Understanding Income Tax Returns (ITR)

Income Tax Returns (ITR) are a crucial aspect of the financial responsibilities of individuals and businesses in India. Filing ITR is not just a legal obligation but also a way to ensure that you are contributing to the nation's development. For investors, including those in mutual fund schemes, understanding and filing ITR correctly can help in claiming deductions and ensuring compliance with tax regulations.

What is ITR?

Income Tax Return (ITR) is a form that taxpayers use to declare their income, expenses, tax deductions, and investments to the Income Tax Department. The purpose of ITR is to provide a comprehensive account of the taxpayer's financial activities over a financial year. This helps the government track income and taxes paid, ensuring that everyone pays their fair share.

Filing ITR is essential for several reasons. It helps in maintaining a record of your income, which can be useful for various financial transactions, such as applying for loans or visas. It also ensures that you are compliant with tax laws, avoiding any legal penalties.

Who Needs to File ITR?

Filing ITR is mandatory for certain categories of individuals and entities. Here are the key scenarios where filing ITR is necessary, based on tax legislations as on date. However, same may be subject to changes if any as and when amended from time to time:

1. Individuals with Income Above the Basic Exemption Limit: If your total income exceeds the basic exemption limit set by the government, you must file ITR. For the financial year 2024-25, the basic exemption limit is ₹2.5 lakh for individuals below 60 years, ₹3 lakh for senior citizens (60-80 years), and ₹5 lakh for super senior citizens (above 80 years), if you are eligible as per applicable norms and regime opted. (You are recommended to seek advice from tax advisor for better understanding towards latest tax legislations).
2. Businesses and Self-Employed Professionals: All businesses and self-employed professionals, regardless of their income, are required to file ITR.
3. Individuals with Foreign Income or Assets: If you have any foreign income or assets, you must declare them in your ITR.
4. Investors in Mutual Fund schemes and Other Financial Instruments: If you have invested in mutual fund schemes, stocks, or other financial instruments, you need to file ITR to declare your income from these investments.
5. Others: Individuals who wish to claim a refund of excess tax deducted at source (TDS), those who have incurred losses and want to carry them forward, and those who have received income from property, dividends, or other sources must also file ITR.

Benefits of Filing ITR

Filing ITR comes with several benefits:

1. Legal Compliance and Avoiding Penalties: Filing ITR ensures that you are compliant with tax laws, avoiding any legal penalties or fines.
2. Claiming Tax Refunds: If excess tax has been deducted from your income, you can claim a refund by filing ITR.
3. Establishing Financial Credibility: A filed ITR serves as proof of income, which can be useful when applying for loans, credit cards, or visas.
4. Carrying Forward Losses: If you have incurred losses in your investments, you can carry them forward to offset future gains, reducing your tax liability.
5. Claiming Deductions: = Investors investing in Equity-Linked Savings Scheme (ELSS) can claim deductions under Section 80C, reducing their taxable income. ELSS is a type of open ended equity scheme that primarily invests in equities and equity-related instruments. These funds are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. This means that investments in these schemes can help reduce your taxable income by up to ₹1.5 lakh per financial year if you are eligible as per applicable norms of Income Tax Act, 1961. Unlike other mutual funds schemes, ELSS come with a mandatory lock-in period of three years, which means you cannot redeem your investment before this period.

How to File ITR?

Filing ITR can be done online through the Income Tax Department's e-filing portal. Here is a step-by-step guide:

1. Gather Required Documents: Collect all necessary documents, such as PAN card, Aadhaar card, bank statements, Form 16, investment proofs, and TDS certificates, etc
2. Choose the Correct ITR Form: Select the appropriate ITR form based on your income sources. You may seek advice from your tax advisor for the same. For example, ITR-1 is for salaried individuals, while ITR-3 is for individuals with business income.
3. Fill in the Details: Enter your personal information, income details, deductions, and tax payments in the ITR form and such other requisite information.
4. Verify and Submit: Review the information for accuracy and submit the form online. You will receive an acknowledgment receipt, which you should keep for your records.
5. E-Verification: Complete the e-verification process using methods such as Aadhaar OTP, net banking, or sending a signed ITR-V

Common Mistakes to Avoid When Filing ITR

Filing ITR can be straightforward if done correctly. However, common mistakes can lead to issues. Here are some errors to avoid:

1. Incorrect Personal Information: Ensure that your name, PAN, and other personal details are accurate.
2. Mismatched Income Details: Cross-check your income details with your Form 16 and other income proofs to avoid discrepancies.
3. Missing Deductions and Exemptions: Ensure that you claim all eligible deductions and exemptions, such as those under Section 80C for mutual fund scheme investments.
4. Incorrect Bank Details: Provide accurate bank account details to ensure that any refunds are credited correctly.
5. Not Verifying the ITR: Complete the e-verification process to validate your ITR submission.

Conclusion

Understanding and filing ITR is an essential part of financial planning and compliance. It ensures that you are contributing to the nation's development while also benefiting from various deductions and refunds. For investors in Mutual fund schemes, filing ITR correctly can help in claiming deductions and maintaining a clear record of investments. Stay informed about your financial responsibilities and ensure timely filing of your ITR.

To know more click here:

Know everything about SIP

Incometax.gov.in - How to file tax returns

What is a Mutual Fund? - Beginner's Guide to Investing

AMFI - Introduction to Mutual Funds