The Taxation Structure of the nation can play a very important role in the working of our economy. Some time back the weight was on higher rates of Tax and more incentives. But recently, the weight has shifted to Decrease in rates of taxes and withdrawal of incentives. While scheming the Taxation structure it has to be seen that it conforms with our economic and social objectives. It should not impair the incentives to personal savings and investment flow and on the other hand, it should not lead to a decrease in revenue for the State.
In today’s economy, Income Tax plays a vital role as a source of Revenue and a measure of removal of economic disparity. Our Taxation structure consists of Two types of Taxes — DIRECT and INDIRECT; Income Tax, Wealth Tax, and Gift Tax are Direct Taxes whereas Sales Tax and Excise Duties are Indirect Taxes.
The definition given u/s 2 (24) of The Income Tax Act, 1961 is inclusive and not exhaustive. The term “Income” means periodical monetary return coming in regularly from fixed sources like one’s business, Land, Work, Investments, etc.”. It’s nowhere mentioned that “Income” only refers to monetary return. It also includes the value of Benefits and Perquisites.
The term “Income” includes not only what is collected by using the property but also the amount saved by using it himself. Anything convertible into income can be considered as a source of accrual of income.
- Profit and Gains: For instance, Profit earned by a businessman is taxable as “Income”.
- Dividend: For instance, “Dividend” declared/paid by a company to a shareholder is taxable as “income” for shareholders.
- Voluntary contribution received by a Trust: For a Trust, income includes voluntary contributions received by it.
ALL ABOUT INCOME TAX RETURN
A tax return is a form or forms filed with a tax authority that announces income, expenses, and other pertinent tax information. Tax returns allow taxpayers to know their tax liability, schedule tax payments, or request refunds for the overpayment of taxes. In most of countries, tax returns must be filed annually for an individual or business with reportable income, including wages, interest, dividends, capital gains, or other profits.
All taxpayers who are filing their income tax returns are required to establish the type of income tax return (ITR) form they need to fill before actually filing their returns. The form to be filled solely depends upon the income that the taxpayer earns, or in certain cases if the taxpayer holds assets in a country other than India or earns any type of income from a country other than India.
Types of Income Tax Return forms
There are 7 types of ITR forms available for a taxpayer to file taxes. However, only the following forms apply to individuals when filing returns as per the Central Board of Direct Taxes in India:
- ITR-1- For individuals being a resident (other than not ordinarily resident) having combined income up to Rs.50 lakh, having Income from Salaries, one house property, other sources (Interest, etc.), and agricultural income up to Rs. 5000
- ITR-2- For Individuals and HUFs not having their income from profits and gains of business or profession
- ITR-3- For individuals and HUFs having their income from profits and gains of business or profession
- ITR-4- For Individuals, HUFs and Firms (other than LLP) being a resident having combined income up to Rs.50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA or 44AE
The following income tax return forms are applicable for companies and firms:
- ITR-5- For persons other than- individual, HUF, company and person filing Form ITR-7
- ITR-6- For Companies other than companies claiming exemption under section 11 of IT Act
- ITR-7- For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) only of IT Act
Who is required to file Income Tax Return?
If you acquire any kind of income in India, you are liable to pay income tax as per the IT Act. Once the tax is paid, you are also required to file tax returns for the same. If you fail to pay the income tax on time or do not file tax returns, you will be required to pay the penalty. In some cases, it could also result in prosecution.
If you fall in any of the following criteria, then you have to file an income tax return:
- If you are less than 60 years of age and your total annual income exceeds Rs.2,50,000.
- If you are a senior citizen i.e. 60 years or above and below 80 years of age, and your total annual income exceeds Rs.3,00,000.
- If you are a senior citizen i.e. 80 years or above and your total annual income exceeds Rs.5,00,000.
- If you are a company or a firm, then irrespective of whether you have profit or loss, filing ITR for the financial year is compulsory.
- If you are thinking of claiming a tax refund for the financial year.
- If you are an Indian resident and act as a signing authority for any foreign account/Individual.
- If you are an Indian resident and possess an asset or financial interest located outside India/ in foreign.
- If you have sold equity shares in a company or unit of equity-oriented mutual funds or unit of business trust for more than Rs.2,50,000 and have gained tax-exempt long-term capital gains from the same.
- If you obtain any income derived from the sale of a property which had been held under a charitable trust, religious trust, political party, educational institution, any authority, body or trust.
- If you are a foreign firm that has been taking any treaty benefit on any transaction made in India.
- If you are an NRI (Non-Resident Indian) but if your total annual income earned or accrued in India exceeds Rs.2,50,000.
- Even if you do not come into any of the above criteria but are looking forward to avail any kind of loan, then you should file ITR. ITR filings are taken as valid income proofs and are often asked while applying for any kind of loan.
- If you do not file an ITR even after falling into any of the above criteria, you have to pay respective penalties for the default.
An income tax return is a legal document that considered as your proof of income. Even if you are not eligible for filing a return and are not compulsory by the Income Tax department, it is advisable to file your IT return. Apart from financial discipline, filing income tax returns has some advantages.
If you are looking for a personal or home loan, you will be asked to submit your previous IT return documents. Some banks also ask for IT returns for confirming credit card requests. For those who are eligible for a refund i.e., if they have paid taxes more than what they are liable to pay– filing an income tax return is mandatory.
This article is authored by Sparsh Goyal, Fourth-Year, B.A. LL.B (Hons.) student at Vivekananda Institute of Professional Studies