A Beginner’s Guide to Filing Income Tax Returns

The due date to file income tax returns for FY 2020-2021 is 31st July 2021. For youngsters who just started earning in the year 2020, it is very important to be aware of a couple essential things as they step into this earning phase. With the joy of earning your first salary, comes the great responsibility to file your income tax returns as well.

Freshers who have just completed their studies and started with their very first job often find income tax-related jargons difficult to understand. A lot of terminologies such as net taxable income, 26AS, Form 16, TDS, tax saving investments could be confusing for first time earners.

Let us start with understanding the basics

Any individual who earns income in a financial year starting 1st April till 31st March has to file their income tax returns in the next year latest by 31st July. For e.g., for income earned between 1^st April 2020 till 31st March 2021, one has to file the returns by 31st July 2021.

What do you mean by filing returns?

So basically, after the end of the financial year, 3-4 months are given to you to calculate how much you earned in the previous year and calculate your net taxable income and accordingly pay tax on it.

It is mandatory to file returns if a person’s net taxable income is more than 2.5 lakhs in a year. 

You might ask: what is net taxable income? Well, it is nothing but total income earned less deductions. There are many deductions offered by the Income Tax Act. The more you use deductions, the lower will be your tax outgo. Deductions are allowed under Section 80 of the Income Tax Act, such as 80C, 80D, 80E etc. These are used to save tax and lower tax outgo.

Being new to tax-payer’s world, you may not be aware of the below benefits of tax filing:

Easy Loan Approval – If you are planning to take a loan in future, be it a vehicle loan, home loan or personal loan, the ITR receipt will be a useful document as all banks will ask for the last three years ITR receipt for hassle-free processing.

Smooth Visa Processing – Copy of the past year’s ITR is asked if you are planning to apply for a visa. Most embassies ask to furnish past ITR receipts as they are very particular about tax compliance.

Enabling Carrying Forward of Losses – If you are investing in stocks or mutual funds and incur losses, then it is crucial to file your returns within the due date to carry forward this loss to next year. This is because if next year, you generate capital gains then these losses can be used to set off against gains and you may be exempt to pay any tax on gains.

It is further suggested that even if you earn less than 2.5 lacs currently, still file your returns for all the above benefits. On the other hand, if it’s mandatory for you to file ITR but you skip it then you will be imposed with penalties of up to Rs.10,000. So don’t take it lightly and file your returns on time.

The author is Founder, Fintoo

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.