What is Income Tax Return and why filing ITR is important in India?

Knowing the meaning of ITR is essential as it will help you stay compliant with the tax laws of the country. Simply put, an income tax return or ITR is an essential form for declaring your income details and the applicable tax information to the IT Department. According to the IT Act of 1961, all eligible entities need to pay tax depending on the income they earn. 

Read on to know what is ITR, the importance of income tax return filing and more.

What is an Income Tax Return?

An ITR form lists the income you generate during a particular financial year. The income you have earned may include the following:

• Income earned from salary
• Income generated from capital gains
• Income gained from your house property
• Any profit you have accrued from your business
• Income earned from various other sources in the form of dividends, royalty income, etc.

The IT Department has categorised the applicability of these forms based on parameters such as:

• The category to which the taxpayer belongs 
• The income source of the taxpayer
• The total amount of income generated

What are the Different ITR Forms Available?

Here are the seven different ITR forms:

• ITR-1: This form is suitable for all resident individuals earning an income of less than ₹50 lakhs. You can generate this income from your pension, salary, one property or other sources like winning lotteries or horse races.

• ITR-2: Any income generated above ₹50 lakhs needs to be filed using this form. All your capital gains, income earned from more than one property, foreign or even crypto income needs to be declared using Form ITR-2. Generally, all HUFs and individuals are eligible to file ITR-2 if:

1. ITR-1 does not apply to them
2. They do not have any income gained from business or profits

• ITR-3: This form has to be filed by individuals and HUFs generating income from the gains and profits earned in a profession or business.

• ITR-4: This is applicable for HUFs, resident individuals and all firms (excluding LLPs) who are earning income up to ₹50 lakhs along with income generated from profession or business.

• ITR-5: This is applicable to BOIs (Body of Individuals), LLPs (Limited Liability Partnerships), and AOPs (Association of Persons). 

• ITR-6: All companies not claiming any exemption under Section 11 need to file this form for income tax returns. 

• ITR-7: All companies and individuals included under specific sections must file their returns using this form. The categories include:

1. Section 139(4A)
2. Section 139(4B)
3. Section 139(4C)
4. Section 139(4D)

Also Read: How To Pay Your Income Tax Online?

Why is Filing an ITR Mandatory?

Filing ITR is critical if your annual income exceeds the basic exemption limit, and delays can:

• Attract penalties
• Affect your chances for visa or instant loan approvals

So, ensure you file your returns with due diligence well before the timeline. 

Here are a few conditions applicable for filing an ITR:

• If you have opted for the old tax regime, you must file a return if your gross income for a particular year
  • Exceeds ₹2.5 lakhs, and you are an individual below 60 years 
  • Exceeds ₹3 lakhs and you are above 60 but less than 80 years 
  • Exceeds ₹5 lakhs if you are above 80 years
• If you have opted for the new tax regime, you must file a return if your income exceeds ₹3 lakhs 
• If you need to apply for any form of credit or a visa
• If you run a company, regardless of whether or not it is generating profit or loss
• If you need to claim a refund for the excess tax paid from the IT Department
• If you have invested in foreign assets during a financial year

You can file your returns through:

• Paper format
• Electronically using a digital signature or an electronic verification code
• The official Income Tax e-filing portal
• Electronic transmission and submitting Return Form ITR-V for verification

What are the Advantages of Filing Income Tax Returns?

Filing your ITR comes with several benefits. For instance, return filing will help you avoid the penalties, monetary and otherwise, associated with non-filing. It also demonstrates your accountability and fiscal responsibility. 

Filing an ITR also gives you additional income proof, which can be helpful while applying for credit. By filing your ITR, you can also claim adjustments for any losses in the past. 

Who Should File Income Tax Returns?

The following individuals and entities need to file ITR:

• All individuals with a total income exceeding the basic exemption limit in a financial year
• All registered companies, whether or not they have earned profit in the financial year 
• Individuals who need to claim a refund on excess tax deduction or income payment
• Individuals with assets located outside of India
• Foreign companies getting benefits on transactions that are made in India
• NRIs earning or accruing ₹2.5 lakhs in India in a financial year
• Other conditions as mentioned in the Income Tax Act

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FAQs on Filing Income Tax Returns in India

Who is eligible for ITR?

All individuals and businesses in India need to file tax returns if their income is higher than the basic exemption limit.

What are the different types of ITR?

There are 7 different types of income tax returns based on the:

• Category
• Income earned
• Source of income of a particular taxpayer

What is the purpose of filing an ITR?

The importance of income tax return filing includes:

• It helps you claim tax refunds from the IT Department, if applicable
• It also helps you record your total earnings generated during a financial year

What will happen if we don’t file ITR?

If you don’t file ITR:

• You may have to pay penalties
• It may delay your visa or loan approval process

How to file an income tax return?

You can file your returns via:

• The paper format
• Electronically using a digital signature or an electronic verification code
• The official Income Tax e-filing portal
• Electronic transmission and then submitting Return Form ITR-V for verification

What is the difference between ITR and income tax returns?

There is no difference as ITR is an acronym for Income Tax Returns.

Who is eligible to file an income tax return?

All Indian residents earning a total income above the basic exemption limit are required to file returns.

Is it compulsory to file ITR?

Yes, return filing is mandatory if you are earning income that crosses over the exemption limit.

Is it mandatory to file income tax returns below ₹5 lakhs?

This depends on the tax regime you choose. 

• It isn’t compulsory if your income is under ₹2.5 lakhs and you’ve opted for the old regime
• It isn’t compulsory if your income is under ₹3 lakhs and you’ve opted for the new regime  
• Also, if your income exceeds this amount but is under ₹5 lakhs, you may be eligible to claim a rebate.

Sources:
https://incometaxindia.gov.in/