The term income tax refers to a type of tax that governments impose on income generated by businesses and individuals within their jurisdiction. By law, taxpayers must file an income tax return annually to determine their tax obligations. Income taxes are a source of revenue for governments. They are used to fund public services, pay government obligations, and provide goods for citizens.
In India, the Income Tax Department is the regulatory authority for all things related to Income Tax.
In this article, the author attempts to give a detailed overview of how to file income tax returns in India along with tips for tax savings. Read on!
HOW TO FILE INCOME TAX ONLINE
For decades, the filing of Income Tax Returns (ITR) was a nightmare for the common man as it involved understanding technicalities that were possible only by a professional. However, in recent times, with the initiative of Digital India taking shape and making an impact, the entire process of filing ITR has been taken online to make the process simple and convenient even for laypersons. Needless to say, e-filing has made sure that the process is no longer a hassle than it used to be.
In the following paragraphs, we have highlighted a step-wise guide for filing your ITR:
1. Accessing The Portal
The first step of the e-filing process is to log on to the official Income Tax Department portal HERE. One has to register for an account by using the Permanent Account Number (PAN), which usually serves as the user ID of the individual. By filling in the Password and Captcha Code correctly, one may log in to the portal.
2. Downloading The Required Form
Once you have logged in to the portal, the next step is to go to the Download section and access the relevant assessment year, followed by accessing the appropriate ITR form.
Currently, there are seven types of ITR forms. Each form caters to a specific set of taxpayers. The type of return in income tax filling you are eligible for primarily depends on your:
If you are a regular salaried individual, ITR Form 1 (Sahaj) is the appropriate form for you. The preparation software has to be downloaded accordingly.
3. Filling The Details
Once it has been downloaded, open the Return Preparation Software (excel utility). You may now proceed to follow the instructions given and enter the relevant details in your Form 16. It is important to carefully compute the tax payable, then pay the amount and enter the relevant challan details in the tax return.
If you are someone who does not have a tax liability, you may skip this step as there is no payable tax to be calculated.
4. Submitting The Details
Once the requisite details have been duly filled and the tax paid, one needs to confirm the details and generate an XML file which gets automatically saved on your computer. This XML file then has to be uploaded to the ‘Submit Return’ section of the portal. Upon completion of the upload, you have to digitally sign the file when the prompt shows on the screen. This can be skipped if you do not have a digital signature (check the sixth step for more details).
5. Getting The Confirmation
Once the upload is complete with or without the digital signature, a message confirming the successful E-filing process appears on the screen. The confirmation is also mailed to your registered email address by the IT Department.
6. Completing the Process
One may E-verify the return through a number of methods such as Netbanking, Bank ATM, Adhaar OTP, Bank account number, registered mobile number, etc. The EVC/OTP should be entered within 60 seconds else, the Income Tax Return (ITR) will be auto-submitted. The submitted ITR should be verified later by using the 'My Account > e-Verify Return' option or by sending the signed ITR-V to the Income Tax Department’s Centralised Processing Centre (CPC) in Bangalore. For sending ITR-V to CPC, the following instructions must be adhered to by the tax-payer:
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Only A4-size paper should be used by taxpayers.
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Print out should be clear and not faded.
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Taxpayers should sign the document in blue ink.
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There should be no signatures on the bar code.
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The bar code and numbers below it should be clear.
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The document should not be folded and stapled.
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No annexures, pre-stamped envelopes, and so forth should be sent along with the ITR-V form.
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Two separate papers should be used for printing original and revised returns.
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The ITR-V form should reach CPC within 120 days of filing returns.
It is important to note that ITR-Vs that deviate from the specifications above may get rejected or get late acknowledgement of receipt.
7. Checking The Verification Form
Once you have filed your ITR, the IT department generates the income tax verification form so taxpayers can verify the validity and legitimacy of e-filing. These are applicable only if you have filed your returns without a digital signature. The income tax return verification form can be downloaded in easy steps.
TIPS FOR TAX SAVINGS IN INDIA
As your career grows and your income increases with time and promotions, tax saving should become a priority of your tax planning each fiscal year. Higher incomes are subject to higher tax rates, so it is prudent to save up as much of your hard-earned income as possible. Tax saving also inculcates a financially healthy habit of setting aside a portion of your income for investments that can help you save taxes and protect your finances in the long run. However, tax saving should in no way be considered synonymous with tax evasion as the latter is considered illegal and may have severe penal repercussions.
In the following points, some ways through which an individual may save on taxes are highlighted:
- Exemption Through Savings Account
Interest earned on a savings account is exempt for taxation purposes for a limit of ?10000 that extends to ?50000 in the case of senior citizens. This is why most salaried individuals prefer to operate through a Savings account instead of Current accounts.
- Deduction On Home Loan Interest
If you have a home loan, the interest payable on it is tax deductible under Section 24 of the Income Tax Act up to ? 2 lakh per annum. Furthermore, you give out the house on rent, there is no upper limit.
In order to encourage savings and investments, the Government of India, under Section 80C, provides certain tax-saving options through which one may end up saving tax as well as making valuable investments for a secure future. Such options include, among others, the Public Provident Fund (PPF), National Pension Scheme, National Savings Certificate, Fixed deposits (for 5 years), the premium paid for a Life Insurance Policy, Sukanya Samriddhi Yojana, etc. These investments/deductions are all subject to a cap of ? 1.5 lakh- this means that making one of these investments will reduce the room for deduction in another.
If you live on rented premises, the Income Tax Act allows claiming tax deduction from any House Rent Allowance that you receive from the workplace. Furthermore, if you do not receive HRA but pay rent, you may claim a deduction under Section 80GG up to ? 60,000/- per annum.
A substantial deduction up to ? 25,000/- is available for health insurance premiums under Section 80D. For senior citizens, this limit has been further enhanced to ? 50,000/- for senior citizens. A person contributing health insurance for himself and his senior citizen parents can avail of the combined deduction of up to ? 75,000/- per annum under the existing framework.
Under the existing framework, if one makes donations to certain specific organisations (usually non-profit in nature) in cash, they are eligible for a tax waiver amounting to ?2000 under Section 80G of the Income Tax Act. NGOs under this section are required to have an 80G certificate for you to be able to claim this deduction.
Similarly, if you are donating to an entity that facilitates scientific research or rural development, you are eligible for certain deductions under Section 80 GGA. As opposed to cash, wire and bank transfers enjoy either full or partial tax exemptions, respectively.
If you are someone who is inclined towards donating to worthy causes, this is a worthwhile way of saving on your taxes.
- Interest In Education Loans
Under Section 80E, a taxpayer is allowed to forego any tax payment on the interest component of education loans. However, such benefits are restricted to the first eight years of loan repayment.
- Income Received From Gratuity
Money received as gratuity is tax-free to a limit of ? 20 lakhs under the Income Tax,
Contributing To A Political Party
The Income Tax Act under Section 80GGC provides that all donations made to political parties or contributions to electoral trusts are eligible for tax waivers, provided the organisation is registered under Section 29A of the Representation of People Act of 1951. It is also to be noted that such donations have to be made through wire or bank transfers as cash deposits are not allowed.
The system for Income Tax is integral to the Direct Tax ecosystem in the country and helps the government with the requisite funds for running the country effectively as well as for implementing welfare schemes and growth policies. Unfortunately, only a small portion of the population falls within the purview of the Income Tax which is expected to grow in the upcoming years.
