Income Tax Return filing by individuals: Who should file and how to file ITR

An individual is obligated to file an ITR if his gross taxable income during a particular FY exceeds the maximum amount not chargeable to tax.

Income Tax Return filing by individuals: Who should file and how to file ITR
Income under each head of income needs to be computed separately as per the respective provisions of the said income head. 

For individuals [not subject to tax audit provisions under Income-Tax Act, 1961 (‘the Act’)] the Income Tax Return filing deadline for Financial Year 2020-21 has now been extended to 31 December 2021. There have been significant changes in the tax filing process this year due to launch of a new income-tax portal. Thus, it is pertinent to choose the appropriate ITR form and fill in the correct details while filing the ITR.

Who should file an ITR

An individual is obligated to file an ITR in the prescribed form if his/her gross taxable income [calculated before eligible exemption available for long-term capital gains on listed securities upto Rs 1 lakh and other deductions under Chapter VI-A of the Act] during a particular FY exceeds the maximum amount not chargeable to tax.

For FY 2020-21, total income up to Rs 2.5 lakh is not subject to tax for an individual. Such threshold income for a resident senior citizen (age of 60 years or more) and resident super senior citizens (age of 80 years or more) is Rs 3 lakh and Rs 5 lakh, respectively.

Further, an individual whose income is not chargeable to tax, but fulfills one or more conditions specified below is obligated to furnish his return of income.

i) Deposit of amount or aggregates of amount exceeding Rs 1 crore in one or more current accounts;

ii) Incurred expenditure of an amount or aggregate of amount exceeding Rs 2 lakh for travel to a foreign country for yourself or any other person;

iii) Incurred expenditure of amount or aggregate of amount exceeding Rs 1 lakh on consumption of electricity.

Computation of income and taxes

Firstly, income under each head of income needs to be computed separately as per the respective provisions of the said income head. Thereafter brought forward/current year losses should be set off to determine the gross total income.

Once the gross total income is determined, deductions available under chapter VI-A of the Act (such as Section 80C in respect of specified investments/expenditure, Section 80D for medical insurance premium,  etc.) can be claimed to arrive at total taxable income. On such taxable income, applicable slab rates of tax should be applied to compute the total tax liability (net of rebate under Section 87A or relief under Section 89 of the Act, if applicable).

The Finance Act, 2020 introduced a new optional tax regime for taxpayers with modified tax slabs and rates, in lieu of foregoing prescribed exemptions and deductions. One may evaluate between such new tax regime and the old tax regime and proceed with whichever is beneficial. Any taxes due on the tax return after claiming credit of prepaid taxes (taxes deducted at source and advance taxes paid during the year) and foreign tax credit of taxes paid outside India should be paid (including applicable interest, if any) before filing the tax return.

ITR forms

The tax return forms notified for FY 2020-21 applicable to individuals are:

Broad overview of how to file an ITR

Every individual has to mandatorily file his/her return electronically except super senior citizens filing ITR-1.

Broadly speaking, the process for filing the tax return electronically is as under:

1. Taxpayer should register (if not already done) and login into the income-tax e-filing portal.

2. Retrieve and verify online tax credit statement (Form 26AS) in support of taxes deducted at source by the employer/any other deductor, advance taxes paid during the year and any other information as relevant.

3. Prepare computation of income (including claiming exemptions and deductions) and taxes. Based on the same, pay the balance taxes payable, if any, as self-assessment taxes using challan no. 280.

4. Taxpayers claiming foreign tax relief should prefill the details in Form 67 and submit along with supporting documents. Such form is required to be verified online before filing ITR.

5. Taxpayers having income from business/ profession and choosing to opt for the new optional tax regime have to also file Form 10IE online.

6. Tax return can be prepared and submitted through an online functionality available on the income tax e-filing portal. Alternatively, one can download prefilled ITR and fill the prescribed utility of the applicable income tax return form offline, generate an xml file and upload the same on e-filing portal. It is advised to verify the information in prefilled ITR and make necessary additions of income not reported therein in the tax return.

7. While filling the aforesaid forms (either in online or offline mode), the taxpayer should also adhere to the prescribed disclosure requirements like details of directorships held, unlisted shares, Schedule AL for details of assets and liabilities held in India, Schedule FA relevant for ROR taxpayers for reporting foreign bank accounts, financial interest in an entity, equity/debt shares and other assets details, etc.;

8. Post uploading the return, an acknowledgement of the tax return filed (Form ITR-V) would be generated which can be validated either online (through Aadhaar OTP, net banking etc.) or through physical signatures within the cribed period to complete the filing process.

In summary, while the entire ITR filing process has become almost electronic, diligence would need to be exercised by the taxpayer to use the correct forms, report the correct details of income/deductions, etc. as any non-reporting/ mis-reporting has varied consequences under the Act.

(By Parizad Sirwalla, Partner and Head, Global Mobility Services-Tax, KPMG in India)

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First published on: 12-10-2021 at 12:06 IST