Things to remember before filing your Income Tax

Introduction

Tax filing is the process through which a person declares their income to the government and pays the taxes due. It’s the equivalent of receiving clearance from your employer or college on the last day of your employment or schooling. An individual whose taxable income in a financial year exceeds INR 2.50 lakhs is required to file returns. Before you file your income tax returns, be sure you understand the various categories under which your earnings fall. You won’t be able to submit your taxes correctly until you know your many sources of income. Your various sources of income could include your salary, rental income from any property, business profits, and capital gains from stocks, among other things. There are other things to remember before filling your income tax.

Things to remember before filing your Income Tax

Select the appropriate ITR form

For an accurate filing, it is critical to select the appropriate ITR form based on the taxpayer’s residency status and income obtained from various sources. For example, a resident individual with a total income of up to Rs 50 lakh from wages, one residential property, and other sources can only utilize form ITR-1. A taxpayer who is a non-resident or a non-ordinary resident, or who has capital gains for which form ITR-2 must be used, cannot use it.

ITR forms that have been pre-filled

This year, ITR forms will import pre-fill information from Form 26AS, such as the taxpayer’s personal information and details of salary income, dividend income, interest income, and capital gains. This would make it easier for taxpayers to file ITRs because most of the necessary information would already be included. As a result, it will be important for individuals to double-check this info to make any necessary adjustments to income not declared on the tax return. If the information is erroneous, you should contact the bank/payor of income, etc. to request that the data in their periodic TDS returns/other filings be corrected so that proper information is shown in your Form No. 26AS.

Form 26AS is used to verify prepaid taxes.

With Form 26AS, taxpayers can verify their prepaid taxes, such as tax deducted at source, advance tax, and self-assessment tax. Any difference should be reported to the employer (in the case of salary income), other payers (in the case of other earnings), or banks (in the case of advance tax/self-assessment tax payments) for necessary rectification, which is required for the tax department to process the tax return smoothly.

Choose between the new and old tax regimes, whichever is more advantageous.

In lieu of renouncing mandated exclusions and deductions, the Finance Act of 2020 proposed a new optional tax scheme for taxpayers with customized tax slabs and rates. When completing a tax return, taxpayers will have the choice of picking between the existing and new tax regimes. Employed taxpayers can also amend the tax regime they disclosed to their employer when they filed their ITR.

Taxes due on the balance

After determining total taxable income, including income under all heads and claiming essential deductions under Chapter VI-A of the Act, applicable tax rates must be used to calculate the total tax due. After claiming credit for prepaid taxes, any taxes owed on the tax return, including any applicable interest, should be paid before submitting the tax return. Even if the tax return filing date has been extended to 30 September 2021, if such consciousness tax exceeds Rs 1 lakh, it must be paid before 31 July 2021 to prevent additional interest liability.

Changing jobs during the year

If the taxpayer has provided the current employer with the required wage and income details from a previous employer(s), the present employer can issue a consolidated Form 16 and 12BA on which an ITR can be submitted. Otherwise, due to the duplication of slab benefits, deductions, and exemptions granted by all employers, there may be a TDS deficiency. In that case, any additional taxes owed on the return, as well as any relevant interest, should be paid before the return is filed.

Exempt Income Reporting

Exempt income, such as agriculture income, the exempt income of minor children, income not payable to tax under the Double Taxation Avoidance Agreement, and so on, must be reported under ‘Schedule EI.’

Various standards for disclosureAn ITR must include the following disclosures of diverse resources and financial investments:

1. Detailed information on all Indian bank accounts Specific information about unlisted equity shares
2. Information on directorships held in Indian and overseas corporations.
3. Assets and Liabilities Schedule: If an individual’s total income exceeds Rs 50 lakh, details of designated assets (property, buildings, movable assets, etc.), financial assets (deposit accounts, shares & securities, cash in hand, etc.) and matching liabilities must be revealed.
4. Schedule Foreign Investments: Ordinarily, residents are required to disclose information about their assets held outside of India (either as a proprietor or as a beneficiary) in accordance with certain disclosure rules.

In some circumstances, filing an ITR is required.

Even if such persons are not required to submit an ITR by virtue of having taxable income, the Finance (No. 2) Act of 2019 compelled ITR filing for select individuals who meet specific stated requirements during the relevant FY. If they engage in high-value transactions even during the relevant fiscal year, they will be obliged to provide the following information:

1. Payment of more than Rs 1 lakh in power bills;
2. Deposit of more than Rs 1 crore in one or more current bank accounts;
3.  Spent more than Rs 2 lakh on international travel for self or any other person.

Consequences of failing to file an ITR by the deadline

The taxpayer may be unable to file the ITR before the due date for a variety of reasons, including a lack of essential documents/information, a lack of time, personal obligations, and so on. If the ITR filing date is missed for whatever reason, it may result in a variety of repercussions under the Act, including the imposition of a late filing charge, payment of interest on the balance tax liability, indefinite suspension to carry forward certain losses, and so on.

To summarize, taxpayers should analyze their taxable income in accordance with the Act’s provisions and double-check all underlying documents/information before computing the final tax payable/refundable, as applicable. In doing so, they should consider the aforementioned factors, as well as others, in order to file their ITR correctly and avoid any penalties.