Most people are aware that if they earn more than a certain amount in a year, they must pay the government the appropriate amount of tax. The issue most people have during tax season is filing their income taxes. It is as important to pay your tax obligation as filing your tax return, also referred to as an ITR. Here are the steps you should take so you can file your ITRs on time.
A tax return is a document that contains information about your income.
In essence, an income tax return provides information to the government regarding your income. Tax evasion can lead to penalties and problems if you don’t inform the government. Individuals who are taxed must therefore file income tax returns on a regular basis. Taxpayers have been reminded several times that they must file ITRs on time by the Income Tax Department. A penalty of up to $10,000 can be imposed if an individual forgets to file their ITRs. The government also charges interest on the amount you owe the government if you delay or pause filing your income tax returns.
How Much Do Taxpayers Pay in Income Taxes?
Below is a quick overview of the current income tax slabs.
|Taxable Income Range (in ₹)||Tax Before 2020 (Existing)||Tax Post Budget 2020|
|Up to 2.5 lakhs||Exempted||Exempted|
|Between 2.5 and 5 lakhs||5%||5%|
|Between 5 and 7.5 lakhs||20%||10%|
|Between 7.5 and 10 lakhs||20%||15%|
|Between 10 and 12.5 lakhs||30%||20%|
|Between 12.5 and 15 lakhs||30%||30%|
|Above 15 lakhs||30%||30%|
Is filing income tax returns mandatory?
The tax returns of all taxpayers should be filed timely to remain compliant with the law. If you do not comply, you may be penalized and be unable to obtain a loan, a visa for travel, or a property registration. Taxpayers in India must file ITRs for the following entities as per the Income Tax Act:
- People with gross annual incomes exceeding ₹2.5 lakhs.
- Pensioners with gross annual incomes exceeding ₹3 lakhs.
- The gross annual income of super senior citizens exceeding ₹5 lakhs.
- Tax returns must be filed by all companies and firms.
- Those who wish to claim a refund or carry forward a loss under one of their heads of income.
- Individuals who own assets or financial interests in entities located outside India.
- Individuals whose accounts are located outside India.
- Those who are in possession of assets or properties owned by political parties, research institutions, newspapers, educational institutions, infrastructure debt funds, hospitals, or other authorities or trusts.
- Companies doing business in India that are based abroad.
- Over *2.5 lakh have been earned by non-resident Indians.
What are the benefits of filing income tax returns?
- Increases the chances of getting a loan from a financial institution or bank.
- In order to stay legal and compliant.
- Makes tax refunds possible as and when needed.
- Serves as both proof of address and income.
- Quickly processes visa applications.
- Ensures losses can be carried forward.
- Protects taxpayers from penalties and interest.
Individuals who fail to file their ITRs are subject to penalties.
Among the consequences of not filing your income tax returns on time are the following:
There is a three-tiered penalty system that has been established for failing to file income tax returns on time. Returns filed beyond the due date will be subject to a fee of *5,000, otherwise, it will be subject to a fee of ₹10,000. The fees payable by taxpayers with annual incomes below 50,000 will, however, be limited to a maximum of 1,000.
Reduction in the time it takes to update your income tax returns
For those who make mistakes while filing an ITR, there are certain rules to follow in order to make the necessary changes. There used to be a two-year window for taxpayers to review and resubmit erroneous ITRs. The government recently limited this timeframe to one year following the end of the financial year. As a result, the sooner you file your returns, the longer your window for revising them and correcting errors will be.
Interest on the Tax Amount
The amount of interest paid by individuals or companies that fail to file their income tax returns on time is 1% per month until they file them. Tax deducted at source, tax collected at source, advance tax, and other tax credits available under law are subtracted from the tax payable to determine the tax payable. Buyers and payers deduct TDS from payments, while receivers and sellers collect TCS.
No Carry Forward of Losses
An ITR not filed by the due date will prevent the taxpayer from carrying forward losses under the headings of ‘profits and gains from business or profession’ or ‘capital gains’. Reduced income from house property is eligible to be carried forward, as is loss that cannot be absorbed.
Delay in the Method of Return of Income
The Income Tax department’s central processing center in Bengaluru processes and double-checks the tax return once it has been signed and filed. Only after this verification can the taxpayer determine whether they are liable for tax or entitled to a refund. Consequently, in the event that a refund claim is made, the taxpayer would not receive their refund until they file their income tax return.