One major downside of growing up is that you have to deal with Income Taxes. The issue isn’t the taxes, but the lack of knowledge about it. It would not have been a problem if schools taught us all about basic finances earlier in our lives. Nonetheless, It is not too late to learn about taxes. In fact, you can save a lot on taxes by doing so.
In this article, we highlight vital information about Income Tax Returns (ITR). You will learn how Income Tax Returns in Mumbai work. Before we explain ITR, you must first understand the basics of income tax.
So let’s get right to it.
Basics of Income Tax
Income tax is a way for the central government to earn revenue so that they can develop the country. This revenue comes from a percentage of your income. That percentage depends on what tax bracket/tax slab applies to you. ( We will discuss the details of tax slabs below in “Old Tax Regime vs New Tax regime” ). Basically, India’s tax system works on a Progressive Taxation Mechanism, which essentially means, the more you earn, the more income tax you pay.
Income can be from multiple sources. For example, Your salary, profits from your business, profits from your capital investments, and profits from other sources like FD. All this together makes your total income.
Moreover, citizens of India need to pay taxes for the income generated by sources in the country and from outside the country as well, but non-resident citizens only need to pay tax for the sources generated in India.
But how does the government know that we are paying the right amount of taxes? This is where Income Tax Returns come into play.
What is Income Tax Return?
Income Tax Return(ITR) is a form that needs to be filled and submitted to the Income Tax Department of India. This form contains information about your total income and the tax rate applicable to it during the year. ITR is filed/submitted for the whole financial year, that is from 1st April to 31st March of the next year. It is supposed to be filed before a fixed due date given by the government.
Nowadays, you can file ITR online or hire a CA to do that for you. Income Tax Returns in Mumbai are made easy by MyTaxAdvisor. We will take care of all your tax problems.
Benefits of Filing Income Tax Returns
There are many benefits of filing regular ITR.
- Tax refund: You will get a tax refund if you have paid more income tax than what applies to you.
- Loans: If you are at the bank for an education loan or house loan then a background check on your ITR will be done. Bank trusts you with the loan if you have a good history with ITR.
- Visa: Increase your probability of getting a visa by filing ITR regularly.
- Claim losses: You can claim losses from capital gains, business, etc if you file ITR before the due date.
- Proof of Income: Salaried people get form 16 (to file ITR, but self-employed people don’t. Self-employed people benefit from this as filing ITR will be proof of income.
What happens if you don’t file tax returns?
Income Tax is mandatory for all citizens, and what would happens if you don’t file the ITR?
- You can face legal implications if you file a revised ITR after the due date.
- A penalty of up to ₹5000, under the Income Tax Act.
- If you have any pending tax liability, then interest is applicable for delayed filing.
- You cannot carry forward losses from capital gains, business, etc if you indulge in a delayed filing.
- Loss of interest on the refund if filing is delayed.
Documents required to file ITR
Make sure that you have these documents with you before contacting the CA for filing the Income Tax Return in Mumbai.
- PAN card, AADHAR card, and address proof documents.
- Bank account details
- documents that disclose all sources of income.
- Information regarding deduction claimed under section 80.
- Information regarding TDS returns filing and advance tax payments.
What are the Different types of forms, and which one can you file?
Income Tax Returns in Mumbai can be filed using different types of forms. However, not all of them apply to you. Let us see what are the different types and which one you can file.
- ITR form-1 ( Sahaj ): You can file ITR through Sahaj if your income is from salary, one house property, or other sources.
- ITR form-2: Can be filed by people who don’t have profits from business or profession.
- ITR form-3: Can be filed by people who have profited from business or profession.
- ITR form-4 ( Sugam ): Can be filed by residents who have total income up to 50L, and income from business or profession that falls under section 44AD, 44ADA, or 44AE.
There are more forms up to ITR form-7, and also a special scheme ITR form-4s.
Old Tax Regime vs New Tax Regime
Old Tax Regime
According to the Old Tax Regime your,
Total taxable income = Total Income – Tax Deductions – Tax Exemptions – Tax
Rebate
As mentioned above, you must understand the tax bracket/tax slab on which you fall. So, let’s list that before understanding what is deductions, exemptions, and rebates. If your total income is:
- 0 Lakh – 2 Lakh PA Your applicable tax rate is NIL. You do not have to pay anything.
- 2.5 Lakh – 5 Lakh PA Your Tax rate is 5%
- 5 Lakh – 10 Lakh PA Your Tax rate is 20%
- 10 Lakh and above: Your Tax rate is 30%
You will have to pay a surcharge over and above your regular tax rate if:
- 50 Lakh – 1 Crore PA 10% of surcharge
- 1 Crore – 2 Crore PA 15% of surcharge
Now, you know what tax rate applies to you. However, the government has introduced some clauses over the years that can help you avoid tax. They come in the form of deductions, exemptions, and rebates.
Note: Tax avoidance is legal, and it is introduced by the government so you can save money wherever possible. On the other hand, Tax Evasion is illegal.
Exemptions
These are the parts of your Salary on which you do not have to pay taxes. For example House Rent Allowance (HRA), Phone bill, Travel Allowance, etc.
Deductions
If you have saved or invested below 1.5L in schemes that are mentioned in the Tax Act, then you do not have to pay the taxes for those. For example: If you have invested in ELSS mutual funds then you do not have to pay taxes until the amount reaches 1.5 Lakhs. They come under section 80C and are listed as “Tax Saving Instruments”.
Apart from this, you can also claim deductions on home loans, medical insurance, etc.
Rebate
This is nothing but Tax Refund. Under Section 87A, you can claim a refund of ₹12,500 if your taxable income does not exceed ₹5 lakhs after deductions and exemptions. You have to file an ITR to get this rebate.
New Tax Regime
In the New Tax Regime, the government has reduced the Tax Rates for your total income. However, in this regime, you cannot claim deductions and exemptions.
The New Tax Rates are:
- 0 Lakh – 2 Lakh PA: Your applicable tax rate is NIL. You do not have to pay anything.
- 2.5 Lakh – 5 Lakh PA: Your Tax rate is 5%
- 5 Lakh – 7.5 Lakh: Your Tax rate is 10%
- 7.5 Lakh – 10 Lakh PA: Your Tax rate is 15%
- 10 Lakh – 12.5 Lakh: Your Tax rate is 20%
- 12.5 Lakh – 15 Lakh: Your Tax rate is 25%
- 15 Lakh and above: Your Tax rate is 30%
The good part is that you can choose which regime to follow during the filing of ITR. One is not better than the other. However, if you calculate and contrast both of them for your income, deductions, and exemptions then you will find the one that gives you an edge over the other.
Filing an Income Tax Return in Mumbai can be a daunting process. From choosing the right form to maximizing tax avoidance. MyTaxAdvisor helps you to file the best ITR applicable to you. Your taxes will be in the hands of experienced CA’s. All you need to do is send the required documents and the rest will be taken care of.
Visit the website and get in touch with us.