India explains step-by-step income tax filing process
The filing process for the income tax return (ITR) for financial year 2023-24 starts with calculating net taxable income, selecting the appropriate ITR form, and settling any outstanding tax liability. Once submitted through the updated income tax portal, the return must undergo verification before the tax department processes it. After processing, taxpayers receive an email intimation confirming whether their calculations align with those of the tax department.
If the figures match, the filing is complete. Discrepancies may result in either a refund or a notice for unpaid taxes, including applicable interest. Refunds are only credited to the bank account after pre-validation on the portal.
Calculating Taxable Income: Five Key Categories
Income tax liability is determined by total taxable income, which is divided into five categories: salary, house property, capital gains, business or professional earnings, and other sources. Salary income includes wages and pensions, with exemptions such as house rent allowance (HRA) and leave travel allowance (LTA) available if paid by the employer. Standard deductions also apply to salary income.
Rental income from house property falls under the “Income from house property” category and is subject to tax. Taxpayers can claim deductions for municipal taxes, a 30% standard deduction, and home loan interest if the property is rented or deemed rented. Self-occupied properties follow different tax rules.
Capital gains arise from the sale of assets like real estate, stocks, or gold. These gains are classified as short-term or long-term based on holding periods—equity shares must be held for over a year for long-term gains, while property requires a two-year holding period. Tax rates differ between short-term and long-term capital gains.
Income from business or professional activities, including freelance or consulting work, must be reported separately. Taxpayers can reduce taxable income by claiming legitimate business expenses.
Income from other sources includes fixed deposit interest, dividends, and pensions from insurance policies. These are taxed after accounting for applicable exemptions.
Choosing Between Old and New Tax Regimes
Since financial year 2020-21, taxpayers have the option to select either the old or new income tax regime. The old regime retains existing tax rates and allows deductions for exemptions like HRA, LTA, and home loan interest. The new regime offers lower tax rates but eliminates nearly 70 exemptions and deductions. The decision depends on which option results in a lower tax liability after accounting for available deductions.
Taxpayers must verify their pre-filled ITR on the new portal before submission. Required documents typically include TDS certificates (Form 16, Form 16A), bank interest certificates, loan repayment records, Form 26AS, and Aadhaar details. Cross-checking these ensures accuracy in the return.
Errors in filing can be corrected by submitting a revised ITR under Section 139(5) of the Income-tax Act, 1961. The deadline for revisions is usually December 31, though extensions may apply.
Selecting the correct ITR form depends on income sources. ITR-1 applies to salaried individuals with income from one house property and other sources, excluding capital gains. Those with capital gains must use ITR-2. The portal guides taxpayers through the form selection process based on their financial details.
The tax department’s intimation notice also specifies whether additional scrutiny is required. If discrepancies exceed a certain threshold, such as mismatched TDS credits or unreported income, taxpayers may receive a notice under Section 143(1) for further verification. This notice does not indicate an audit but requests supporting documents to reconcile differences. Taxpayers typically have 30 days to respond, though extensions may be granted upon request.
Pre-Filled Data and Manual Verification
The updated income tax portal automatically populates details from TDS certificates, Form 26AS, and bank interest statements. Taxpayers must manually verify these entries against their records. For example, Form 16 may list salary income and TDS, but discrepancies, such as unaccounted bonuses or additional perquisites, must be corrected before submission. Similarly, interest income from fixed deposits or savings accounts should match bank statements to prevent red flags.
Digital Verification Methods
Verification of the ITR can be completed through several methods, including Aadhaar OTP, net banking, or digital signature certificate (DSC). The Aadhaar OTP method is the most common, requiring taxpayers to enter a one-time password sent to their registered mobile number. Net banking verification involves generating an authorization code from the bank’s portal, while DSC requires a registered digital signature. Each method generates an electronic verification code (EVC), which must be entered on the portal to finalize the process.
