What Is an Income Tax Return (ITR) & Who Needs to File?

An Income Tax Return (ITR) is an annual document used by individuals and entities in India to report financial activities to the Income Tax Department. It details income earned, deductions claimed, and the resulting tax liability or refund due. Filing an ITR is a fundamental aspect of tax compliance, providing authorities with information to assess and collect taxes.

Understanding Income Tax Returns

An Income Tax Return provides the Income Tax Department with a comprehensive overview of a taxpayer’s financial year. It details income from various sources, such as salaries, business profits, capital gains from investments, or rental income from property. Taxpayers also declare eligible deductions and exemptions, which can reduce their taxable income. This process leads to the calculation of the final tax payable to the government or a refund due if excess tax was paid.

Filing an ITR extends beyond mere compliance. The filed return acts as an official record of income, which can be essential for various financial transactions. Banks and financial institutions often require ITR copies as proof of income and financial stability for loan applications. ITRs are also frequently requested for visa applications, demonstrating an applicant’s financial standing. The process enables taxpayers to claim refunds for excess tax deducted at source (TDS) or advance tax paid, and allows losses to be carried forward to offset future income.

Determining Your Filing Obligation

The obligation to file an Income Tax Return in India is determined by an individual’s gross total income and specific financial activities. For individuals below 60 years of age, filing is mandated if their gross total income exceeds ₹2.5 lakh under the old tax regime, or ₹3 lakh under the new tax regime. For senior citizens aged between 60 and 80 years, the threshold is ₹3 lakh, while for super senior citizens above 80 years, it is ₹5 lakh under the old regime.

Even if gross total income falls below these limits, certain conditions trigger mandatory filing. These include depositing ₹50 lakh or more in savings accounts, or ₹1 crore or more in a current account. Spending over ₹2 lakh on foreign travel or paying an electricity bill exceeding ₹1 lakh also mandates filing. If total tax deducted at source (TDS) or tax collected at source (TCS) is ₹25,000 or more (₹50,000 for senior citizens), filing is compulsory. Residents holding foreign assets or signing authority in overseas bank accounts must also file, regardless of income.

Required Information and Documents for ITR Filing

Preparing to file an Income Tax Return involves gathering a range of financial information and supporting documents. A Permanent Account Number (PAN) is a unique identifier for all tax-related transactions and must be linked with the Aadhaar number. Bank account details, including the Indian Financial System Code (IFSC), are necessary for receiving any tax refunds directly. Contact information such as a valid mobile number and email address are used for communication from the tax department.

Proof of income forms a substantial part of the required documentation. Salaried individuals receive Form 16 from their employer, which details salary income, tax deducted at source (TDS), and eligible deductions. For income other than salary, such as interest from fixed deposits or rent, Form 16A provides details of TDS. Form 26AS is a consolidated annual statement that reflects all TDS, advance tax, and self-assessment tax paid, allowing taxpayers to cross-verify these amounts. Salary slips and bank statements are also useful for confirming income and interest earned.

For investments, documents supporting claims for deductions under various sections of the Income Tax Act, such as Section 80C for life insurance premiums or Public Provident Fund (PPF) contributions, and Section 80D for health insurance premiums, are needed. Capital gains statements from the sale of shares or mutual funds, and ledgers for business or professional income, are required to report these specific income types. Additional documents might include home loan interest certificates, education loan interest certificates, or property details if there has been a sale or rental income. While these documents are not submitted with the ITR, they must be retained as proof for potential future scrutiny by tax authorities.

The ITR Filing Process

Once all necessary information and documents have been compiled, the Income Tax Return filing process can begin. The most common method for individuals is online filing, also known as e-filing, through the official Income Tax Department portal. While an offline utility is available for some forms, which allows taxpayers to prepare the return and then upload an XML file, the online mode streamlines the entire submission and facilitates a direct, interactive filing experience.

Online filing typically involves logging into the e-filing portal using a registered user ID and password. Taxpayers then navigate to the “e-File” section, select “Income Tax Returns,” and choose to “File Income Tax Return.” The correct assessment year and the applicable ITR form must be selected. The portal often provides pre-filled data based on information available with the tax department, which taxpayers must review and edit for accuracy. After entering all relevant income, deduction, and tax details in the designated sections, the system allows for a preview of the return.

Verification is a final step, as the return is considered incomplete without it. Electronic verification is the most convenient method, often performed using an Aadhaar One-Time Password (OTP) sent to the mobile number linked with Aadhaar. Other e-verification options include generating an Electronic Verification Code (EVC) through net banking, a pre-validated bank account, or a Demat account. Alternatively, some taxpayers may choose to send a physically signed copy of the ITR-V acknowledgment form to the Centralised Processing Centre (CPC) in Bengaluru within 30 days of filing. Upon successful submission and verification, an acknowledgment is generated, and the return undergoes processing by the tax department.

Different ITR Forms and Their Applicability

The Indian Income Tax Department prescribes various Income Tax Return (ITR) forms, each tailored to different categories of taxpayers and income sources. Selecting the correct form is essential for accurate and compliant filing.

ITR-1, also known as Sahaj, is for resident individuals with straightforward income up to ₹50 lakh, derived from salary, pension, income from one house property, and other sources like interest, along with agricultural income up to ₹5,000.

Individuals and Hindu Undivided Families (HUFs) who do not have income from a business or profession, but have more complex income structures, typically file ITR-2. This includes those with income from multiple house properties, capital gains (from shares, mutual funds, or property), or foreign income/assets. It is also used if the total income exceeds ₹50 lakh, which disqualifies them from using ITR-1.

For individuals and HUFs deriving income from a business or profession, ITR-3 is the appropriate form. This applies to those who have profits and gains from a business or profession, including income from speculative activities like intraday trading or futures and options. It can also be used by individuals who are partners in a firm or have income from salary, house property, or capital gains in addition to business income.

ITR-4, known as Sugam, is designed for resident individuals, HUFs, and firms (excluding Limited Liability Partnerships) who have opted for the presumptive taxation scheme under the Income Tax Act. This scheme simplifies tax calculation for eligible small businesses and professionals by allowing them to declare income at a prescribed rate, rather than maintaining detailed books of accounts.