Feeling overwhelmed by the thought of filing your income tax return (ITR)? Let’s simplify it. ITR shows your earnings and the taxes you’ve paid to the Government for a specific financial year. It’s an essential step to ensure you’re contributing your fair share to the nation’s development.
The practice of filing ITRs has seen remarkable growth and evolution over the years. In 2023, a new record was achieved. More than 6.77 crore Income Tax Returns were filed by July 31st. This number shows a big jump of 16.1% compared to the previous year.
Filing your taxes has now become much easier. A big part of the recent surge in tax filings is due to the ease of e-verification. In fact, out of 5.63 crore e-verified returns, 94% used Aadhaar-based OTP!
And that’s not all. By the end of July 2023, 61% of the total returns filed in AY 2023-24 had already been processed! This article will guide you through what ITR means and provide a detailed, step-by-step method for filing it.
Why is it Important to File ITR?
Submitting an Income Tax Return (ITR) is crucial, not only because it’s a legal obligation, but it also offers important advantages for individuals and contributes positively to the nation. For people, it keeps them in line with tax rules and opens up financial advantages. At the national level, ITRs provide valuable data that help shape economic policies and strategies.
Importance for Individuals
- Financial Records and History: Your ITR serves as an official record of your annual income and taxes paid. This documentation is crucial when you need to prove your financial worth, say, for loan approvals or visa applications.
- Excess TDS Claim: If more tax has been deducted at source (TDS) than what you owe, filing ITR helps claim refunds. For example, let’s say you have ₹5,00,000 as your income after deductions. If ₹60,000 has already been taken as TDS (Tax Deducted at Source), and the tax rate for your income is 10%, then your actual tax is ₹50,000. Since you’ve already paid ₹60,000, you’ve paid ₹10,000 extra. So, you can get ₹10,000 back as a refund.
- Applying for a Visa: Many countries consider ITR as proof of financial stability when applying for a visa.
- Loan Application: ITRs are often required for loan approvals as they reflect your repayment capacity.
More than 6.77 crore ITRs have already been filed by the end of July. It’s expected that another 1.8-2 crore returns will be filed by March 24. This will bring the total to nearly 8.5 crore.
Importance for Government and Economy
National Growth and Development:
ITR filings play a pivotal role in a country’s economic development. Here’s how it helps:
- Taxes are a major source of revenue for the government. The taxes collected are used to fund public services, infrastructure projects, and development programs.
- Regular ITR filings ensure transparency in income and tax payments. This helps in reducing tax evasion and ensures a fair distribution of the tax burden.
- The tax money collected goes into various social welfare schemes that benefit society at large. These schemes include healthcare, education, and poverty alleviation programs.
State-wise Contribution:
Maharashtra, Uttar Pradesh, Gujarat, Rajasthan, and West Bengal are the top five states in terms of ITR filings, making up 48% of the total in AY23.
Taxpayer Migration:
A State Bank of India report indicates an upward migration of taxpayers from lower-income groups. AY23 saw 64 lakh more filings than AY22, with the highest increases in Maharashtra and Uttar Pradesh.
Regional Growth:
Smaller states like Manipur, Mizoram, and Nagaland have seen over 20% growth in ITR filings over the last 9 years.
Choosing the Right ITR Form
Selecting the right ITR form depends on your income sources and taxpayer category.
- ITR Form 1: For individuals (not HUF) with income up to ₹50 lakh from salary, one house property, and other sources like interest.
- ITR Form 2: For individuals and HUFs with income over ₹50 lakh, not from business profits.
- ITR Form 3: For individuals and HUFs with income from business or profession.
- ITR Form 4: Simplified forms for small and medium taxpayers.
- ITR Form 5 & 6: Filed by LLPs and businesses respectively.
- ITR Form 7: For LLPs and businesses with specific income types.
Common Mistakes in Filing ITR
When you are filing your Income Tax Return (ITR), even a small mistake can lead to big headaches. Let’s look at what can go wrong and how to avoid it:
- Incorrect Details: If you enter the wrong PAN, address, or contact details, it can mix up your records or delay important communications.
- Missing Income: Not reporting all your income sources, whether by mistake or on purpose, can cause trouble. This includes everything you earn, not just your main job’s salary.
- Not Claiming Deductions: You might miss out on reducing your tax if you don’t claim deductions you’re eligible for. This includes things like investments, medical expenses, or interest on education loans.
- Not Reporting Tax-Exempt Income: Some income, like dividends or profits from selling stocks, isn’t taxed. But you still need to mention it in your ITR.
- Forgetting Past Jobs’ Income: If you switched jobs in a year, make sure to include income from your previous job too.
- Maths Errors: Wrong calculations in your taxable income or the tax you owe can cause discrepancies.
- Late Filing: Filing your ITR late can lead to penalties. Also, if you’re due a refund, you might get it late.
To avoid these mistakes, double-check your details, report all income, and claim all deductions you’re entitled to. It’s also a good idea to file your ITR well before the deadline. This way, you can correct mistakes if any, and avoid penalties.
Best Methods to Save Tax
Utilise Section 80C Deductions:
Saving tax is not just about exemptions; it’s a strategic exercise in financial planning. Section 80C offers a deduction of up to Rs. 1,50,000 for various investments, including the principal amount paid on a home loan, five-year fixed deposits, and the Sukanya Samariddhi account. You can use the best stock market apps to make the most of these benefits.
Invest in National Pension Scheme (NPS):
Additional investment in the National Pension Scheme (NPS) up to Rs. 50,000 qualifies for tax-free status beyond the 80C limit.
Opt for Tax-Saving Investment Instruments:
Investments like PPF, VPF, and NSC (VIII and IX issue) also provide tax-saving benefits, with varying conditions on taxability during tenure and on maturity.
Contribute to Specific Causes and Organizations:
Contributions to specific disease treatment, charitable donations, and political parties under Section 80GGC, where donations to political parties allow a 100% deduction, offer additional avenues to reduce tax liability.
Tax-Saving Investments
The table below outlines key features of popular tax-saving instruments, focusing on their tax implications during the investment tenure and upon maturity.
| Instrument | During Investment Tenure | On Maturity |
| PPF | Tax-exempt | Tax-exempt |
| VPF | Tax-exempt | Tax-exempt |
| NSC (VIII and IX issue) | Taxable (interest qualifies for 80C deduction) | Taxable (if accrued interest is not declared) |
| Equity-Linked Savings Scheme (ELSS) | Tax-exempt | Tax-exempt |
| Life Insurance Premiums | Tax-exempt (under 80C) | Tax-exempt (if the sum assured is more than 10 times the premium) |
| Home Loan Principal Repayment | Tax-exempt (under 80C) | Not applicable |
| Health Insurance Premiums | Tax-exempt (under 80D) | Not applicable |
| Educational Loan Interest | Tax-exempt (under 80E) | Not applicable |
Conclusion
Filing your ITR correctly and on time reflects your commitment to being a responsible citizen and plays a crucial role in your financial planning. It’s about painting a clear picture of your earnings and taxes, ensuring you’re in the best position to make future financial decisions.
Remember, each step you take in managing your finances, like filing ITRs, brings you closer to financial stability and independence. And speaking of wise financial decisions, why not consider investing? This is where the Appreciate app can be a game-changer for you.
Appreciate, simplifies your investment process, and guides you towards tax-efficient decisions. Check out the Appreciate and start your investing journey today. Your future self will thank you!
Yogesh is a Co-Founder at Appreciate, a fintech platform helping Indians achieve their financial goals through globally diversified one-click investing.
