During each financial year, we are obligated to file our Income Tax Returns (ITR). Some individuals believe it’s unnecessary if tax has already been deducted by their employer or if their income is below the exemption limit. However, it’s advisable to file ITR regardless of these factors. Even if income falls below the exemption limit, filing ITR offers various associated benefits.
Choose the Correct Form
Selecting the correct form is crucial when filing Income Tax Returns (ITR). There are seven different forms available, each tailored to specific categories of taxpayers. Forms such as ITR-1 to ITR-5 pertain to individuals and cover aspects like total income and income sources. On the other hand, ITR-6 is meant for companies, while ITR-7 is used by entities like societies, trusts, and political parties. Filing in the wrong form can render the return invalid, underscoring the importance of choosing the appropriate form carefully.
Choose the Correct Tax Regime
When filing your Income Tax Return, ensure you select the appropriate tax regime. If you earn income from salary, you can switch between the old and new tax regimes when filing ITR. For individuals with business income, you have the flexibility to switch regimes only once. Opting for the right tax regime can significantly lower your tax liability, so choose wisely.
Choose the right Assessment Year
The assessment year is when income earned during the financial year is evaluated and taxed. While both the assessment year and financial year run from April 1st to March 31st, the assessment year follows the financial year. For instance, for the current financial year (2023-24), the assessment year for filing returns is 2024-25. Inputting the wrong year in your ITR can cause delays in receiving your tax refund.
Check your Residential Status
The tax liability for an individual’s income is determined by their residential status, which is unrelated to their citizenship. As per the Income Tax Act, 1961, taxes are imposed based on the residency status of the individual. Choosing an incorrect residential status can also result in a defective tax return. It’s important to accurately assess your residential status to ensure compliance with tax laws.
Verify your Return
Filing your ITR is not the final step; you also need to verify it. An ITR is considered duly filed only when it has been verified by the individual. There are six ways to verify the return: using Aadhaar OTP, net banking, a bank account, a demat account, a bank ATM, or through the e-verification procedure after filing the ITR. If the return is not verified within 30 days of filing, it will be deemed invalid.
Don’ts of Filing Income Tax Return
Miss the due date for filing ITR
The due date for filing the Income Tax Return for individuals is generally 31 July of the assessment year.
If you do not file your Income Tax Returns (ITR) by this due date, you may face penalties such as:
- A late filing fee of up to Rs. 5,000.
- A penal interest rate of 1% per month on any unpaid taxes.
- Delay in receiving a refund on any excess tax paid.
To avoid these penalties and charges, ensure you file your tax return on time.
File ITR when tax is payable
When filing your ITR, ensure that there are no outstanding tax liabilities.
If there is a tax liability, it should be paid before filing the ITR.
Filing an ITR with unpaid tax liabilities can lead to notices from the Income Tax Department.
Make mistakes in personal information
Ensure that your personal details, such as name, address, PAN, Aadhaar number, date of birth, and other relevant information, match the details in your PAN/Aadhaar.
Incorrect information can delay the processing of your ITR.
