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CA Govinda Reddy. M, ACA

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Who should file ITR and When? – These questions have been hitting our inbox for some time. There are many misconceptions among taxpayers regarding ITR filings. We have tried to clear such misconceptions in this article.

But before getting into the topic “Who should file ITR? And When?”, let us try to understand the benefits of filing income tax return. Let us see some of the benefits:

Benefits of filing ITR:

  1. Income Tax Return (ITR) is a well-accepted proof of your income and wealth
  2. Loan/credit card can be approved easily based on your income
  3. Quicker visa approvals
  4. Timely filing of return allows claiming losses incurred if any on account of capital gains, business/profession, and house property
  5. Can claim a refund of excess TDS deducted if any 
  6. To comply with the land of the law and avoid interest and penalties.

Who should file ITR:

  • Every individual based on his/her age and whose total income is more than the specified limit as per the below table must file the income tax return every year with the department.
Age limitTotal income threshold limit
Below 60 yearsMore than Rs. 2,50,000/-
Above 60 but below 80 yearsMore than Rs. 3,00,000/-
Above 80 yearsMore than Rs. 5,00,000/-
Individual taxpayers – income thresholds

For calculating the total income threshold during the financial year, one should consider all the sources of income and exclude the deductions relating to capital gains and chapter- VIA deductions such as LIC, tuition fee, PPF contribution, repayment of housing loan and etc. However, section 10 exemptions can be excluded like agricultural income, share of the profit from partnership firm, income from mutual funds, etc.

However, in the following cases it is mandatory for an individual to file tax returns even his/her income is below taxable income;

  • If he/she deposits more than one crore rupees in cash during the financial year in one or more current accounts maintained with a banking company or a co-operative bank.
  • If he/she incurs expenditure which is more than Rs. 2,00,000/- towards foreign travel during the financial year.
  • If he/she incurs expenditure which is more than Rs. 1,00,000/- towards the consumption of electricity during the financial year.
  • Resident individual who is a beneficial owner or otherwise, who holds any asset (including financial interest in any entity) which is located outside India
  • Resident individual who is a signing authority in any account located outside India.
  • Resident individual who is a beneficiary of any asset (including financial interest in any entity) which is located outside India.
  • Non-resident individual is liable to file the return only when he earns income in India which is more than the specified threshold limit as given below;
Age limitTotal income threshold limit
Below 60 yearsMore than Rs. 2,50,000/-
Above 60 but below 80 yearsMore than Rs. 3,00,000/-
Above 80 yearsMore than Rs. 5,00,000/-
Non-resident income thresholds

Let us see this with some illustrations for better understanding:

  • Mr. Ram, a resident individual aged 52 years has earned rental income of Rs. 2,40,000/- during the year and he does not have any other income other than rental income during the financial year. With the accumulated savings, he travelled to US along with family. He spent an amount of Rs. 4,00,000/- towards travel expenditure. Is Mr. Ram liable to file the Income Tax Return?

Ans:  Yes, Mr. Ram is liable to file income tax returns. Though his total income is below Rs. 2,50,000/- he is liable as he spent more than Rs. 2,00,000/- towards foreign travel. 

  • Mr. Gopal is a resident individual whose age is 65 years earned agriculture income of Rs. 10,00,000/- during the year and he does not have any other income during the year. Is Mr. Gopal liable to file the Income Tax Return?

Ans:   No, Mr. Gopal is having only agricultural income, which is excluded from the total income threshold, hence he is not liable to file the income tax return.

  • Mr. Varma is a non-resident individual whose age is 45 years & has earned Rs. 2,30,000/- from the house property situated in India and earned salary income of Rs. 35,00,000/- from a US entity during the year. Is Mr. Varma liable to file the income tax return?

Ans:  No, as Mr. Varma is a non-resident and his income earned in India is less than Rs. 2,50,000/-, he is not liable to file the income tax return.

When ? ITR – Due Dates

  1. Every individual who is having income from business/profession and subject to tax audit, the due date for filing income tax return is 31st October.
  • In any other case (other than tax audit), the due date for filing of income tax returns is 31st July.

However, due to COVID-19, for all the cases due date for filing of income tax returns has been extended to 30/11/2020 for the financial year 2019-20.

Consequences for non-filing/late filing of IT return:

Late filing of IT return

Belated return can be filed till 31st March of next financial year. However late filing fee will be levied as per the below table.

DateLate filing fee if total income is below Rs. 5,00,000/-Late filing fee if total income is more than Rs. 5,00,000/-
Before 31st DecemberRs. 1,000/-Rs. 5,000/-
After 31st December but before 31st MarchRs. 1,000/-Rs. 10,000/-
Penalties for late filing
  • Along with the late filing fee, if you are having tax liability then, interest under section 234A will be levied at the rate of 1% p.m.
  • Apart from the above late filing fee and interest, business loss and capital losses cannot be carried forward.

Non-filing of IT return

If you fail to furnish the IT return before 31st March, then the consequences are as follows:

  • Fee (penalty) anyway will be levied up to Rs. 10,000/- based on total income.
  • If you are having taxable income and if you fail to file the return, that can be treated as concealment of income and the penalties will be higher and it may go up to 300% of your tax liability along with interest.
  • You cannot claim the refund of taxes (excess TDS deducted, if any).
  • You cannot carry forward the losses.

Also read Selection of Correct ITR From & More Pointers in filing IT Returns

Our efforts at Daily Economics is aimed at simplifying the complex legal and financial jargon and present the information in an easy to understand manner. We have been trying to achieve that objective in all our articles especially in “Know Your Taxes” column. Previously we covered Selection of Correct ITR Form and Common Mistakes in filing Income Tax Returns in as simple English as possible. We received many queries from the readers regarding the TDS and 26AS. Both the articles had plenty of easy to understand pointers in deciphering income tax requirements. We have made a list of more such pointers in filing IT returns.

TDS and IT returns

There is a misconception among some taxpayers that if TDS has been deducted, then there is no need to file IT return or declare the same while filing the IT Return. It is to be noted that TDS is not the final Tax.

As per the provisions of Income tax Act, it is mandatory to file IT return if income is more than basic exemption limit i.e Rs.2.5 lakhs for individuals other than senior citizen and Rs. 3 lakhs for senior citizen. So, if your income is more than the specified limit, you are liable to file IT returns otherwise you will receive notice for non-filing of IT return, and this leads to penalties as well.

The taxpayer should consider the income on which TDS has been deducted and compute the final tax payable. Let us see this with an example for better understanding.

e.g: Mr. Naveen is a resident taxpayer. During the year, he earned fixed deposit interest of Rs. 1,00,000/- from SBI and the bank had deducted Rs. 10,000/- as TDS at the rate of 10%. He is also having income from other heads amounting to Rs. 12,00,000/-. The final tax can be computed as follows:

His total income for the year is Rs. 13,00,000/- (12 lakhs + 1 lakh). Tax on the same is Rs. 2,10,600/- (including cess). He can claim the TDS of Rs. 10,000/- and remaining tax Rs. 2,00,600/- has to be paid.

Since his income is more than Rs. 10 Lakhs, the income is subject to 30% tax slab. Hence the interest income which is earned is also subject to 30% tax. The tax payable on interest income is Rs. 31,200/- (including cess). He can claim Rs. 10,000/- which is TDS deducted by the bank and remaining tax has to be paid.

Reconciliation of information available in 26AS

CBDT has mandated certain persons including government agencies to report to income tax authorities on transactions like sale/purchase of immovable property, investment in securities, cash deposits more than 10 lakhs during the year.

It is imperative for the taxpayer to consider the following:

  • Reconciliation of income
  • Whether TDS claimed is matching with the amount reflecting in Form 26AS.
  • Income from securities have been offered to tax if the same is subject to tax under income tax act like dividends, capital gain on redemption of mutual funds.

If your employer/payer had deducted TDS but if the same is not reflecting  in Form 26AS ensure that the concerned parties files the necessary forms with IT department so that TDS is reflected in Form 26AS before filing the IT return.

TDS credit should be availed in the year in which the corresponding income is offered to tax.

e.g: Mr. Sai has bought a property of Rs. 60,00,000/- from Mr. Manoj and he has given an advance of Rs. 29,70,000/- by deducting Rs. 30,000/- as TDS in the year 2018-19. And in the year 2019-20, they have executed the sale deed and Mr. Sai has paid remaining amount of Rs. 29,70,000/- by deducting additional TDS of Rs. 30,000/-.

Now, Mr. Manoj has to declare income in the year 2019-20 and should claim the entire TDS of Rs. 60,000/- as the sale deed executed in the year 2019-20. He should not claim the TDS of Rs. 30,000/- in the year 2018-19 just because it is deducted and reflecting in 26AS.

There may be instances where some TDS credits are reflecting in Form 26AS which are not related to you, then the credit for same should not be taken.

The tax payer has to comply with requirement while filing the IT return to report the head of income under which income is offered to tax for every TDS credit. It is important that the correct head of income is selected against every TDS credit to avoid receiving notices from IT department for mismatch.

For example, when you are taking a credit for TDS on rental income, then the head of income should be income from house property and not income from other sources. 

Non-disclosure of exempt income

There is a misconception about disclosure of exempt incomes. The taxpayer has to disclose all incomes including exempt incomes. This includes agricultural incomes, savings bank interest, PPF interest and income from mutual funds.

Verification of IT returns

Just filing of IT return, will not end the process. It shall be verified manually or electronically within 120 days of filing of IT return. If you wish to verify manually, then you have to sign and send the IT return acknowledgment to the CPC. An electronic verification can be done through one of the four options, (a) through Aadhaar OTP (b) through net banking (c) through demat account (d) pre-validation of bank account number.

If you do not verify the return within 120 days from the date of filing, then the IT Return will be treated as invalid and considered as if you have not filed the return.  

There are multiple tools and online applications available which are provided by private players and income tax department for filing tax returns online, where information is captured from Form 26AS and Form 16. However, due caution should be exercised by taxpayer before submitting the tax return, particularly those who are filing on their own as the process will be completed instantly. Also, it is important to note that the taxpayer is responsible for all the information provided in the IT return.   

In my last article Selection of Correct ITR Form, I had covered the topic of selecting the correct ITR form. In this digital era tax platforms with their powerful software have helped tax-paying communities in a big way. But it is still not all that easy. Taxpayers generally tend to make many omissions and mistakes in filing income tax returns – which can lead to unnecessary notices from the department. I have compiled some of the most common mistakes.    

Mistakes in Filing Income Tax Returns:

  • Personal Information: Ensure that you have given the correct name, address, valid e-mail, and valid mobile number. These details are necessary for obvious reasons. Any wrong inputs might cost you with not receiving the communication from the income tax department. Taxpayers should be aware that communications from the tax department go to the e-mail and mobile number given in the profile section of the income tax portal, hence it is necessary to update e-mail and mobile number.     
  • Bank Details: It is mandated that all savings and current accounts held at any time during the relevant financial year are to be provided while filing IT returns including accounts closed during the financial year. It is important to note that all the bank accounts are mapped to either PAN or Aadhaar. Effective 1st April 2020 PAN and Aadhaar can be used interchangeably. Ensure that you have given the correct IFS Code and account number to receive a refund correctly. The Income tax department has initiated the process of pre-validation of bank accounts to receive refunds as well as EVC (Electronic Verification Code to Verify IT Return).
  • Aadhaar number: Resident individuals and citizens of India must furnish the Aadhaar number/Enrollment number in the IT return. It is also important that Aadhaar is to PAN. 
  • Residential status information: In the ITR, you have to give the correct information regarding residential status because taxation depends on the residential status of the taxpayer. (Also read Taxability of Dividends – NRIs, and Recent Changes to Residential Status under Income Tax Act). As per the Indian Income Tax Act, A taxpayer is categorized into a. Resident & Ordinarily Resident – Global income is taxable. b. Non-Resident – Income earned in India is taxable. c. Resident but not Ordinarily Resident – Along with Income earned in India income from business (controlled from India) and profession (set up in India) is also taxable.  

For the financial year 2019-20, due to the Covid-19 pandemic, the department has issued a circular regarding the calculation of the number of days stayed in India for the purpose of residential status. If anyone visited India on or before 22/03/2020 and unable to leave India, then the days to be ignored in the following manner:

DescriptionDays to be Ignored
Unable to leave India on or before 31/03/2020.From 22/03/2020 to 31/03/2020
Quarantined in India due to Covid -19 on or before 01/03/2020 and has departed on an evacuation flight on or before 31/03/2020 or unable to leave India on or before 31/03/2020.Period of stay from the beginning of quarantine to departure or 31/03/2020 as the case may be.
Has departed on an evacuation flight on or before 31/03/2020Period of stay in India from 22/03/2020 to date of departure.
Residency days” tweaked to help stranded NRIs, thanks to COVID-19
  • Asset and Liabilities Information: It is mandatory that if taxable income is more than Rs. 50 lakhs then the details of all assets and liabilities as on 31st March of the year to be provided in IT return. It is to be noted that the amount to be filled is the Cost of the Asset and not the Market value.
  • Foreign Assets and Liabilities: It is to be noted that an individual who is resident should give his/her foreign asset and labilities irrespective of his/her quantum of Income.
  • Directorship in a company: Generally, a taxpayer having income from salary and income from other sources tend to miss to quote directorship in a company as ITR form will not show any error even if it is not quoted. Point is to be noted here is while the company filing its tax return details of all the directors along with their DIN and PAN will be given. The CPC has designed its program to detect the error while processing the IT return of the individual. Non-furnishing of required details will attract notice from the department and also attract a penalty of Rs. 10,000/-
  • Partner in Partnership Firm/LLP: It is to be noted that details of investment in the partnership firm and Limited Liability Partnership (LLP) have to be given such as capital balance and percentage of share of profit and income received from Firm/LLP i.e remuneration and share of profit.
  • Investment in unlisted shares: The taxpayer has to provide the details of unlisted shares held during the financial year such as the name of the company, PAN of the company, shares acquired during the year, and shares transferred during the year.

It is to be noted that unlisted company does not mean the only private limited company. It also includes public companies that are not listed on NSE/BSE. Recently, few companies which were listed earlier have delisted voluntarily. If you are owning any shares of those companies the same shall be disclosed in the IT return.

India has been seeing double digit growth in its taxpayers’ base for the past few years. For the financial year 2018-19 number of returns filed was around 6 crores. It is estimated this year it should be upwards of 6.5 crores. Many of them will be filing their returns for the first time. Technology has made newcomers’ and old timers’ life easy in terms of filing the returns. Gone are the days when the taxpayer had to stand in the queue for hours to file returns. With the advent of online Income Tax Platforms filing of income tax returns is much easier. However, one must be careful while filing returns online. For example, as simple as selection of correct ITR Form – however trivial it may sound, is one of the important aspects of filing the returns. This will help you avoid unnecessary notices from the income tax department. Convenience of online filing could be lost in long chain of communications with the department.

The following table depicts the Form to be selected while filing IT Returns in the case of Individuals.

Form ITRWho can use itWho Can’t
ITR -1a. Resident individuals  
b. Having total income up to Rs. 50 lakhs  
c. Having income from salary & one house property.
d. Income from other sources like bank interest, dividend, family pension etc.  
a. Non-Residents. 
b. Having income from more than one house property.  
c. Director in a company.  
d. Investment in unlisted equity shares.
e. Taxable income above Rs. 50 lakhs. 
f. Agricultural income more than Rs. 5,000/-
ITR – 2a. Both Resident and Non-Resident.
b. Total income above Rs. 50 lakhs.
c. Agricultural income more than Rs. 5,000/-.
d. Investment in unlisted equity shares.
e. Director in a company.
f. Having income from more than one house property
a. Having income from business or profession.
b. Partner in a Partnership Firm/Limited Liability Partnership (LLP)
ITR – 3a. Both Resident and Non-Resident.
b. Having income from business or profession.  
c. Partner in a Partnership Firm/Limited Liability Partnership (LLP)
 
ITR – 4a. Residents.  
b. Having total income up to Rs. 50 lakhs. 
c. Having income from business or profession who opt for presumptive taxation (44AD,44ADA).
a. Director in a company.  
b. Investment in unlisted equity shares.    
Selection of correct ITR Form can sometimes be tricky

By selecting the wrong ITR form, your return will be treated as defective return by the income tax department. The department will send a notice asking to rectify the same within 15 days from the date of receipt of the notice. If you do not respond to the notice within the specified time, the filed return will be treated as Invalid, which effectively means that you have not filed your tax returns. And that will open a big can of worms.

Consequences of choosing a wrong ITR can be illustrated as follows:

Ms. Sravani had income from salary of Rs. 40 lakhs and was eligible for a refund of Rs. 2 lakhs. She inadvertently chose ITR-4, while filing, which is applicable to a taxpayer having income from business or profession and who opts to pay taxes under presumptive taxation.

CPC processed the tax return as defective, as no income was declared under the head income from business or profession and gave her an opportunity to rectify the defect within 15 days of receipt of notice.

 In case if she had failed to comply with notice, apart from return being considered as invalid she also would have lost her refund amount of Rs.2 lakhs

If Ms. Sravani had selected ITR-1, which is applicable to her, she would have not received the notice from the department and, she would have received the refund amount early.

Let us see some more illustrations for a better understanding:

Selection of Correct ITR Form – More Illustrations

  • Mr. Raju is a resident taxpayer having an income from salary of Rs. 52 lakhs and income from savings bank interest of Rs. 8,500/-. Which ITR Form he should choose?

Ans:  Form ITR -2. Since his total Income is more than Rs. 50 lakhs, Form ITR-1 cannot be used.   

  • M/s. Ramu Enterprises is a proprietary concern of Mr. Ramu. His turnover during the financial year is Rs. 90 lakhs and he is also a Director in M/s. Ram Solutions Private Limited. He wishes to declare his income under presumptive taxation (44AD- 6%/8% of Turnover). Which form he should choose?

Ans: Form ITR -3. Since he is a director in a company, Form ITR – 4 cannot be used.

  • Dr. Abhishek earned an income of Rs. 26 lakhs from his clinic during the financial year and he does not have any other income during the year and wishes to offer income under normal provisions. Which ITR form he should choose?

Ans: Form ITR -3. As Mr. Abhi is a Doctor and his income from clinic falls under income from specified profession, the applicable Form is ITR 3. Also, he is not offering his income under presumptive taxation.

  • Mr. Mahesh is a salaried employee earned Rs. 12 lakhs during the year.  He is also having rental income from three house properties. Which ITR form he should choose?

Ans: Form ITR-2. Since he is deriving income from more than one house property so Form ITR-1 cannot be used.

  • Ms. Shanti is a partner in S&A Associates. During the year, she is having income from salary of Rs. 40 lakhs and income from two house properties amounting to Rs. 4 lakhs. Which ITR form she should choose?

Ans: Form ITR -3. Since she is a partner in partnership firm, Form ITR- 2 cannot be used.

  • Mr. Anand is a Non-resident having rental income of Rs. 8 lakhs from one house property. Which ITR Form he should choose?

Ans: Form ITR-2. Since he is a Non-Resident, form ITR-1 cannot be used.

The write-up is for general understanding. We suggest the readers to discuss with their CAs before deciding on tax implications.