ITR Filing Basics: Income Tax Return is a balance of all the taxes you are eligible to pay and all the taxes you have paid by the end of the financial year. Click to know more about it.
It is that time of the year. The time that you dread. It is time to file your Income Tax Returns (ITR). It is an annual chore that most people find intimidating and end up procrastinating on the task or passing it on to a professional.
However, if you understand the basics of the ITR process, it becomes a simple task that you can complete on your own.
Basics of filing income tax returns
Filing ITR on time has its rewards. The first thing you need to know is all your income sources. It could come from your salary or rent or other royalties. The second most important bit of information is finding out which part of your income is taxable. For instance, income tax is applicable on basic salary, dearness allowance, bonuses among others. Housing rent allowance is not taxable. The third most important part of ITR filing is identifying your deductions. You are eligible for income tax deductions if you invest in saving schemes, insurance policies or even contributing to relief funds.
Your taxable income is a balance of your gross income and the deductions you are eligible for. Taxes are applied to your taxable income. Some times taxes are deducted at source (TDS). The details of all your TDS is available in Form 16.
You are taxed based on the slab you belong to. The Income Tax Return is a balance of all the taxes you are eligible to pay and all the taxes you have paid by the end of the financial year. Any difference is then adjusted. If you have paid more, you will be refunded. Otherwise, you have to pay the difference.
Identifying your income sources
If you are a salaried employee, your monthly or annual salary is your income. However, you may also be earning income from other sources such as rent or by selling a property. For tax purposes, your income is a total of all earnings from various sources. Following are the sources income which is taxable:
Salary This includes your basic salary, bonuses, leave encashment and any other allowances you may be receiving as part of your salary agreement.
House property This includes any income from a house you own. You could be a resident of this house, or you could be earning rent from the house.
Capital gain If you sell a capital asset, you may lose or gain funds. This is taxable and is counted as a source of income.
Business Any income incurred from a business you own or run is a taxable income and has to be mentioned in the ITR.
Other sources Any other income including that from a fixed deposit, a savings bank account, a gift or even family pension has to be shown in the ITR.
The Income Tax Act, under its section 80(C), allows you to lower your gross income. This reduces your taxable income and ultimately reduces your tax liability. Section 80(C) allows for a reduction of up to Rs1.5 lakh from your gross income.
A variety of investment tools, pension plans and insurance schemes offer tax deductions under section 80(C). Some of the most widely used tax deduction tools are—tax benefit savings schemes, Equity-Linked Savings schemes, Public Provident Funds, Health insurance, pension funds and others. You can read the section 80(C) to plan your investments so that you can make the best use of the tax benefits offered by the investment schemes.
How to file income tax return
Filing your income tax return becomes easy once you understand all your income sources and deductions. You can easily file your own income tax return online or you can ask a professional to do it on your behalf. The income tax return form is called ‘Sahaj’. It can be downloaded from the website of the income tax department or collected from the nearest branch of the IT department. The Sahaj form is also available online and can be filled online by creating an account on the Income Tax e-filing website.
Filling the correct ITR form
Depending on your source of income, you will have to fill up different forms for your Income Tax Return. It is, therefore, important that you fill up the correct form. Individuals with any income from salary or pension or from interest on investment schemes need to fill up the form ITR-1.
If apart from the above income sources, you have income from capital gains or house or property and other sources, you have to fill up the form ITR-2. If you are a businessman or are self-employed, you need to fill ITR-4. Make sure you fill out the correct form or your return filing process will not be complete.
Online income tax filing
You can file your income tax return online through the Income Tax department website. Download the returns software available on the website. Keep all your income details and documents handy including your income, deductions and Form 16. File your return using the software on your laptop.
If you have used the online tool previously, you can log in and pre-populate some of the areas on the form by clicking on ‘Pre-Fill’ option. Fill in other details to make sure the form is complete. Once you have filled out all details, click on the calculate button to find out your tax liability. The final amount is either refundable to you or payable by you. If it is owed, make the payment immediately and fill in the details in the returns form. Save and generate the tax return file on your computer. Visit the income tax website and log in using your ID. Once logged in, you can upload your ITR and submit the same.
Alternatively, you can visit the website of the income tax department, log in to your account and fill up the details online.Upon successful submission of the ITR file, the ITR-V form is generated. You can choose to digitally sign it and complete your ITR process or print out the ITR-V form, sign it and send it to the IT department by post.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.