What is Income Tax and Who Should Pay It?As you might probably know, taxes are the primary source of income for all governments, including the government of India. These taxes are then utilized to develop infrastructure, provide healthcare services, offer welfare schemes, expand the education sector, build the defence sector, and other such projects to boost the country’s economy.Although there are several types of taxes that the Indian government levies, income tax is an important revenue source. But how does it work?Income tax is a type of direct tax that is charged on the income that an individual or business earns during a financial year (1st April to 31st March). In simple terms, it is a percentage share of annual income that has to be paid directly to the government in the form of Tax Deducted at Source (TDS), Tax Collected at Source (TCS), and voluntary payments through banks.Are you wondering what counts as income? Here are the 5 main taxable sources:
- Salaries received from an employer.
- Capital gains, meaning the income earned through the sale of capital assets like bonds, equities, jewellery, buildings, etcetera.
- Income earned by renting out a house property provided the said property is not being used for commercial purposes.
- Income and profits earned by businesses that provide professional services.
- Other sources include rental income (apart from house properties), pensions, dividends, lotteries, gifts, and interest earned on debentures, bonds, etcetera.
- Any Indian citizen who is below the age of 60 and has an annual income exceeding Rs. 2.5 lakhs.
- If an Indian citizen is above the age of 60 years but earns more than Rs. 3 lakhs per year.
- Corporate entities
- Hindu Undivided Family (HUF)
- Local authorities
- Body of Individuals (BOI)
- Artificial Juridical Persons
- Association of Persons (AOP)
How to File Income Tax ReturnHow to file ITR may sound like a tedious process, it really isn’t. Instead, it is quite simple and hassle-free. The best part? You can also do it online by simply using your smartphone or computer.Although most people today prefer the online method because it’s much more convenient, we will also explain the offline method for how to file income tax returns.But first, let’s look at the steps on how to file ITR online:Step 1: Open your browser and enter the URL for the IT Department’s official portal.Step 2: If you’re already a registered member, click on ‘Login Here’. If you aren’t a registered user, enter your PAN details to register.Step 3: Look for the ‘E-File’ option and select ‘Income Tax Return’.Step 4: You will now see a drop-down menu, from which you have to choose the ITR form number and AY. Additionally, the filing type has to be selected as ‘Original/Revised Return’, and the submission mode should be ‘Prepare and Submit Online’.Note: You can check which ITR form you must select here, but how to file ITR 1 and 4 can be done online. Step 5: Press ‘Continue’.Step 6: Carefully fill in all the details in the ITR form.Step 7: Enter your bank account details or pre-validate them if provided previously.Step 8: Verify your details by entering a 6-digit OTP sent to your registered mobile number and email ID.Step 9: After the OTP has been successfully verified, you will be redirected to a new page to verify the information you entered in the ITR form.Step 10: Double-check the details and click on ‘Submit’ or ‘Validate’.That covers the steps for how to file income tax returns online. Next, we will look at the offline method:Step 1: Visit the official e-portal of the IT department.Step 2: Go to ‘Download > IT Return Preparation Software and download either the Excel utility or Java utility.Step 3: Extract and open the downloaded ZIP file.Step 4: Enter all the details in the ITR form, including the calculated ITR amount.Step 5: Save the XML file.Step 6: Visit the e-filing portal again and log in using your PAN card details and password. You will also have to enter a security code.Step 7: Choose ‘E-File’.Step 8: Select ‘Income Tax Return’.Step 9: Enter details like assessment year and ITR form number.Step 10: Choose the filing type as ‘Original/Revised Return’ and submission mode as ‘XML’.Step 11: Select your preferred option from Aadhar card, Digital Signature Certificate, Bank Account details, or Demat Account to verify the ITR form.Step 12: Press ‘Continue’ and attach the XML file.Step 13: Attach the required file depending on which verification option you selected.Step 14: Click on ‘Submit’.While the offline method for how to file income tax returns is also quick and simple, some steps require you to log in to the e-filing portal.However, you can also request a Form 16, enter the details manually, and submit the hard copy at the Income Tax Department, and you will receive an acknowledgement on successful submission.
How to Calculate Income TaxAlthough it is a legal mandate to pay your income tax (if you fall under the category, that is) in India, how much tax you have to pay is entirely dependent on your annual income, age, and the slab rates released by the IT department – which are updated every year.For instance, if you are below the age of 6o years and your annual income is Rs. 6 lakhs, you have to pay 20% of your yearly earnings as income tax. This means that your income tax return will round off to Rs. 1 lakh and 2o thousand.Similarly, if your annual income is Rs. 11 lakhs, you must pay 30% of your earnings as income tax. This means that your income tax return will round off to 3,30,000. In short, it primarily depends on your age group, the range of your annual income, and the current slab rates.However, the good news is that you can claim several deductions on your ITR as per sections 80D, 80C, 80CCC, 80CCD, 80E, 80EE, 80RRB, and more Income Tax Act of India, 1961. These include premium payments towards insurance policies, interest on educational loans, interest on deposits in savings accounts, and more.For instance, if you pay a yearly premium of Rs. 50,000 towards a medical insurance policy, the sum can be claimed as a deduction while filing your income tax return, which is a great way to maximize your savings.If you’re completely confused about how this works, we suggest you use an online income tax calculator. Here are the steps:
- Choose the assessment year you wish to calculate your income tax return.
- Select your age bracket and gender.
- Enter your income details.
- Enter the deductions like premiums paid towards medical insurance, interest paid on educational loans, etc.
- Fill in your HRA details, which can be found in your salary slip.
- Press ‘Calculate’, and your payable income tax amount will reflect on the screen.
Documents Required to Fill ITRThe following documents are required to fill ITR-
- PAN Card
- Aadhaar Card
- Form 16, 16A, 16B, 16C
- Bank Details
- Form 26AS
- Home Loan Statement
- Tax Saving Instruments
How to Check Income Tax Refund Status?Now that we’ve covered the steps for filing an income tax return, let’s understand how to check income tax refund status, which can be done through the NSDL website or the new income tax portal.First, we will look at how to check income tax refund status on NSDL’s website:Step 1: Visit https://tin.tin.nsdl.com/oltas/refundstatuslogin.htmlStep 2: Fill in your PAN card details.Step 3: Choose the assessment year you wish to check the IT refund status.Step 4: Enter the security/captcha code and click on ‘Submit’, and the refund status will be displayed on the screen.Next, let’s look at how to check income tax refund status on the new income tax portal:Step 1: Visit https://www.incometax.gov.in/iec/foportalStep 2: Enter your personal details to log in to your account.Step 3: Select the ‘E-File’ option, choose ‘Income Tax Returns’, and then click on ‘View Filed Returns’.Step 4: Click on ‘View Details’ for the relevant assessment year, and all the details will be visible on the screen.While you can use both these methods to check your income tax refund status, using the new income tax portal might be more helpful as it also provides other key information, such as the date of issue, date of clearance, and the total refund amount.However, remember that it is possible for income tax refunds to fail due to incorrect bank details, and in this case, you can raise a refund re-issue request.
What are the Benefits of Filing ITR?There are several benefits of filing ITR, such as easy visa procurement for international travel, easy loan approvals and processing, proof of income for insurance claims, hassle-free passport applications, and more.Key Takeaways
- Income tax is a direct tax levied by the government of India.
- Income tax is charged on an individual or business’s earnings during a financial year.
- In India, the financial year begins on 1st April and ends on 31st March.
- Income tax is collected in three forms: Tax Deducted at Source (TDS), Tax Collected at Source (TCS), and voluntary payments via banks.
- Any Indian citizen who is below 60 years of age and has an annual income of more than Rs. 2.5 lakh is legally required to pay income tax.
- Any Indian citizen who is above 60 years of age and has an annual income of more than Rs. 3 lakh is also legally required to pay income tax.
- Legal entities, such as corporation firms, companies, local authorities, Body of Individuals, and Association of Persons (AOP), must pay income tax.
ConclusionSo, that covers everything you need to know about how to file income tax returns, how to calculate income tax, and how to check income tax refund status. Now it’s time for you to be a responsible citizen and file your ITR at the earliest!
Although you don’t need a particular set of documents to file your ITR, it is best to keep your bank details, Aadhar card, PAN card, and investment details handy.
Yes, using an online income tax calculator can be useful in calculating your ITR, and it is also quite user-friendly.
Yes, as per Section 80E of the Income Tax Act, you can claim the interest paid towards an education loan as a deductible while filing your ITR.
If your annual income is below INR 3 lakhs, you don’t have to pay income tax.
Log into the e-filing portal, go to income tax returns, file income tax returns, download the offline form for utility, and then download the form.
No, documents are not supposed to be attached to the tax return file (unless mentioned otherwise).
Yes, and the income tax department updates the facility on a yearly basis to improve the process.