How to file ITR: A comprehensive step-by-step guide for filing income tax returns in 2023

Income tax filing refers to the process of revealing one's income, deductions, and taxes paid to the government for a specific financial year. It is a mandatory requirement for those entities whose income exceeds the minimum taxable threshold (as specified by the Income Tax Act, 1961). The income tax filing process is overseen by the Central Board of Direct Taxes (CBDT), which is a part of the Department of Revenue under the Ministry of Finance, Government of India.

In India, income tax filing is done annually for the income earned during a specific financial year. For the financial year 2023-23, the last date to file ITR by individual taxpayers is July 21, 2023. Midday Online spoke to a city-based chartered accountant, Vedika Saraf who share with us a rundown approach to file income tax returns.

Key terms to know before filing Income Tax Returns:

Financial Year
The financial year in India runs from April 1 to March 31 of the following year. Income tax filing is done for the income earned during this financial year.

Assessment Year
The year in which income tax returns are filed is known as the assessment year. For example, the income earned in the financial year 2022-2023 will be assessed in the assessment year 2023-2024.

Types of Assessees
Income tax is applicable to various categories of taxpayers, including individuals, Hindu Undivided Families (HUFs), firms, companies, and more. Each category has different tax rates and filing requirements.

Income Tax Slabs
Individual taxpayers are classified into different income tax slabs based on their income levels. The tax rates vary depending on the income bracket, and the applicable slabs are subject to changes made by the government in the annual budget. The income tax slabs in India for individuals below 60 years of age are as follows:

Income up to Rs 2,50,000: Nil (No tax)
Income from Rs 2,50,001 to Rs 5,00,000: 5 per cent
Income from Rs 5,00,001 to Rs 10,00,000: 20 per cent
Income above Rs 10,00,000: 30 per cent

Additionally, a 4 per cent Health and Education Cess (HEC) is applicable on the total tax payable, including surcharge, if any.

Income Tax Returns (ITR)
To file income tax, taxpayers must submit their income details and other relevant information using the appropriate Income Tax Return (ITR) form. Different ITR forms are available for various categories of taxpayers, each catering to their specific income sources and financial situations. Below are different ITR forms for different categories of taxpayers in India:

ITR-1 (Sahaj): For individuals with income from salary, one house property, other sources (interest, etc.), and whose total income is up to Rs 50 lakhs.

ITR-2: For individuals and Hindu Undivided Families (HUFs) not eligible to file ITR-1 and having income from more than one house property, capital gains, and/or foreign income.

ITR-3: For individuals and HUFs who are partners in a partnership firm and have income from business or profession.

ITR-4 (Sugam): For individuals, HUFs, and firms (other than LLP) having presumptive income from business and profession.

ITR-5: For entities such as LLPs (Limited Liability Partnerships), AOPs (Association of Persons), BOIs (Body of Individuals), and Artificial Judicial Persons.

ITR-6: For companies other than those claiming exemption under Section 11 (income from property held for charitable or religious purposes).

ITR-7: For persons, including companies, required to furnish return under Sections 139(4A) or 139(4B) or 139(4C) or 139(4D) (i.e., trusts, political parties, institutions, etc.).

Due Date
The government sets a due date every year by which taxpayers must file their income tax returns for the previous financial year. Missing the deadline may attract penalties and interest on the outstanding tax liability. The last date to file ITR for the financial year 2022-23 is July 31.

Digital Filing
The income tax filing process in India has largely become digital. Taxpayers can file their returns online through the Income Tax Department's official website (www.incometaxindiaefiling.gov.in) or other authorized websites.

Tax Deductions
The Income Tax Act allows taxpayers to claim deductions and exemptions for certain investments, expenses, and contributions made during the financial year. These deductions help in reducing the taxable income and, subsequently, the tax liability.

Tax Refunds
If a taxpayer has paid more tax than required through tax deductions at source or advance tax payments, they may be eligible for a tax refund after filing their income tax return.

Here's a step-by-step guide for filing Income Tax Returns:

Step 1: Gather Documents and Information

Collect all the necessary documents and information related to your income, deductions, investments, and other financial transactions. Some of the key documents include:

Form 16 (for salaried individuals)
Form 16A/Form 16B/Form 16C (for TDS on other incomes)
Bank statements
Investment proofs (like ELSS, PPF, etc.)
Details of any other income sources
PAN card
Aadhar card
Bank account details
Previous year's ITR acknowledgment (if applicable)

Step 2: Select the Appropriate ITR Form

Identify the correct ITR form that applies to your income sources and financial situation. As mentioned earlier, different ITR forms cater to different categories of taxpayers and income sources.

Step 3: Calculate Your Income and Tax Liability

Compute your total income from various sources and calculate the tax liability based on the applicable income tax slabs. Take into account any deductions or exemptions available under various sections of the Income Tax Act.

Step 4: Register on the Income Tax e-Filing Portal

If you haven't already, register yourself on the Income Tax Department's e-Filing portal (incometaxindiaefiling.gov.in/). You'll need your PAN, basic personal details, and a valid email ID and mobile number for registration.

Step 5: Login and Download the Appropriate ITR Form

After registration, log in to the e-Filing portal using your credentials. Download the relevant ITR form applicable to your income and financial situation.

Step 6: Fill in the ITR Form

Open the downloaded ITR form and fill in all the required details accurately. Double-check the information to avoid errors.

Step 7: Validate and Generate XML

Once you've filled in the ITR form, validate it to ensure all necessary fields are filled correctly. After validation, save the form in XML format.

Step 8: Upload XML on the e-Filing Portal

Go back to the e-Filing portal, log in, and navigate to the "Upload Return" section. Upload the XML file of your ITR form.

Step 9: e-Verify Your Return

After successfully uploading the XML file, you can e-verify your return using any of the available methods like Aadhaar OTP, net banking, bank account-based OTP, etc. E-verification is essential to complete the filing process.

Step 10: Save the Acknowledgment

After successful e-verification, you will receive an acknowledgment called ITR-V (Income Tax Return Verification). Download and save it for your records.

Step 11: Send ITR-V (If Applicable)

If you do not e-verify your return, you'll need to send the signed ITR-V to the Centralized Processing Center (CPC) within 120 days of filing. However, e-verification is the recommended method, as it's quicker and more convenient.

Always remember to keep a copy of the filed ITR, supporting documents, and acknowledgment for future reference.

What happens if ITR is not filed on time?

If you fail to file your Income Tax Return (ITR) on time, there are several consequences and penalties that you may face. The severity of the penalties may vary depending on the delay period and your total taxable income. Here are the key repercussions of not filing your ITR on time:

Late Filing Fee
If you miss the deadline for filing ITR (usually July 31st for most individuals), a late filing fee may be applicable. If you file your ITR after the due date but before December 31 of the assessment year, you may be charged a late filing fee of up to Rs. 5,000. For returns filed after December 31st, the fee may increase to Rs. 10,000. However, if your total income is less than Rs. 5 lakhs, the maximum late filing fee is limited to Rs. 1,000.

Interest on Tax Liability
If you have any tax payable (after considering TDS and advance tax) and fail to file your ITR on time, you may be liable to pay interest on the outstanding tax amount. The interest is charged at the rate of 1 per cent per month or part thereof, starting from the due date until the date of actual filing.

Loss of Certain Benefits
Delayed filing of ITR may lead to the loss of certain benefits or carry-forward provisions available under the Income Tax Act. For example, if you want to carry forward losses from a particular financial year to set off against future incomes, you must file your ITR within the due date. Late filing may result in the forfeiture of such benefits.

Disqualification from Revise ITR
If you file your ITR after the due date, you will not be eligible to file a revised return (except for cases where the original return was filed within the due date). A revised return allows you to correct any errors or omissions in the original return.

Prosecution
In extreme cases of significant delay or willful non-compliance, the Income Tax Department may initiate prosecution proceedings against you. This could lead to fines and even imprisonment in severe cases of tax evasion.

It is essential to file your ITR on time to avoid these penalties and ensure compliance with tax regulations. If you miss the deadline, it is best to file your ITR as soon as possible to minimize any financial losses and avoid further complications.

Income tax filing in India is a crucial process that ensures compliance with tax laws and helps the government collect revenue for various developmental activities. By accurately reporting their income and deductions, taxpayers can fulfill their tax obligations and contribute to the country's welfare. It is essential to stay updated with the latest tax regulations and consult tax professionals if needed to ensure a smooth and error-free income tax filing experience.

Why is it essential to file Income Tax Returns?

Income tax filing is essential for several compelling reasons, contributing to the smooth functioning of a nation's economy and the welfare of its citizens. Firstly, income tax serves as a primary source of revenue for the government. By collecting taxes from individuals and businesses, the government can fund essential public services such as education, healthcare, infrastructure development, defense, and social welfare programs.

Secondly, income tax filing is a legal obligation under the tax laws of most countries. Governments require individuals and entities to report their income and financial details accurately to ensure transparency and compliance with tax regulations. Filing tax returns allows the tax authorities to verify the income declared by taxpayers, reducing the likelihood of tax evasion and promoting fairness in the tax system.

Lastly, income tax filing helps the government assess the economic health of the nation. The data collected from tax returns provides valuable insights into the country's overall economic performance, income distribution, and consumption patterns. This information is instrumental in formulating economic policies, identifying areas of growth, and addressing economic challenges.

Also Read: How to Download and Use Offline Utilities for Filing ITR-1 and 4 for AY 2023-24