A Step-by-Step Guide to File Your Income Tax Return

Income tax is a tax that is imposed on individuals, companies and organizations based on their annual income. In India, the income tax is governed by the Income Tax Act, 1961. The Indian income tax system is divided into two regimes, namely the old regime and the new regime. Both regimes have different tax slabs and exemptions.

The old regime, which has been in place for several years now, offers a wide range of deductions and exemptions that can significantly reduce the tax liability of individuals. However, it also requires taxpayers to maintain detailed records of their income and expenses, making it more complex and time-consuming to file returns.

On the other hand, the new regime has a more straightforward structure, with reduced tax slabs and fewer exemptions available. Taxpayers have the option to choose between the two regimes, and it is essential to evaluate which one offers better tax savings.

Additionally, those who fail to comply with the income tax laws are subject to fines, penalties, and even criminal punishment under the Income Tax Act. It is crucial, therefore, to stay informed about the tax laws and to file returns accurately and on time to avoid any legal trouble.

Under the old regime, income tax is calculated based on the income tax slab rates that are determined by the government each financial year. The tax slab rates for the Financial Year 2021-22 (Assessment Year 2022-23) for an individual are as follows:

• Up to Rs. 2.5 Lakhs: NIL
• Rs. 2.5 Lakhs to Rs. 5 Lakhs: 5%
• Rs. 5 Lakhs to Rs. 7.5 Lakhs: 10%
• Rs. 7.5 Lakhs to Rs. 10 Lakhs: 15%
• Rs. 10 Lakhs to Rs. 12.5 Lakhs: 20%
• Rs. 12.5 Lakhs to Rs. 15 Lakhs: 25%
• Above Rs. 15 Lakhs: 30%

For example, let’s say an individual has a total income of Rs. 12.5 Lakhs and has made investments of Rs. 1.5 Lakhs in tax-saving schemes. The taxable income would be Rs. 11 Lakhs (12.5 Lakhs – 1.5 Lakhs) and the applicable tax would be Rs. 2 Lakhs (20% of Rs. 11 Lakhs).

New Regime

Under the new regime, Taxpayers has a choice to opt for either new or old regime whichever is beneficial for them. Under the new regime, there are four slabs for the Financial Year 2021-22 (Assessment Year 2022-23) for an individual:

• Up to Rs. 2.5 Lakhs: NIL
• Rs. 2.5 Lakhs to Rs. 5 Lakhs: 5%
• Rs. 5 Lakhs to Rs. 7.5 Lakhs: 10%
• Above Rs. 7.5 Lakhs: 15%

Under the new regime, the taxpayer is not allowed to claim deductions and exemptions. For example, let’s say an individual has a total income of Rs. 7.5 Lakhs, as per the new regime, the taxable income would be Rs. 7.5 Lakhs and the applicable tax would be Rs. 75,000 (10% of Rs. 7.5 Lakhs).

Please note that above are the Tax slab rates for an Individual, the rates may vary depending on the type of assesses (e.g., HUF, partnership firms, companies etc.) and the tax laws may change from time to time, so it’s important to check the most recent laws and rates before filing your tax return.

Free and Easy Income Tax Calculator:

*Note: To calculate the taxes correctly I would recommend you, to go through the latest Income Tax Act and consult a tax professional or CA to implement the accurate calculation.

The process for filing income tax returns for an individual can be broken down into the following steps:

Gather all necessary documents

To effectively manage your income taxes, it is crucial to gather all necessary documentation. This includes items such as your PAN card, bank statements, Form 16 (if applicable), and any other documents relevant to your income and deductions. For instance, if you have invested in tax-saving schemes, it will be necessary to have proof of these investments to claim deductions.

Calculate your taxable income

Before filing your tax return, it is important to calculate your taxable income. This process involves determining your total income from various sources, such as salary, rental income, and interest income. Additionally, you should subtract any applicable deductions, such as investments in tax-saving schemes or home loan interest. For example, if your salary income is Rs. 10 lakhs and you have invested Rs. 1.5 lakhs in tax-saving schemes, your taxable income would be Rs. 8.5 lakhs (10 lakhs – 1.5 lakhs).

File your income tax return

In India, there are various ways to file your income tax return, including online through the e-filing portal of the Income Tax Department or through a tax preparation software. You can also file your return through a tax advisor/consultant. Once you have prepared your return, you can submit it online and receive an acknowledgement number to keep for future reference.

Submit the return

Once you have prepared your return, you can submit it online. After submitting the return, you will receive an acknowledgement number, which you should keep for future reference.

Pay any outstanding tax

After you have submitted your return, it is important to pay any outstanding tax that is due. Once you have paid any outstanding tax, you can track the status of your return on the e-filing portal to ensure that it has been processed and accepted by the department.

Track the status of your return

After you have filed your return, you can track the status of your return on the e-filing portal to make sure it has been processed and accepted by the department. For example, if your return is showing as “processed” on the e-filing portal, that means it has been accepted by the department.

Close the process by getting the acknowledgement

Finally, make sure to get the acknowledgement of your tax return. This acknowledgement will include important details such as your tax liability, any refunds that you are due, and the status of your return. This will serve as your proof of income tax filing for the year.

Fine, Penalties and Punishment as per Income Tax Act

In compliance with the Income Tax Act, taxpayers must gather all necessary documentation, calculate their taxable income, file their income tax return, pay any outstanding tax, track the status of their return, and receive an acknowledgement. Violations of the act can result in penalties and fines, such as a penalty of up to 200% of tax evaded for concealing income or furnishing inaccurate details in tax returns. Additionally, the act provides for interest to be charged on unpaid taxes.

The new regime, introduced for the financial year 2020-21, offers a simpler and tax-friendly structure with lower slab rates but fewer deductions and exemptions compared to the old regime. Taxpayers must choose the appropriate regime based on their tax liability and ensure compliance with the act to avoid penalties and fines.

In conclusion, it is imperative for taxpayers in India to understand the provisions of the Income Tax Act and take steps to comply with them. By gathering necessary documentation, calculating taxable income, filing returns, paying any outstanding tax, tracking the status of the return, and receiving an acknowledgement, taxpayers can avoid any penalties and fines.

Additionally, the option of choosing between the old and new regimes should be considered carefully as it can greatly impact the overall tax liability. It is best to seek guidance from a tax advisor or consult with the Income Tax Department to ensure compliance and avoid any penalties.

Conclusion

In conclusion, the Income Tax Act of India is a complex and ever-changing set of rules and regulations that govern the process of taxation in the country. It is important for individuals and businesses to stay informed about the latest changes and updates to the Act in order to ensure compliance and avoid any penalties or fines. The tax slab under both new and old regime have difference in the rates and exemptions. However, it is important to note that the Act also provides various deductions and exemptions that can be availed to lower one’s tax liability.

Non-compliance with the Act can result in penalties and fines, and in certain cases, even criminal prosecution. Therefore, it is advisable to seek professional help from a tax consultant or a chartered accountant to stay compliant with the Income Tax Act and to ensure that one’s taxes are filed accurately and on time.