The deadline for filing the yearly individual income tax return (where no tax audit is necessary) for the tax year 2021-22, which is July 31, 2022, is quickly approaching. It is critical to understand the critical features of individual tax return filing in India.
Though there are many significant factors to consider to submit an effective income tax return in India, we will focus on a few key ones here.
The duty to file taxes
Even if an individual’s taxable income in India is less than the threshold level, or if there is no income in India, he or she may still be obliged to submit an income tax return if one or more of the following requirements are
Deposited amount or aggregate of deposits in one or more current accounts above INR 1 crore in the preceding year, or
Incurred a single or aggregate expenditure of more than INR 2 lakhs for travel to a foreign nation for oneself or another person, or
Expended more than INR 1 lakh on power use in the preceding year, either individually or collectively.
If the total sales, turnover, or gross revenues of the firm exceed INR 60 lakh for the relevant tax year, then
If a profession’s total gross receipts exceed INR 10 lakh during the relevant tax year, then
If the total of tax deducted at source and tax collected at source for a tax year is INR 25,000 or more (INR 50,000 for those above 60 years of age), or
During the tax year, an individual deposits INR 50 lakh or more in one or more savings bank accounts.
It is important to remember that the necessity to file income tax in India will be triggered if an individual has foreign assets outside of India, even if the taxable income in India is below the limit set or if there is no income in India.
If an ITR is not filed by July 31, 2022, it will be considered a late return and may be filed later, but not later than December 31, 2022. Furthermore, any return submitted before December 31, 2022, maybe updated before that date. However, any loss on account of capital loss, etc., cannot be carried over for set-off in any later year in a belated tax return. Furthermore, if there is existing tax due, there will be extra interest liability for late submission of the ITR.
If a tax return is filed after July 31st, each individual will be charged an extra cost of up to INR 5,000. The additional costs due, however, should not exceed INR 1,000 if the total income of the individual filing such a report does not exceed INR 5 lakh.
Finally, if a tax audit is required, the deadline for filing the income tax return is October 31, 2022.
There is an opportunity to re-elect the new or old tax regime when filing your return. Because certain exceptions and deductions are not allowed under the new tax regime, the choice of the new or old tax system will change the computation process. Salaried persons with salary income can choose between old and new tax regimes each year. Individuals conducting business, on the other hand, can choose a tax system just once and modify it only once in the following years.
Computation, proper return form, and reporting
An individual must select the suitable income tax return form or ITR form based on the kind of income, the amount of income, and other relevant factors (i.e., ITR 1, ITR 2, etc).
Along with the ITR, the precise computation of income is critical. Taxes must be calculated properly on all incomes, including any income that is explicitly exempted or taxable at a reduced rate under the Income Tax Act. The right amount of tax deduction at source, as well as any prior tax paid (if any), should be considered. Any underpayment of tax must be submitted along with the relevant interest and penalty (if any).
It is critical to ensure that all incomes – salary, interest income, dividend, capital gains, rental incomes, interest on employee contributions to Employee Provident Fund (EPF) exceeding INR 250,000 in a year, among others – are correctly reported using valid supporting documents such as bank account statements, annual withholding certificates issued by the employer, capital gains statements, and so on. When revealing pay income in the salary schedule, a proper division of the salary and perquisites, as well as any income from the retirement benefits account kept in an overseas notified nation, should be carefully filled in.
Similarly, any deductions, such as those for contributions or insurance premiums, must be obtained based on legitimate receipts, certificates issued in the required form for gifts made, housing loan certificates, and other documentation.
However, one must exercise caution because certain deductions and exemptions cannot be claimed if the individual has elected to be taxable under the new tax regime. For example, deductions under section 80 G of the Income Tax Act of 1961 for contributions and deductions under section 80 TTA for interest income are no longer available under the new tax regime.
If an individual’s total income in a tax year exceeds INR 50 lakh, he or she must additionally report the specified assets and liabilities (as of the tax year’s end) in the ITR form.
In addition, an individual must give an accurate statement on whether he or she had any directorships or unlisted shares during the tax year.
Any tax deferred on ESOP related perk income from qualifying start-ups must be detailed on the ITR form in the relevant schedule.
Aside from that, exempt income, carry forward, and brought forward losses must all be meticulously completed.
Furthermore, it is required to supply bank account information as stipulated, and the bank account must be pre-validated in order to get any income tax refund.
Annual Information Statement (AIS) and Tax Information Summary (TIS)
Recently, the tax authorities implemented a functional modification to facilitate prompt compliance:
AIS is a comprehensive statement that contains information on numerous types of financial transactions carried out by an individual throughout a tax year. It includes information on income obtained from various sources such as salary, dividend, interest from savings accounts, recurring deposits, sale and purchase of equity shares, bonds, mutual funds, and so on. The statement also includes information on tax deducted at source and tax collected at source.
TIS is a taxpayer-specific aggregated information summary. For example, the aggregate amount of interest, dividends, and so on from various accounts and shares is supplied in a concise simplified version.The goal of such AIS and TIS is to aggregate transactions, incomes, and taxes for a tax year into a single statement and give the assessee a checklist to guarantee that no reportable income is missing.
It is an individual’s responsibility to reconcile AIS, TIS, and Form 26 AS (statement including information of taxes deducted on various earnings, details of other prepaid taxes, other special transactions, etc.) and then file the corresponding Income tax return. These forms are accessible and must be obtained from the e-filing site before filing the income tax return.
It is the responsibility of the individual to reconcile AIS, TIS, and Form 26 AS (statement including information of taxes deducted on various earnings, details of other prepaid taxes, other special transactions, etc.) and then file the corresponding Income tax return. These forms are accessible at the e-filing site and must be downloaded before filing the income tax return.
Employees that go globally
In the case of globally mobile employees, determining the correct residential status based on physical presence in India is critical. The tax consequences in India might be calculated based on their residency status.
Foreign assets and income
Furthermore, persons who qualify as ordinary residents in India and have foreign assets and income are obliged to report the same in their ITR forms in the prescribed schedules.
Non-disclosure of assets and liabilities outside India in the ITR may result in consequences under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. As a result, whenever this criterion applies, it is critical.
If a foreign tax credit has been claimed under a double taxation agreement or a tax treaty between India and another country, Form 67 must be filed before submitting the Income Tax Return Form.
If any other benefit, such as a special tax rate on interest income based on a tax treaty, or any other benefit, is obtained, the Tax residency certificate from the overseas country should be obtained, and the related column in the Income tax return form, as applicable, should be appropriately filled in.
To comply with the tax regulations, one should be aware of these components of completing the tax return and filing a correct and accurate tax return before the due date. This also takes into account the implications of non-filing or late filing of tax returns.