Income Tax Return (ITR) filing is the process by which a taxpayer can report total income earned in a financial year. The taxpayer can claim the refund of the excess tax paid/deducted during the financial year by filing it for that year.
For the financial year 2020-21, taxpayers can file ITR by September 30, 2021, without any late fee.
Here are key preparations one should do before filing ITR:
Choose the correct ITR form
According to Rakesh Nangia, Former President, Indo-Canadian Business Chamber & Founder & Chairman, Nangia Andersen India Pvt. Ltd, it is essential to first choose the correct ITR Form, which depends on the residential status and sources of income.
Using a wrong tax return form may lead to a defective return notice from the tax department. For example, ITR 1 is applicable to only those taxpayers having income from salaries, one house property and other sources. This form cannot be used where the individual taxpayer has income from capital gains.
Choose the tax regime
Secondly, taxpayers should choose the tax regime they wish to be governed by.
"Pertinently, the new tax regime offers lower tax slabs, in lieu of foregoing several exemptions/ deductions," said Nangia.
Collect all relevant documents
As per Sandeep Sehgal, Director- Tax and Regulatory, AKM Global, a tax and consulting firm, before filing the ITR, a taxpayer must collect all the relevant information and documents required and reconcile all sources of income with the data shown in the pre-filled ITR form. This will ensure the seamless processing of tax returns.
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"The taxpayer must have all the necessary documents like Form 16, 26AS, bank statements, rent receipts, investment proofs, donation receipts, etc. For claiming certain deductions u/s 80C, 80D, etc, the taxpayer must have documents evidencing the payment like Insurance premium receipts, interest certificate for a home loan, Mediclaim etc," Sehgal mentioned.
Match income and taxes paid with form 26AS
It is also important for taxpayers to match their income and taxes paid with Form 26AS. The comprehensive form contains all the tax-related information of the taxpayers and facilitates simpler return filing.
Any discrepancy noticed therein, according to Nangia, must be reported to payers for taking corrective action.
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"Individuals must disclose income from all sources, including exempt income, declare all Indian bank accounts, furnish details of the investment and determine residential status as per law," he added.
Computation of taxable income
It is paramount for all taxpayers, whether corporate or individual, to compute their taxable income and tax thereon, in accordance with the provisions of the Income Tax Act.
As per Nangia, taxpayers must ensure true and correct disclosure of taxable income and related expenses to avoid any penal consequences.