An Income Tax Return (ITR) is a declaration that you have an income for which you have paid tax. Filing of ITR is a mandatory obligation where you detail your income from salary and other sources, allowances and reliefs claimed, and investments made through the financial year (FY). ITRs have to be filed in the assessment year following the financial year during which income was earned.
Previously, one could file income tax returns for the previous two years; this has now been reduced to one year. Tax returns must be filed by the deadline of July 31, 2017, where income earned during FY 2016-17 will be accounted for.
In this article, we highlight the key steps necessary for filing tax returns in India.
A Permanent Account Number (PAN) is absolutely necessary for filing income tax returns. It is a ten-digit number that is issued by the income tax department of India. It is issued in the form of a laminated card and will be used as your ID when registering on the Central Board of Direct Taxes’ (CBDT) website.
Link PAN with Aadhaar
From July 1, 2017, it is mandatory for you to quote your twelve-digit Aadhaar number and to link it with your PAN card for filing income tax returns in India. Aadhaar is a unique identification number for every individual resident of the country. It works just like the Social Security Number in the US, and is issued by the Unique Identification Authority of India (UIDAI).
Select the appropriate tax return form
There are several ITR forms prescribed for different classes of taxpayers. In the FY 2016-17, the CBDT notified simplified ITR forms and reduced the number of forms from nine to seven.
To check the type of form you need to apply for filing an income tax return, please click here.
Work out which tax rate is applicable for you
Income tax slabs and tax rates are different for different categories of taxpayers.
The Government may review the different tax slabs during the Union Budget, which is presented every year in the month of February. The respective income tax slabs for individual residents below age of 60 years and for businesses for the FY16-17 and FY17-18 are shown below. There are separate rates for senior individual residents (above 60 years) and ‘super senior’ individual residents (above 80 years).
In addition to the tax and surcharge, education cess @ 2 percent, and secondary and higher education cess @1 percent will also be levied on the total tax computed. This cess is applicable on all the categories of taxpayers mentioned above.
What if I’m not based in India?
Companies and individuals not working in India but earning income from the transfer of capital assets situated in India are liable for tax. The tax rates for capital gains are given in the table below:
Calculate your income tax rate
You should then calculate your tax returns against the above rates of tax. You can use the tax calculator on CBDT’s website to do this. Make sure that the information you enter is absolutely accurate, otherwise your tax return application will be rejected.
After using the tax calculator, you can then follow the prompts on CBDT’s website to complete your tax return. Alternatively, you can use a non-government website to perform the tax return for you, but these will invariably charge a fee for doing so.
The income tax department has also introduced e-filing facility for filing of income tax returns. The ITRs forms are available for filing on the e-portal of their department.
Retain your tax documents
Having completed your tax return, ensure that you retain printouts and statements of your taxable income in the event that you are contacted by the tax authorities.
Editor’s Note: This article was first published in October 2014 and has been updated on April 27, 2017 as per the latest regulations. Read our previous article outlining the seven new Income Tax Return forms for the financial year (FY) 2016-17 and assessment year (AY) 2017-18 here.
India Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEAN, China, Indonesia, Russia, the Silk Road, & Vietnam. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
An Introduction to Doing Business in India 2017 is designed to introduce the fundamentals of investing in India. As such, this comprehensive guide is ideal not only for businesses looking to enter the Indian market, but also for companies who already have a presence here and want to stay up-to-date with the most recent and relevant policy changes.
Working as an Expat in India
In this issue of India Briefing Magazine, we look at India’s living and working environment, HR and payroll laws, and the taxation norms as applicable to foreign nationals. India is the second most favored destination for expatriates that want to work in the emerging markets. Expatriates should take note of the basic social and welfare concerns as well as the regulatory and tax issues that apply to foreigners that work in the country.