Filing an Income Tax Return (ITR) is a pivotal responsibility for individualities and realities in numerous countries, including India.
It helps maintain translucency in fiscal deals and contributes to the nation's profitable growth. In this blog, we will explore who's needed to file ITR, slipping light on colourful orders of taxpayers and their scores.
Understanding these conditions will help you efficiently fulfil your duty scores and avoid penalties or legal impacts.
Who Needs to File ITR?
- Salaried Employees:
Salaried employees, whether in the private or public sector, must file an ITR if their total yearly income exceeds the income tax department's basic exemption level. This comprises pay, additional sources of income, and deductions claimed under different provisions of the Income Tax Act.
- Self-Employed Professionals:
Self-employed professionals, such as physicians, attorneys, consultants, and freelancers, must submit ITR. They must record their professional income and deductions and pay the appropriate taxes.
- Business Owners :
Individuals conducting their own enterprises, such as sole owners, are required to submit ITR. They must disclose their business revenue, costs, and deductions and adhere to the tax requirements that apply to their business structure.
HUFs (Hindu Undivided Families):
For income tax purposes, HUFs are treated as a distinct entity. If a HUF obtains income that exceeds the basic exemption level, regardless of its source, it is required to submit an ITR.
Companies and enterprises:
Private and public companies, including international enterprises, are required by law to submit ITR. After deducting certain deductions and exclusions, the company's revenue is liable to corporation tax.
Partnership Firms and LLPs (Limited Liability Partnerships):
Partnership firms and LLPs in any industry or profession must submit an ITR. The partnership firm's or LLP's income is taxable, and partners/members must record their share of profit or loss on their individual ITRs.
Trusts and charity Institutions:
Under the Income Tax Act, trusts and charity institutions must submit an ITR. They must record their revenue and spending and follow the unique tax requirements that apply to charity organisations.
Criteria for Mandatory ITR Filing:
- Age-Based Criteria:
An individual's age substantially impacts whether or not submitting an ITR is required. The following age-based parameters are taken into account:
- Individuals under the age of 60 must file an ITR if their total income exceeds the basic exemption level.
- Senior Citizens (aged 60 to 80 years): If their total income exceeds the higher exemption level relevant to their age group, they must submit an ITR.
- Super Senior Citizens (aged 80 and up): They must submit an ITR if their total income exceeds the even greater exemption ceiling applicable to their age group.
- Income-Based Criteria:
Earned income within a fiscal year is an important criterion for required ITR filing. The income-based criteria vary depending on the taxpayer's age and domicile. The income includes salary, revenue from a business or profession, capital gains, rental income, and income from other sources. Individuals earning less than the stipulated income levels must submit an ITR.
- Residential Status:
An individual's or entity's residential status affects the necessity to file an ITR. The three types of residence status recognised by Indian tax rules are as follows:
- Individuals who are residents are obliged to submit ITR if their income exceeds the stipulated threshold limitations.
- Non-Resident Indians (NRIs): If their income generated in India exceeds the basic exemption limit or if they have certain specified earnings, NRIs must submit ITR.
- RNOR (Resident but Not Ordinarily Resident): RNORs must submit ITR if their income in India exceeds the basic exemption level or if they have specified earnings.
- Assets Held Outside India:
Individuals who have assets or financial interests outside of India, such as bank accounts, immovable property, investments, and so on, must submit ITR regardless of income threshold. It aids in reporting foreign assets and compliance with foreign income and asset restrictions.
- Money from overseas Sources:
Individuals who have earned money from overseas sources, such as wages, business or profession, capital gains, rental income, or any other income, must submit ITR. It guarantees that such income is correctly recorded and taxed in accordance with tax legislation.
ITR Form Types:
- ITR-1 (SAHAJ):
ITR-1, also known as SAHAJ, is the most basic and widely used form for filing Individual Income Tax Returns. It applies to persons with a salary, one residential property, additional sources of income (excluding lottery winnings and racehorse revenue), and a total income of up to Rs. 50 lakh. Individuals who are directors of a corporation or have invested in unlisted equity shares are not eligible to utilise it.
Individuals and Hindu Undivided Families (HUFs) who do not qualify for ITR-1 must file ITR-2. Individuals with salaries, numerous housing properties, capital gains, other kinds of income, and international assets or foreign income are all included.
ITR-3 applies to people and HUFs who earn a living via their company or profession. It comprises persons who are partners in a firm but do not qualify as professionals. Individuals with income from pay, house property, capital gains, other sources, and income from a company or profession can utilise this form.
- ITR-4 (SUGAM):
ITR-4, also known as SUGAM, is created exclusively for individuals, HUFs, and corporations that have chosen the presumptive taxation plan under Sections 44AD, 44ADA, or 44AE of the Income Tax Act. It applies to small taxpayers with a company or professional revenue of up to Rs. 50 lakh and it includes wages, residential property, and other kinds of income.
ITR-5 applies to partnerships, limited liability partnerships (LLPs), associations of persons (AOPs), bodies of individuals (BOIs), and artificial juridical persons. Earnings from a business or profession, salary, real estate, capital gains, and other sources are all included. Individuals and HUFs who are unable to file Forms ITR-1, ITR-2, ITR-3, or ITR-4 may instead utilise this form.
ITR-6 applies to businesses that are not excluded under Section 11 of the Revenue Tax Act (revenue from property kept for charity or religious purposes). It encompasses domestic corporations of all sizes, including private, public, and hybrid corporations.
Important Deadlines and Penalties:
- ITR submitting Deadline:
The deadline for submitting Income Tax Returns (ITR) in India is usually July 31st of the assessment year. However, the government may issue extensions or specific deadlines for other taxpayer types. To prevent missing the filing deadline, it is critical to remain up to speed on the latest alerts from the Income Tax Department.
- Penalties for Late Filing:
Failure to file ITR by the required date might result in penalties and repercussions. The penalties are determined by the total amount earned and the length of the delay:
- Individuals having a total income of up to Rs. 5 lahks may be subject to a penalty of Rs. If the ITR is filed after the due date but before December 31st of the assessment year, the penalty is Rs.1,000.
- Individuals with a total income of more than Rs. 5 lahks may be subject to an Rs. 5,000 penalty if the ITR is filed after the due date but before December 31st of the assessment year.
- If the ITR is filed after December 31st, all people may face a Rs. 10,000 penalty.
- The maximum penalty amount, however, would be restricted to Rs. 1,000 if the total revenue is less than Rs. 5 lakh.
Advantages of Filing an ITR Voluntarily:
- Developing Financial confidence: Filing ITR voluntarily contributes to the development of financial confidence. It indicates financial openness and raises your financial status. It can help you get loans, credit cards, visas, and other financial activities that need evidence of income.
- Claim Tax Refunds: Filing an ITR allows you to request a tax refund. If you paid too much tax or qualify for specific deductions or exemptions, you can get a refund by filling out an ITR. It ensures that the tax authorities pay you the right amount.
- Avoiding Legal Consequences: Failure to file an ITR might result in legal ramifications. In some situations, it can result in penalties, interest on the tax amount owed, and even prosecution. By submitting an ITR voluntarily, you comply with the regulations, fulfil your tax duties, and avoid legal issues or repercussions.
- Loan Approvals and Financial Planning: Filing ITR on a regular basis aids in good financial planning. It gives you an accurate view of your income, spending, and tax responsibilities. Having up-to-date ITR records simplifies investment planning, loan applications, and demonstrating financial stability to financial institutions. It also allows for faster loan approvals and lower interest rates.
Individuals, corporations, and organisations all have a legal duty to file income tax returns. It encourages transparency and aids in the growth of the country.
You may satisfy your tax requirements and avoid fines by understanding what is needed to file ITR. Keep track of the deadlines, select the relevant ITR form, and file on time.
Remember that voluntary ITR filing has various advantages, including demonstrating financial integrity and receiving tax refunds. Fulfil your tax obligations conscientiously and contribute to the nation's progress.
FAQ’s related to Demystifying Income Tax Return Filing
1. Is it possible to file an ITR online?
Yes, ITR filing may be done online using the Income Tax Department of India's official website or authorised e-filing platforms.
2. What happens if I don't submit my ITR?
Failure to file an ITR can result in penalties such as a late filing charge and interest on the unpaid tax amount. It may also have legal ramifications and complicate acquiring loans or financial approvals.
3. Do I need to file ITR if I have no taxable income?
Even if your income is below the taxable limit, completing an ITR is encouraged in some circumstances, such as obtaining tax refunds or establishing financial credibility for future financial ventures.
4. How long should I preserve my ITR paperwork?
It is recommended that you maintain your ITR documentation, including supporting financial records and receipts, for at least six years after the end of the applicable assessment year.
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