What is ITR? A Comprehensive Guide for Indian Taxpayers

Introduction

Every financial year, Indian taxpayers are reminded to file their Income Tax Returns (ITR). But what exactly is ITR? Why is it essential? And how does it impact your financial well-being?

This guide aims to demystify ITR, explaining its significance, types, filing procedures, and the consequences of non-compliance, especially in the context of the Indian taxation system.

What is ITR?

Income Tax Return (ITR) is a form through which taxpayers declare their income, deductions, and tax payments to the Income Tax Department of India. It serves as a record of income earned and taxes paid during a financial year (April 1 to March 31).

Filing ITR is mandatory for individuals and entities whose income exceeds the basic exemption limit. It also facilitates the processing of refunds, if any, and ensures compliance with tax laws.

Financial Year vs. Assessment Year

Financial Year (FY): The year in which income is earned (e.g., FY 2024–25 spans from April 1, 2024, to March 31, 2025).
Assessment Year (AY): The year following the financial year, in which the income is assessed and taxed (e.g., AY 2025–26 corresponds to FY 2024–25).

Types of ITR Forms

The Income Tax Department prescribes different ITR forms based on the nature and amount of income:

Form	Applicability
ITR-1 (Sahaj)	Resident individuals with income up to ₹50 lakh from salary, one house property, and other sources.
ITR-2	Individuals and HUFs not having income from business or profession.
ITR-3	Individuals and HUFs having income from business or profession.
ITR-4 (Sugam)	Individuals, HUFs, and firms (other than LLP) having presumptive income from business or profession.
ITR-5	Partnership firms, LLPs, AOPs, BOIs, etc.
ITR-6	Companies other than those claiming exemption under section 11.
ITR-7	Persons including companies required to furnish returns under sections 139(4A) to 139(4F).

Note: Selecting the correct ITR form is crucial to ensure accurate filing and avoid notices from the tax department.

Importance of Filing ITR

Legal Compliance: Filing ITR is a legal obligation for individuals and entities meeting certain income criteria.
Claiming Refunds: If excess tax has been deducted at source (TDS), filing ITR is necessary to claim a refund.
Loan and Visa Applications: ITR serves as proof of income and is often required when applying for loans or visas.
Carry Forward of Losses: Filing ITR allows taxpayers to carry forward losses to subsequent years, which can be set off against future income.
Avoiding Penalties: Timely filing helps avoid penalties and interest for late submission.

Income Sources to Declare

When filing ITR, taxpayers must declare income under the following heads:

Salary Income: Earnings from employment.
House Property Income: Rental income or deemed rent from owned properties.
Capital Gains: Profits from the sale of assets like stocks, mutual funds, or real estate.
Business or Profession Income: Earnings from business activities or professional services.
Other Sources: Interest income, dividends, lottery winnings, etc.

Deductions and Exemptions

Taxpayers can reduce their taxable income by claiming deductions and exemptions:

Common Deductions:

Section 80C: Investments in PPF, NSC, ELSS, life insurance premiums, etc., up to ₹1.5 lakh.
Section 80D: Premiums paid for health insurance policies.
Section 80E: Interest on education loans.
Section 80G: Donations to specified charitable institutions.

Common Exemptions:

House Rent Allowance (HRA): Exemption for rent paid, subject to conditions.
Leave Travel Allowance (LTA): Exemption for travel expenses incurred during leave.
Section 10(14): Exemptions for specific allowances like children education allowance, transport allowance, etc.

Note: Proper documentation is essential to substantiate claims for deductions and exemptions.

Step-by-Step Guide to Filing ITR Online

Register/Login: Visit the Income Tax e-Filing Portal and log in using your PAN.
Select ‘File Income Tax Return’: Choose the appropriate assessment year and ITR form.
Choose Filing Type: Opt for ‘Online’ or ‘Offline’ filing.
Fill in Details: Enter personal information, income details, deductions, and tax payments.
Validate and Submit: Review the information, validate, and submit the return.
E-Verification: Complete the process by verifying the return using Aadhaar OTP, net banking, or other available methods.

Important Deadlines for FY 2024–25 (AY 2025–26)

Original Due Date: July 31, 2025
Extended Due Date: September 15, 2025
Belated Return Filing: Up to December 31, 2025

Note: Filing after the due date may attract penalties under Section 234F.

Consequences of Late Filing

Late Filing Fee: 5,000 if filed after the due date but before December 31, 2025. If total income is below 5 lakh, the fee is 1,000.
Interest on Tax Due: Interest at 1% per month on the unpaid tax amount.
Loss of Carry Forward: Inability to carry forward certain losses.
Delayed Refunds: Late filing may result in delayed processing of refunds.

Common Mistakes to Avoid

Incorrect ITR Form: Choosing the wrong form can lead to defective returns.
Omitting Income: Not reporting all sources of income.
Incorrect Deductions: Claiming ineligible deductions or incorrect amounts.
Mismatch in TDS Details: Discrepancies between Form 26AS and actual TDS claimed.
Failure to E-Verify: Not completing the verification process renders the return invalid.

Documents Required for Filing ITR

PAN and Aadhaar Cards
Form 16/16A: TDS certificates from employers or other deductors.
Form 26AS: Tax credit statement.
Bank Statements
Investment Proofs: For deductions under various sections.
Loan Statements: For home or education loans.
Rental Receipts: If claiming HRA.

Old vs. New Tax Regime

Taxpayers can choose between the old and new tax regimes:

Aspect	Old Regime	New Regime
Tax Rates	Higher	Lower
Deductions/Exemptions	Available	Not Available
Suitable For	Individuals with significant deductions	Individuals with minimal deductions

*Note: Evaluate both regimes to determine which is more beneficial based on your financial situation.