The last date for filing the Income Tax Return (ITR) is July 31 this year and first-time income taxpayers are already confused about how to file their ITRs. Not knowing how to classify income under various sources and deducing the tax due on it can be daunting even when the whole process has been shifted online.
Filing ITR has now become a fast and convenient process that can be easily completed from the comfort of one’s own home. It is just a series of quick, easy steps that taxpayers may follow while filing their taxes.
First-time taxpayers must be mindful of certain facts while filing their ITR forms which include:
Be aware of your total taxable income
Deduct your tax-saving deductions from your gross income (which includes earnings from salary and other sources) to determine your taxable income.
Choosing between old versus new tax regime
New taxpayers often face the crucial decision of choosing between the new tax regime and the old regime. The new regime offers lower tax rates, whereas the old regime provides deductions and tax benefits that enable taxpayers to save on their taxes.
To make this decision, taxpayers can utilize online tax calculators to determine which regime would result in a lower tax liability. Salaried taxpayers have the flexibility to select the more advantageous tax regime when filing their taxes, and they are permitted to switch between the regimes as needed.
Aman Kumar Mittal, Chartered Accountant, Aman Kumar Mittal & Co said, “For salaried class choosing between the new tax regime or old tax regime can be done every year before filing of the ITR form. However, in Budget 2023, the new tax regime has been made the default regime and one has to specifically select the old tax regime. While the new tax regime doesn’t allow commonly availed deductions like those under Section 80C of the Income Tax Act for investments made and under Section 24(b) for interest on housing loans and other various deductions. The decision to choose between the new and old tax regimes should be based on comparative tax savings in both regimes. And the one which has the least tax expense should be chosen.”
“For taxpayers earning business income, the facility to avail of a tax regime is a one-time option. One has to choose a tax regime and the same would have to be continued in subsequent years,” added Mittal.
Even if the taxpayer opts for the new tax regime (which is the default regime if they fail to inform their employer), they should still take into account certain investments such as the Employee Provident Fund (EPF), the Public Provident Fund (PPF), and life insurance as viable investment options. These investments can provide additional benefits and help in long-term financial planning.
Ask for Form 16
Form 16 is a Tax Deducted at Source (TDS) certificate issued by employers to salaried individuals. This important document contains comprehensive details of the individual’s salary, which must be accurately reported when filing income tax returns. Apart, this form also includes information on the deductions claimed, salary earned, and exemptions availed by the employee.
Check details in Form 26AS
Form 26AS is an essential document that plays a vital role in filing tax returns. It provides a comprehensive record of all income earned on which TDS has been deducted. It is crucial to cross-verify the information mentioned in Form 16 or Form 16A with the details reflected in Form 26AS, specifically, concerning income and TDS entries. It is advisable to check Form 26AS online before downloading it, as this form is regularly updated with TDS return statements uploaded by the deductor to the tax department.
Know details of AIS
The Annual Information Statement (AIS) is a document that contains additional details such as interest income, dividend income, securities transactions, mutual fund transactions, foreign remittance information, and more. When a taxpayer chooses to utilize the “prefill” option, the information from the AIS is automatically filled into the income tax return form, saving time and ensuring accurate reporting of income.
Which ITR form to file?
Not all ITRs are meant to be filled. You must choose the ITR form depending on various details, most importantly, your annual income or your source of income.
ITR-1: This ITR form is best suited to resident individuals earning salaries, showing income from one house property, and other sources such as interest, etc. Also, the total income earned must not be more than ₹50 lakhs.
ITR-2: This ITR form must be filled by individuals and Hindu Undivided Families (HUFs) who do not engage in any business or profession under a proprietorship.
ITR-3: This ITR form must be completed by individuals and HUFs who have income from a proprietary business or profession.
ITR-4: This ITR form is for taxpayers with presumptive income from business or profession.
Documents necessary for filing ITR
Before you log in to the Income Tax portal, make sure to keep the following documents by your side.
- Bank account details
- PAN Card
- Aadhaar Details
- Form 16 for salaried taxpayers
- Proofs of investments made
- Home loan interest certificate
- Insurance premium payment receipts
Verifying ITR details
Once you have filed your ITR, the final step is to verify it. The verification can be done either online or offline. In the online option, you can use the Aadhaar One Time Password (OTP) to access and verify your return. The income tax department will send an e-verification mail to confirm the verification process electronically. For the offline method, you need to send a signed printout of the ITR to the Centralized Processing Center (CPC) in Bengaluru.
It is important to note that the time limit for e-verification or submission of the hard copy of ITR-V after filing has been reduced to 30 days by the income tax department, starting from August 01, 2022.
The deadline for filing income tax returns falls on July 31 each financial year. The failure to file income tax returns can result in a penalty of up to ₹5,000, even if the taxes have been paid. Additionally, it is crucial to present tax returns as proof in various situations, such as when applying for a loan, intending to purchase property, planning to travel abroad, or obtaining significant insurance coverage.
Old vs new income tax regime; which is better for 10 lakh income