What Is an Income Tax Return?

An Income Tax Return, commonly known as the ITR, is an official document that shows an individual’s earnings for a specific fiscal year. It is a formal statement that not only declares the income, but also the allowances claimed, tax exemption, and taxes paid. As per the Income Tax Act of 1961, if any individual under the age of 60 years has their income under the bracket of taxable income, must file ITR. The taxable income is 5 lakhs annually.

Table of Contents

Types of ITR Forms

ITR-1, or Sahaj, is for those who earn upto Rs. 50 lakh from salary, pension, one property, and other sources.

ITR 2: ITR 2 is for resident individuals or Hindu Undivided Families (HUFs) who cannot use ITR 1. It includes income from capital gain, foreign income/assets, crypto income (if reported as capital gain), more than one property.

ITR 2A: This ITR form is introduced for HUFs and individuals owning multiple properties without capital gains income, along with salary income.

ITR 3: This form is meant for individuals or HUFs with income from proprietary business or profession, including those ineligible for ITR 1, 2, or 4. Individuals receiving business income from partnership firms also use this form. It also includes crypto income ( if reported as business income.

ITR-4 or Sugam: Applicable to all professions, businesses, HUFs, and undertakings with income from business or professional activities under sections 44AD, 44ADA, or 44AE, along with other sources like one house property and salary income. However, not for those with income exceeding Rs. 50 lakh annually. It includes every income from ITR 1.

ITR-4S: Used by LLPs, firms, business trusts, AJP, estates of deceased or insolvent, BOIs, AOPs, and investment funds.

ITR 5: This form is for co-operative societies, firms, AJP, associations of persons, local authorities, and BOIs.

ITR 6: Specifically for companies, mandatory for online filing, and applicable to firms not claiming tax exemption under Section 11.

ITR 7: Reserved for political parties, religious or charitable trusts, universities, colleges, etc., for claiming tax exemption.

Documents required for ITR filing

PAN Card: Your Permanent Account Number (PAN) is a mandatory document for filing income tax return online, serving as your unique identifier for all tax-related matters.
Form 16: Issued by your employer, Form 16 details your salary, income, and tax deducted at source (TDS). It’s crucial for salaried individuals to accurately report their income.
Forms 16A/16B/16C: These forms pertain to TDS on various types of income other than salary..
Bank Statements: Collect statements from all your bank accounts, including savings and current accounts, to report interest income and verify transactions.
Investment Proofs: Gather documents for investments in the Provident Fund (PF), Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), life insurance premiums, health insurance premiums, fixed deposits, etc. to claim deductions.
Property Documents: If you own property, have documents ready that detail income from the property or any relevant financial transactions.
Capital Gain Statement: Provide a statement of capital gains if you have earnings from stocks, mutual funds, or other investments.
Proof of Tax Payments: Challans or receipts of tax payments made during the financial year are necessary to validate your tax payments.
Form 26AS: This is a consolidated tax statement that summarises all TDS, TCS, and other tax-related information for the financial year.
Other Certificates: Include interest certificates, TDS certificates, and forms like 990 or 1040, if applicable.

In the next section, we will learn about Income tax return steps

How to File an Income Tax Return?

There is so much ease when filing income tax returns online, and the following are some of them: Here’s a step-by-step guide on ITR filing process:

Step 1: In the list of steps to file ITR, first go to the official Income Tax e-filing portal www.incometaxindiaefiling.gov.in. If you haven’t registered already, you need to sign up. To register on the ITR portal enter your PAN. you will also be required to provide your Aadhaar no, mob no , email id , and mailing address.

Step 2: Select the right ITR form. Some of the most commonly used forms are ITR-1 (Sahaj), which is for salaried taxpayers, and ITR-2, where the taxpayer is a HUF without business income.

Step 3: Select the specific ITR form to be filed and get it downloaded in advance so that the same can be filled with details like name, residential status, PAN, Aadhaar number, etc., as applicable.

Step 4: Now is the most crucial step of the tax return filing process. Collect Form 16 and other proofs of investing, such as share certificates and bank statements, if any.

Step 5: Assemble the required documentation, including Form 16, investment evidence, and bank statements.

Step 6: Report all income sources, including salary, interest, rental income, and capital gains. Cross-check all entries for accuracy.

Step 7: Declare deductions for investments in PPF, life insurance, and other similar products under sections 80C, 80D, and 80E. Make use of any relevant exemptions.

Step 8: Using the annual tax slab rates, determine your total taxable income and tax obligation. For accuracy, use online tax calculators.

Step 9: Ensure the TDS deduction matches the certificates you have. Verify any taxes paid by you.

Step 10: Double-check the details of advance tax, self-assessment tax, and TDS to ensure accuracy.

Step 12: Review all the information for errors. After validation, generate an XML file of the ITR form.

Step 13: Log in to the e-filing portal, go to the e-file section, and upload the XML file.

Step 14: Verify your ITR using options like Aadhaar OTP, Net Banking, or EVC. Alternatively, send a signed ITR-V to CPC, Bangalore, within 120 days.

Step 15: After e-verification, save the acknowledgement from the Income Tax Department. Check the refund status online, if applicable. Now, your income tax return process is complete.

ITR Filing Tips- Tax Savings

Section 80GG: Self-employed or salaried individuals without Home Rent Allowance (HRA) can claim deductions for rent paid under Section 80GG, subject to specified limits.

The National Pension Scheme: You can contribute an extra Rs. 50,000 to the National Pension Scheme and claim a deduction under Section 80CCD (1B) of the Income Tax Act.

Education Loan Interest: Section 80E allows you to deduct the interest on education loans for yourself, your spouse, children, or a student you are a legal guardian for, up to eight years from the first interest payment.

Disability Deductions: Section 80U offers a deduction of Rs. 75,000 for 40% disability and Rs. 1,25,000 for 80% disability, covering only the taxpayer.

Joint Home Loan: Joint home loan borrowers can individually claim up to Rs. 1,50,000 for principal repayment under Section 80C and Rs. 2,00,000 for interest under Section 24.

Retirement Fund Investments: Combine tax-saver FDs for liquidity and ELSS for tax-free, higher returns to save taxes post-retirement.

Life Insurance: The surrender value of life insurance is tax-free under certain conditions. For ULIPs, the tax-free period is five years.

Debt mutual funds: Indexation benefits for debt mutual funds reduce tax outgo if redeemed after 36 months.

Medical Expenses: Section 80DDB allows deductions for specified disease treatments, up to Rs. 40,000 for those under 60 and Rs. 1,00,000 for senior citizens.

NRI Tax Relief: NRIs can claim tax relief under the Double Taxation Avoidance Agreement (DTAA), or Sections 90 and 91.

Royalty Income: Sections 80QQB and 80RRB provide tax relief on royalty income for authors and patents, exempting up to Rs. 3,00,000.

Standard Deduction: Salaried employees can claim a standard deduction of Rs. 50,000 under Section 16(A).

First-time home buyers: First-time home buyers can claim up to Rs. 2,00,000 in interest deductions per financial year, subject to conditions.

Charitable Donations: Donations to registered charities can yield tax deductions of 50% to 100%, limited to 10% of adjusted gross total income, under Section 80G.

Rural development donations: Donations for rural development and scientific research are eligible for deductions under Section 80GGA.

Capital Gains: Section 54 exemption capital gains if proceeds from a sold house are reinvested in another residential property within prescribed time limits.

Gifts: Gifts up to Rs. 50,000 are tax-free under Section 56. Gifts from specified relatives are also exempt.

Hotel and Convention Center: Tax exemptions under Section 80-ID are available for hotels or convention centers in districts with world heritage sites.

Biodegradable Waste: Businesses processing biodegradable waste for power or biological products can gain tax exemptions under Section 80JJA.

ULIPs: ULIPs offer tax-free returns on short-term equity investments and deductions up to Rs. 1,50,000 under Section 80C.

Co-operative Societies: Section 80P provides tax deductions for registered co-operative societies earning income from specific activities.

Income below Rs. 5,00,000: Individuals with annual income below Rs. 5,00,000 can claim a tax rebate under Section 87A, which is not applicable to HUFs.

To Wind Up

Filing an Income Tax Return (ITR) is a compulsory obligation of every citizen to avoid legal actions for non-compliance of tax rules and regulation. With the knowledge of when and how to file for ITR, one can effectively plan for his/her taxes and adhere to the laid down laws on tax requirements.