All about Income Tax Return Filing- Part 1 [Taxation Basics for Startups]

This article is in continuation of our series on “Taxation Basics for Startups”. In this article we will discuss in detail all about “Income Tax Return Filing”, its provisions, compliances and the attached penal provisions.  The topic of this article becomes very relevant considering we are into the month of July, which marks the due date for filing tax returns for financial year 2011-12.

Your Income Tax return is the most authentic proof of your income earned. In India, we have a system of self declaration, wherein you are required to file your tax returns within the due date showing your income details. But, many of us do not file tax returns, the reason of which may be one of following:

  • Tax at source has been deducted at source thus I don’t need to file my income tax returns
  • Filing of income tax return is time consuming, why waste time!
  • Why worry now when deadline for filing tax return is far away.
  • I have anyway missed the deadline for filing tax returns (July 31), so filing tax return is irrelevant now.

Benefit of filing timely income tax returns

  • Tax Refunds can be claimed only when income tax return is filed. On the basis of the tax return filed, refund is paid with retrospective effect from April 1 of the year. If you have not filed your return, but TDS has been deducted in excess, unless you file your income tax return, you will not get your excess taxes refund
  • Filing timely and fair returns saves you from the proceedings and assessments of Income by the income tax officials. Here, if the IT department picks up your case, then you may end up having to pay tax with interest on the tax amount payable and penalty too.
  • A business having losses, would want to carry forward it and get it set-off with future profits. This is possible only if you file your tax return within the due dates, otherwise you cannot carry forward the losses.
  • Income tax return is essential for making any investment and goes to prove that you have a valid source of income to make such investment.

When does the Liability of Filing Income Tax Return arises - when your income crosses/exceeds the basic exemption limit even if it means that on account of you investment planning, your tax obligation may be nil. So for FY 2011-12, filing of tax returns is essential if-

  • Individuals have taxable income exceeding Rs.180000 per annum
  • Women have taxable income exceeding Rs.190000 per annum
  • Senior Citizens have taxable income exceeding Rs.250000 per annum

Businesses are compulsorily required to file their tax returns.

What are the due dates to file tax returns?

Individuals and businesses (not required to get their books of accounts audited) are required to file their return of income/ income tax returns before 31st July for financial year, thus for financial year 2011-12, the due date is 31st July 2012, in case their total income before allowing the deductions and exemptions exceeds the basic limit under the Income Tax Provision. However, you can still file it before 31st March 2013, but then you would be sacrificing many benefits of filing it on time.

What are the different tax return forms available ?

The IT Department has released seven kinds of forms ( ITR 1, ITR 2, ITR 3, ITR 4, ITR 4S –Sugam, ITR 5, ITR 6 and ITR 7) for different categories of assesses.

ITR 1 (SAHAJ): This form can be used by Individuals who drive income from salary/pension or income from one house property (excluding where loss brought forward from previous year) or income from other sources (excluding winnings from lottery and income from horse races).

ITR 2: This form can be used by Individuals or a HUF whose total income comprises of incomes such as a) Income from Salary / Pension, b) Income from House Property,  c) Income from Capital Gains,  d) Income from Other Sources, e) Income from Winning of Lottery and  f) Income from Race Horses

Moreover, if the income of spouse, minor child, etc. is to be clubbed with the income of the  assessee, then ITR 2 can be used if such income falls in any of the above categories.

ITR 3: Can be used by Individual/ HUF who is a partner in a firm and income is chargeable to income-tax under the head “Profits or Gains of Business or Profession” does not include any income except the income by way of any interest, salary, bonus, commission or remuneration, due to, or received by him from such firm.

ITR 4: This form is used by an Individual or HUF, carrying out a proprietary business or profession and who are not filing Return under Presumptive Taxation Scheme.

Moreover, every Partnership firms, Individuals & HUF having their tax audits compulsorily under section 44AB is required to file their ITR-4 electronically using digital signature.

ITR 4S (SUGAM): For presumptive Business Income an assessee needs to file his return using this Form.

ITR 5: For Partnership Firms and others not being an individual or a Hindu undivided family or a company or a person to which ITR – 7 applies and is applicable for all sources of Incomes.

ITR 6: This form is used by Companies other than companies claiming exemption under section 11.

ITR 7: This Form can be used by persons including companies who are required to furnish return under section 139(4A) or under section 139(4B) or under section 139(4C) or under section 139(4D) of Income Tax Act.

To Conclude – Businesses/ Startups should be extra cautious to file their tax returns within the due date for obvious reasons stated above.

Part 2 of All about Income Tax Return Filing – Taxation Basics for Startups , would pick up specific issues faced by individuals and businesses in relation to tax returns and would try to address those issues.

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