Filing Income Tax Return is the rights of every individual. If you have just finished your college and looking for a new job or you are already having a job and want to file your income tax for the first time and that complicated calculations of income tax and investments, confuse you then Tachotax is here to help. Our goal is to facilitate income tax issues for you and to make your financial problems simple. Primarily, everyone who earns money or has an income is likely to file income tax returns. Today we are guiding you through the basics of Income Tax which is very important to know while filing your income tax for the first time.
Why to file return?
Filing income tax returns is responsibility of every citizens.
- Filing Income Tax Return is important if you want to take a loan or want to apply for Visa.
- Filing returns is a sign you are responsible
- If you want to claim adjustment against past losses, a return is necessary
- Filing returns may prove useful in case of revised returns
Sources of Income
- Income from Salary – Salary, Allowances, Leave encashment.
- Income from House Property – Income from house or building, this may be rented or self-occupied
- Income from Capital Gain – Income from gain or loss if you are selling a capital asset.
- Income from Business or Profession – Income/loss that comes as a result of carrying on a business or profession
- Income from Other Sources – This is the residual head. this includes your income from savings bank accounts, fixed deposits, family pension.
There are 7 different types of ITR forms available for taxpayers to file taxes.
Following income tax return forms are applicable for individuals:
- ITR-1: ITR 1 is also known as “SAHAJ” form. It is filed only by an individual taxpayer. Any assesse liable to pay taxes will not be eligible to have the benefits of this form for filing their returns.
- ITR-2A: It is introduced in assessment year 2015-16. This form is used by a Hindu Undivided Family (HUF) or an individual taxpayer.
- ITR-2: this form is generally used by individuals who have an accumulated income through the sale of assets or property. Also, this is useful for the individuals who earn income foreign countries.
- ITR-3: This form is for an individual taxpayer or Hindu Undivided Family (HUF) who only work as a partner in a firm but don’t carry out any business under the firm. Also applicable for person who do not earn any income from business held by a firm.
- ITR-4: ITR-4 is for those individuals who conduct a business or earn income through a profession. This form is applicable for any type of business or profession without any limit on earned income.
- ITR-5: This form is used by: Firm, Limited Liability Partnerships (LLPs), Body of Individuals (BOIs), Association of Persons (AOPs), Co-operative Societies, Artificial Judicial Persons, Local Authorities.
- ITR-6: It can be used only by companies. ITR-6 must be filed by the companies which are not claiming tax exemption as per the section11.
- ITR-7: is filed when persons including companies fall under section 139(4A) or section 139 (4B) or section 139 (4C) or section 139 4(D).
Defining the Previous Year
Previous year means the year on which assessee has earn the income.
Defining the Assessment Year
Assessment year is the year on which income is assessed to tax.
For Ex: If assessee earns the income on 2018-19 then the Previous year is 2018-19 and the assessment year is 2019-20.
Knowledge About Sources of Income:
Depending upon the source of Income your ITR will be decided, hence the taxpayer knows about brief knowledge of there income earning sources like salary, house property, capital gain, business & profession, and Other sources.
Deduction means relief provided by the government to every taxpayer, Deductions reduce your Gross Total Income to taxable income on which assessee must pay tax.
Make good relationship with Section 80C
Section 80C can take away INR 1,50,000 from your Gross Income. Some of the most used investment types under this section are given below
Classified among the most prevalent deductions under 80C is deposits to PPF or Public economical Fund. When you create or open a PPF account, you must deposit a minimum Rs. 500 and maximum of INR 1,50,000 can be deposited in a year. Money deposited in a PPF account mixes, as you deposit extra money in the future financial years to claim deductions. PPF is a conventional and safe saving way to set your hard-earned money. A PPF account can be opened easily with a bank.
b. Tax-saving FD
Fixed deposits ensure capital security as well as a substantial interest income for investors. To get tax advantages under 80C, you must remain invested for at least 5 years. It is secure, but the Interest Income from it is taxable.
c. Tax-saving mutual funds or ELSS
The only mutual fund scheme allowed under 80C, ELSS (Equity Linked Savings Scheme) is getting popularity within people for its previously higher performance in recent years. An additional benefit of ELSS is that it has the lowest imprisonment period of 3 years.
Other Deduction Like 80D and 80 TTA which can be useful for Taxpayer to saving their tax liability.
According to the Budget 2018, salaried employees are allowed for a standard deduction of Rs 40,000 from the gross salary. This standard deduction will replace the medical compensation equivalent to INR 15,000 and transport allowance equivalent to Rs. 19,200 in a financial year. Efficiently, the taxpayer will get a further income exemption of Rs 5,800. The limit of Rs. 40,000 is now increased to Rs. 50,000 in the temporary Budget 2019.
Calculating Tax Payable
On your Taxable Income, tax slabs or rates are implemented, and final tax payable is calculated. From that tax payable, you can deduct all the TDS that has previously been deducted by employer or deductor, if any amount remains either it is tax payable or refund.
TDS or Tax deducted at source
TDS is Tax Deducted at Source means the tax is deducted by the person who is liable to make payment. The payer has to deduct an amount of tax on the basis of the rules appointed by the income tax department. Such as, an employer will evaluate the total annual income of an employee and deduct tax on his Income if his Taxable Income surpasses INR 2,50,000. Tax is deducted based on which tax slab you are belonging to each year. Likewise, if you gain interest from a Fixed Deposit, the bank also deducts TDS. Because the bank doesn’t know your tax slabs, they usually deduct TDS @ 10%, until you mention your PAN (in that case a 20% TDS may be deducted).