16 (issued by your employer)
• Form 16A/Form 16B/Form 16C (if applicable)
• Form 26AS, AIS and TIS
• Details of income from all sources (salary, business, other sources etc.)
• Records of Capital gain and Loss transactions
• Bank account statements, interest certificates and Loan account statements
• Rental Agreement or Rent Receipts
• Investment details (such as provident fund, fixed deposits, mutual funds, etc.)
• Receipts for deductions under various sections (80C, 80D, etc.)
• Receipts for Medicals, Health checks, Donations given etc.
• Details of any foreign assets or income (if applicable)
• Receipts for Donation Made

Which ITR Form Best Suits me for FY 2024-2025?

Choosing the right ITR form depends on your income from different sources and available limits on those incomes. Here is a table to help you choose the appropriate ITR form:

Along with these ITR Forms, here is the additional list, which is more applicable to Company, Firms and businesses.

• ITR 5
For Firms, LLPs, AOPs, BOIs, and other Artificial Juridical Persons
• ITR 6
For Companies other than companies claiming exemption under section 11
• ITR 7
For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D)

What is New Tax and Old Tax Regime?

The old tax regime and the new tax regime are two different income tax systems available for individual taxpayers in India. These regimes offer different tax structures with varying tax rates, deductions, and exemptions. Let us understand each regime in more detail:

1. Old Tax Regime:
The old tax regime is the traditional income tax structure that has been in place for many years. It allows taxpayers to claim various deductions and exemptions under different sections of the Income Tax Act. Some common deductions include those under Section 80C (for investments like PPF, ELSS, NSC, etc.), Section 80D (for health insurance premiums), and Section 24 (for home loan interest). However, the tax rates under this regime are relatively higher, and taxpayers need to maintain proper documentation and proof for claiming deductions.
2. New Tax Regime:
The new tax regime was introduced by the Indian government in the Union Budget 2020 and became effective from the assessment year 2021-22. Under this regime, taxpayers are offered reduced tax rates, but they are not allowed to claim most of the deductions and exemptions available in the old tax regime. The new tax regime aims to simplify the tax structure and provide taxpayers with the option to choose between the old and new regimes based on their financial situations. The tax rates under the new regime are lower than the corresponding rates in the old regime, making it attractive for individuals with minimal deductions or those who prefer a simpler tax filing process.

Before selecting a regime, individuals should carefully evaluate their financial circumstances, consider the impact of deductions and exemptions, and compare the tax liability under both regimes to make an informed decision.

Ideally if your annual income (Consolidated income from all sources) is less than Rs 7.5 lacs for FY 2023-2024 or less than Rs 5 lacs for FY 2022-2023, you can blindly go with the New Tax regime. However, once your income goes beyond Rs 7.5 lacs you should compare the tax liability of both the regimes and accordingly select the best one.

What are the advantages of Opting for the New Tax Regime?

Opting for the new tax regime in India can offer several benefits to taxpayers, especially for individuals with relatively simpler financial situations and fewer investments. Here are some key advantages of choosing the new tax regime:

1. Lower Tax Rates:
The new tax regime comes with reduced tax rates compared to the old tax regime. This can lead to lower tax outgo for taxpayers, especially for those in lower income brackets. It provides a simplified tax structure.
2. Relaxation from Tax Planning:
Under the new tax regime, taxpayers do not need to engage in complex tax planning to claim deductions and exemptions. This makes tax compliance simpler and more straightforward, as there is no requirement to track and maintain various investment proofs.
3. No Deduction Limit:
Unlike the old tax regime, the new tax regime does not impose any restriction on deductions under Section 80C (up to Rs. 1.5 lakh) and other sections. Taxpayers can utilize the entire income for spending or saving, without worrying about meeting deduction limits.
4. Transparency and Clarity:
The new tax regime offers greater transparency and clarity as taxpayers can see the exact tax amount payable based on their income without any deductions. This helps individuals plan their finances better and reduces surprises during tax filing.
5. Suitable for Salaried Individuals:
Salaried individuals with limited deductions, minimal investments, and a straightforward financial profile may find the new tax regime more suitable. They can avail reduced tax rates without the hassle of maintaining proofs for deductions.
6. Flexibility to Choose:
Taxpayers have the flexibility to choose between the old tax regime with deductions and exemptions and the new tax regime with reduced tax rates. They can assess their financial situation each year and opt for the regime that provides them with the maximum tax benefits.

What are the advantages of Opting for the Old Tax Regime?

Opting for the old tax regime in India can offer several advantages, especially for individuals with substantial deductions and investments. Here are some of the key advantages of choosing the old tax regime.

1. Higher Deductions and Exemptions
The old tax regime allows individuals to claim deductions and exemptions available under different sections of the Income Tax Act. These deductions can significantly reduce the taxable income, leading to a lower tax liability. Some common deductions include 80C Exemptions (for investments like PPF, ELSS, NSC, etc.), 80D Exemptions (for health insurance premiums), and Section 24 (for home loan interest). If you have significant eligible deductions, the old tax regime may be more beneficial.
2. Flexible Tax Planning
Under the old tax regime, taxpayers have more flexibility in tax planning. They can strategically invest in tax-saving instruments and utilize exemptions to optimize their tax liability. This enables individuals to align their investments with long-term financial goals while minimizing the tax burden.
3. Beneficial for Home Loan Borrowers
Home loan borrowers can claim deductions on both the principal amount and interest paid on the loan under the old tax regime. The interest deduction on a home loan can be substantial, especially during the initial years of the loan tenure when the interest component is higher.
4. Ideal for Taxpayers with Multiple Deductions
If you have multiple eligible deductions, such as tuition fees, medical expenses, home loan interest, and life insurance premiums, the old tax regime allows you to maximize your tax benefits by availing all available deductions.
5. Tax Planning for High-Income Earners
High-income earners with significant deductions and investments can effectively reduce their tax liability by opting for the old tax regime. They can structure their finances to take advantage of various tax-saving options.
6. Easier Transition from the Earlier Regime
Some individuals may find it more convenient to continue with the old tax regime, especially if they were following it before the introduction of the new tax regime. Transitioning to the new regime may require adjustments in investment strategies and financial planning.

It is important to note that the choice between the old and new tax regimes depends on individual financial circumstances, investment profiles, and long-term financial goals. It is important to note that the choice between the old and new tax regimes should be based on individual financial circumstances, investment profiles, and long-term financial goals. Individuals with substantial deductions, investments in tax-saving instruments, and significant home loan interest may find the old tax regime more beneficial. For individuals with minimal deductions or those who prefer a simpler tax filing process, the new tax regime may be more suitable.

Therefore, before making a decision, it is advisable to perform a thorough analysis or seek advice from a tax professional to determine which regime is most advantageous for you.

What is the Income tax slabs for Individual for FY 2024-2025?

The tax slabs for FY 2024-2025 are as follows.

What is the Income tax slabs for Individual for FY 2023-2024?

The tax slabs for FY 2023-2024 are as follows.

What is the Income tax slabs for Individual for FY 2022-2023?

The tax slabs for FY 2022-2023 are as follows.

What are the main heads for income considered for Income tax?

As per the authority the income is categorized under five heads:

• Income from Salary and Pension
Income taxes are commonly imposed on base salary, allowances and other benefits. The tax is also applicable to an individual's pension after retirement.
• Income from Other sources
Other sources like Savings bank interest, Fixed deposit interest, Dividend on equity shares
• Income from House property
Owning many houses and renting them out is an easy method of income. However, Income from house renting is recognized as part of the taxpayer's income.
• Income from Business or profession
Profits earned by businesses. The tax is derived from the presumed or real income generated. Individuals with business income will be taxed as per tax slabs and rates for the F.Y 2023-24
• Income from Capital gains (Long term capital gain and Short term capital gain)
Capital Gains income can be generated by selling assets such as gold, real estate, mutual funds units, stocks, debentures, and so on. It can be characterized as a long-term or short-term capital gain depending on the type of asset and the earnings produced on it over time.
• Income from Lottery, Races and gambling
Winnings from lotteries, maintaining horse races and gambling are taxable.

Which investments can be shown under 80C?

Section 80C of the Income Tax Act, 1961, provides various deductions for certain eligible investments, expenses, and payments. Following are some of the key exemptions considered under Section 80C:

1. Employee Provident Fund (EPF):
Contributions made to EPF by employees, as well as employer contributions, are eligible for deduction under Section 80C.
2. Public Provident Fund (PPF):
Contributions made to PPF accounts held with authorized banks or the Post Office.
3. Equity Linked Savings Scheme (ELSS):
Investments made in ELSS mutual funds qualify for deductions.
4. Life Insurance Premiums:
Premiums paid for life insurance policies for the taxpayer, spouse, and children.
5. National Savings Certificate (NSC):
Investment made in NSCs issued by the Post Office.
6. 5-year Fixed Deposit (FD) with Banks/Post Office:
Investments in tax-saving FDs with a lock-in period of 5 years.
7. Sukanya Samriddhi Yojana (SSY):
Investments made in the SSY account for the benefit of the girl child.
8. Senior Citizens Savings Scheme (SCSS):
Investment made in the SCSS account for senior citizens.
9. Tuition Fees:
Tuition fees paid for up to two children's education in any school, college, or educational institution.
10. Home Loan Principal Repayment:
Repayment of the principal amount of the home loan.
11. National Pension System (NPS):
Contributions to NPS Tier-1 account by employees and self-employed individuals.
12. Tax-saving Fixed Deposits:
Fixed deposits with banks with a lock-in period of 5 years.
13. Repayment of Housing Loan:
Repayment of the principal amount of a housing loan taken for a residential property.
14. ULIPs (Unit Linked Insurance Plans):
Investment in ULIPs offered by insurance companies.
15. Pension Plans:
Contributions made towards certain pension plans offered by life insurance companies.

The 80C exemption is only applicable for old Regime. The maximum deduction allowed under Section 80C is Rs. 1.5 lakh per financial year.

it is essential to keep in mind that the list of eligible exemptions and investment instruments may change over time, and taxpayers should refer to the latest tax laws and guidelines provided by the Income Tax Department to ensure compliance with the applicable provisions.

What is Section 80D?

Section 80D of the Income Tax Act, 1961 offers deduction for amount spent on Mediclaim policy and amount spent on health check-ups.

It is important to note that the total deduction available under Section 80D, including both self/family and parents, cannot exceed the specified limits. For example, if a taxpayer pays Rs. 20,000 as premiums for their family and Rs. 35,000 for their parents (both are senior citizens), the total deduction they can claim under Section 80D will be limited to Rs. 50,000 (Rs. 25,000 for self/family + Rs. 25,000 for parents).

The health insurance policies must be in the name of the individual taxpayer, their spouse, children, or parents to claim the deduction. It is essential to keep the premium payment receipts and other relevant documents as proof while filing the income tax return and claiming deductions under Section 80D.

What are the exemptions considered in New Tax and Old Tax Regime?

In the Indian income tax system, both the New Tax Regime and the Old Tax Regime offer various exemptions and deductions to reduce the taxable income. However, it is essential to understand that the exemptions and deductions available under each regime are different. Here is a comparison of the major exemptions considered in the New and Old Tax Regimes:

Is it possible to set off losses from options trading with other income?

Options Trading is considered as Speculative Business and income from such trading is considered as income from Speculative Business. It is NOT possible to set off the losses from options trading against salary income. As per the Income Tax Act, losses from speculative business activities, such as options trading, can be set off against income from any other source except for salary income. However, if you have incurred a loss from options trading, it can be carried forward to subsequent years and set off against future profits from speculative business activities.

In summary, a loss from options trading cannot be directly set off against salary income. It can be carried forward and set off against any future profits from speculative business activities, including options trading.

What is Health and Education cess?

Health & Education cess @ 4% shall also be paid on the amount of income tax plus Surcharge (if any)

Step by Step guide for Filing income tax returns.

It is definitely worth our attention—filing income tax returns. Now let us take a moment to understand why this seemingly mundane task holds great significance for both you and our beloved nation. Trust me, it is not as daunting as it seems, and the benefits are more than worth it! Here is the step-by-step guide on how to file income tax returns in India, simplifying the process and empowering you to fulfill your tax obligations.

1. Determine Your Eligibility to File Income Tax Returns
Individuals with an annual income above the basic exemption limit, which varies based on age and income category, need to file returns. It is advisable to consult a tax professional or refer to the Income Tax Department's guidelines to ascertain your eligibility.
2. Gather the Required Documents and Information
Please Refer Required Documents section for applicable document list and keep those documents handy as it will ease as well as make the return filing process faster.
3. Filing income tax returns
In India, electronic filing (e-filing income tax returns) is the preferred method for income tax return submission. The Income Tax Department's official website provides a user-friendly portal for e-filing. Register or log in to the income tax e-filing portal (www.incometaxindiaefiling.gov.in).
4. Choose the Correct ITR form.
Please refer ITR Forms section for available list of ITR forms and selecting the correct ITR form. ITR1 (Sahaj) is an amazingly simple ITR form.
5. Report Your Income
Now it is time to report your income. Simply fill in the required details from your Form 16 in the appropriate sections of the ITR form. Along with that you need to report the income from house property and Business Income and Capital gain. Similarly, you need to report the income received from other sources like Savings bank interest, Fixed deposit interest, Dividend received on Equities, Interest received on Income tax refund you received last FY.
6. Claim Deductions and Exemptions
This is the most interesting part. Fill in your exemption properly. Please note for salaried employees, max limit for exemptions under 80C is Rs 1,50,000/-. For understanding the exemptions which can be shown under 80C, please refer 80C Exemptions. Similarly, you can show the deductions for home loan interest under Section 24(b). if you have taken a Mediclaim policy for your family, premium amount can be shown under 80D. There are certain rules for claiming deduction under 80D, please refer 80D Exemptions
7. Calculate Your Tax Liability
The ITR form automatically calculates your tax liability based on the income details you provided and exemption you claimed. Take a deep breath, and let the form do the math for you!
8. Validate and File your Return.
Once you have filled in all the necessary details and double-checked for accuracy, submit the return. The portal will validate the filled form from all the schedules and check if values provided are in-line with Income tax Rules. The income tax portal is very much user friendly, and it points out the errors found if validation. You just need to expand the error message to understand the cause of the error. The portal provides suggestions as well to fix the common errors. Once you click the link provided in the error message, you will be redirected to the said schedule screen and the field which is the source of error. Once you rectify those errors, validation of the form will be successful. Now it is time to submit the form. This completes the filing of return.
9. Verify your Return.
You have two options for verification:
• E-Verification: This can be done through Aadhaar OTP, net banking, or a mobile number linked with Aadhaar. It is quick and hassle-free.
• Physical Verification: If you choose this method, you need to print the ITR-V (acknowledgment form) generated after filing and sign it. Send the signed copy to the Centralized Processing Center within 120 days.
10. Acknowledgment
After sending the ITR-V to the CPC, though in digital form or physical form, the Income Tax Department will process your return. You will receive an acknowledgment with an Acknowledgement Number, once your return is successfully verified.
11. Save Acknowledgment and Keep Records
After successfully filing your tax return, save the acknowledgment generated (ITR-V) for your records. You do not need to submit it physically if you e-verify your return.

Pat yourself on the back for completing this important task. Remember, tax filing does not have to be intimidating. By following these steps, you will breeze through the process and ensure compliance while maximizing your savings. Happy tax-filing, my friend!

What are the common validation errors users get while ITR Filing?

Users often encounter common validation errors while filing income tax returns. These errors can occur due to various reasons, including incorrect data entry, missing information, or non-compliance with tax regulations. Here are some common validation errors that users may encounter while filing the returns:

• Invalid PAN or Aadhaar Number
One of the most common errors is entering an incorrect or invalid Permanent Account Number (PAN) or Aadhaar number. It is crucial to double-check and enter the correct identification numbers to avoid rejection of the return.
• Incorrect Personal Information
Errors in personal details such as name, date of birth, and contact information can lead to validation failures. Ensure that all personal information matches the details on your PAN and Aadhaar card.
• Miscalculated Income
Incorrectly calculating the income, including salary, business income, capital gains, and other sources, can lead to discrepancies in the tax liability and validation errors.
• Mismatch in TDS/TCS Details
If the TDS (Tax Deducted at Source) or TCS (Tax Collected at Source) details entered in the return do not match with the details available in Form 26AS, it can result in validation errors.
• Incorrect Bank Account Details
Entering incorrect bank account information for refund purposes can lead to issues with the refund process. It is mandatory to have the bank account pre-validated to receive the Refund amount in that account.
• Failing to Report All Income
Users sometimes forget to report all sources of income, such as interest income, rental income, or income from investments, leading to validation errors.
• Using the Wrong ITR Form
Filing the return using an incorrect or outdated ITR form can result in validation failures.
• Not Reporting Foreign Assets or Income (if applicable)
Taxpayers who have foreign assets or income need to provide relevant details and file the appropriate schedules. Failing to report such information can lead to validation errors.
• Mismatch in Form 26AS Data
Discrepancies between the details in Form 26AS (Tax credit statement) and AIS documents and the return can cause validation issues.
• Non-Compliance with Tax Rules
Not adhering to specific tax rules or providing incomplete information can lead to validation errors.

To avoid these validation errors and ensure a smooth filing process, it is essential to double-check all the data entered in the return before submitting it. Reviewing the return thoroughly, using the correct ITR form, and cross-verifying information with official documents like Form 26AS, AIS, Form 16 and bank statements can help in avoiding these common errors. Additionally, using e-filing platforms provided by the Income Tax Department often helps in catching errors in real-time and provides guidance to rectify them before submitting the return.

So, my fellow Indian citizen, let us change our perspective on income tax return filing. it is not just about numbers and paperwork; it is a powerful way to contribute to our nation's progress while securing our own financial well-being. By fulfilling this responsibility with a smile, we not only comply with the law but also reap numerous benefits that make our lives better. Let us file the return, unlock opportunities, and be proud contributors to a better India! Happy tax-filing!

References

• Income Tax Tutorial Income Tax Tutorial Handbook
• Exemptions for Individuals Exemptions for Individuals
• Income Tax Calculator Income Tax Calculator
• Income Tax Refund Status
• Income Tax Refund Status user manual
• Income Tax ITR Status FAQ
• Income Tax ITR Status user manual

Legal Disclaimer: The information provided is based on the current laws for FY 2024-25, FY 2023-24 and FY 2022-23and readers should verify details with relevant authorities. Keep in mind that the process and options might vary slightly based on updates to the Income Tax e-Filing portal or changes in procedures, so it is a good idea to refer to the latest guidance available on the portal.