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CMA Inter: A Comprehensive Guide to Income Tax Return Filing in India
Master the fundamentals of income tax calculation, filing procedures, and compliance for individuals
Hello and a very warm welcome back to the CMA Knowledge Blog! It’s a pleasure to have you here as we delve into another crucial topic for your professional journey.
Today, we are embarking on a deep dive into the world of Income Tax Return (ITR) Filing. For any aspiring Chartered Accountant or finance professional, this isn’t just a seasonal activity for clients; it’s a fundamental pillar of financial literacy and compliance. This guide is specifically tailored for individual taxpayers, walking you through the entire process from the “why” to the “how,” with the depth required for your CMA Inter studies and beyond.
Let’s Build Our Foundation: Understanding the “Why” Behind Taxes
Before we get into the nitty-gritty of forms and calculations, it’s vital to understand the broader context. A government, much like a massive household, has immense responsibilities. It is tasked with ensuring the social security, healthcare, education, employment, and infrastructure development of over a billion citizens. From building national highways and maintaining law and order to funding public schools and healthcare initiatives, the scope of public welfare is vast.
To fulfill these commitments, the government requires a steady and substantial stream of revenue. This is where taxation comes in, serving as the primary lifeblood of public finance. Think of taxes as a collective pool of resources contributed by citizens to build and maintain the society we live in.
While the government levies various taxes on goods and services (GST), business profits, and property, Income Tax is a direct tax—a contribution paid directly by the earning individual or entity to the government based on their financial capacity. It’s a progressive system designed to ensure that those with a greater ability to pay contribute a larger share towards nation-building.
When you pay your income tax, you are directly investing in public goods that benefit everyone. The roads you drive on, the public hospitals that serve communities, the schools that educate future generations, and the defense that protects the nation—all are funded, at least in part, by the income taxes collected from citizens and businesses.
Your Roadmap to Mastering ITR Filing
In this extensive guide, we will systematically unpack the entire process of income tax filing. We will answer the following critical questions in detail:
- What exactly is Income Tax?
- Why is paying Income Tax a legal and social obligation?
- How is income categorized under the Income Tax Act?
- What are the income tax rates for individuals?
- What is the step-by-step procedure for calculating your tax liability?
- Which ITR form should you use?
- What is the end-to-end process of filing your return?
By the end of this guide, you will have a comprehensive understanding of income tax fundamentals that will serve you well in your CMA Inter examinations and professional practice.
1. What is Income Tax?
At its core, Income Tax is a direct tax levied by the Government of India on the annual financial earnings of individuals, Hindu Undivided Families (HUFs), companies, and other entities. The key principle is that it is imposed directly on the person or entity who earns the income—this is known as the “assessee.” There is no shifting of this burden; the taxpayer is directly responsible for its payment.
The income of a “Previous Year” (PY) is taxed in the “Assessment Year” (AY). Let’s clarify this crucial distinction:
- Previous Year (PY): This is the financial year in which you actually earn the income. It runs from 1st April to 31st March. For example, for the current discussion, the relevant PY would be 2023-24 (if we are filing in 2024).
- Assessment Year (AY): This is the financial year immediately following the Previous Year. It is the year in which you assess, declare, and pay tax on the income earned in the PY. So, the income of PY 2023-24 is assessed and taxed in AY 2024-25.
The tax is calculated on your Total Income, which is the aggregate of your earnings from all permissible sources, after accounting for specific deductions and exemptions. The concept of Total Income is fundamental to understanding how your tax liability is computed.
The Five Heads of Income
For the purpose of systematic computation, the Income Tax Act, 1961, classifies all taxable income into five distinct heads. This classification is fundamental to accurate tax calculation and forms the basis for how different types of income are treated under the law.
2. Why Do We Need to Pay Income Tax?
Paying income tax is not merely a bureaucratic hurdle; it is a constitutional and civic duty. The power to levy and collect taxes is enshrined in the Constitution of India.
Specifically, Entry 82 of the Union List (List I of the Seventh Schedule) empowers the Parliament of India to make laws for the “taxes on income other than agricultural income.” This legal framework makes compliance mandatory for every eligible citizen and entity.
Beyond the legal obligation, there is a profound social contract. The taxes you pay are the fuel for national development. They fund:
- Infrastructure: Roads, bridges, railways, airports, and urban development.
- Social Welfare: Subsidies, pensions for the elderly, and food security programs.
- Defense & Internal Security: Safeguarding the nation’s borders and internal peace.
- Education & Healthcare: Building and maintaining government schools, colleges, and public hospitals.
- Scientific Research & Development: Funding for space programs, medical research, and technological innovation.
Therefore, filing your ITR is a declaration of your participation in the collective progress of the nation. It’s a tangible contribution to building the India of tomorrow—an India with better infrastructure, enhanced social services, and greater opportunities for all its citizens.
From a practical perspective, having a consistent history of ITR filing also serves as important financial documentation. It is often required when applying for loans, visas, or high-value transactions, establishing your financial credibility.
3. What are the Types of Incomes? The Five Heads of Income
As per Section 14 of the Income Tax Act, the entire taxable income of a person is classified under the following five heads. Mastering these heads is the first step in computing your tax liability accurately.
1. Income from Salaries (Sections 15-17)
This head includes any remuneration received by an individual from an employer under a contract of employment. It’s not just your basic salary. It encompasses:
- Basic Salary
- Dearness Allowance (DA)
- House Rent Allowance (HRA) [subject to exemption]
- Conveyance Allowance [subject to exemption]
- Bonuses, Commissions, and Fees
- Pension (received from a former employer)
- Perquisites (non-cash benefits like rent-free accommodation, company car, etc.)
Key Point: The relationship of employer-employee is essential for income to fall under this head. The income is taxable on a due or receipt basis, whichever is earlier.
2. Income from House Property (HP) (Sections 22-27)
This head covers the income generated from any building or land appurtenant to it (e.g., a garage) that you own. The unique feature here is the concept of “Deemed Let-Out Property.” Even if a property is not actually rented out, it is deemed to generate income for tax purposes, unless it is classified as a self-occupied property.
- Let-Out Property: The Gross Annual Value (GAV) is the actual rent received or the reasonable expected rent, whichever is higher. From this, you can deduct municipal taxes paid and a standard 30% deduction for repairs and maintenance, plus interest on a loan taken for the property.
- Self-Occupied Property (SOP): The GAV is considered zero. However, you can still claim a deduction for interest paid on a home loan up to ₹2,00,000, which can result in a loss from this head that can be set off against other heads of income.
3. Profits and Gains of Business or Profession (PGBP) (Sections 28-44DB)
This head is for income earned from any trade, commerce, manufacture, or profession. The computation of income under this head is detailed and involves deducting all permissible business expenses (like rent, salaries, raw material costs, depreciation) from the gross receipts.
- Presumptive Taxation Schemes (Sections 44AD, 44ADA): To simplify compliance for small businesses and professionals, the Act offers presumptive schemes where income is deemed to be a certain percentage (e.g., 8% or 6%) of total turnover/receipts, and no detailed expense records are required.
4. Capital Gains (Sections 45 – 55A)
This head taxes the profit or gain arising from the transfer of a capital asset. A capital asset is any property held by a taxpayer, whether connected to their business or not (e.g., real estate, shares, jewelry).
- Short-Term Capital Gain (STCG): Gain from an asset held for 36 months or less (12 months for listed shares, equity-oriented mutual funds, etc.). It is taxed as per your applicable income tax slab.
- Long-Term Capital Gain (LTCG): Gain from an asset held for more than 36 months (24 months for immovable property from FY 2017-18 onwards; 12 months for specified securities). LTCG is generally taxed at a flat rate of 20% with indexation benefits, which adjust the purchase price for inflation.
5. Income from Other Sources (IOS) (Section 56)
This is the residual head of income. If any income does not logically fall into the first four heads, it will be taxed under this head. Common examples include:
- Interest income from savings bank accounts, fixed deposits, and corporate bonds.
- Dividends from shares (above a specified threshold).
- Family pensions.
- Gifts of money or property exceeding ₹50,000 from non-relatives (with specific exceptions).
- Winnings from lotteries, crossword puzzles, and horse races (taxed at a flat 30%).
The Golden Rule: Every single rupee of your taxable income must find its place under one of these five heads. This systematic classification ensures comprehensive assessment and prevents any income from escaping the tax net.
4. What are the Income Tax Rates for an Individual? (Illustrative for AY 2024-25)
Income tax rates are not fixed in the Income Tax Act itself. They are proposed by the government and enacted each year through the Union Budget (Finance Act). The following are the tax rates for Individuals, HUFs, AOPs, and BOIs under the old and new tax regimes for AY 2024-25 (PY 2023-24). It is crucial to choose the regime that is more beneficial for you.
A. Old Tax Regime (with Deductions & Exemptions)
This regime allows you to claim various deductions under Chapter VI-A (like Section 80C, 80D) and exemptions for HRA, LTA, etc.
For Individuals & HUFs (below 60 years)
| Total Income | Rate of Tax |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
For Resident Senior Citizens (60 years or more but less than 80 years)
| Total Income | Rate of Tax |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
For Resident Super Senior Citizens (80 years or more)
| Total Income | Rate of Tax |
|---|---|
| Up to ₹5,00,000 | Nil |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Rebate u/s 87A: If your total income after deductions does not exceed ₹5,00,000, you can claim a rebate, making your total tax liability zero.
Surcharge: An additional tax levied if your total income exceeds ₹50 lakh (10% on income between ₹50 lakh and ₹1 crore) and higher rates for higher income brackets.
Health & Education Cess: 4% is levied on the total of income tax and surcharge.
B. New Tax Regime (Default from AY 2024-25, with lower rates but fewer deductions)
This regime offers lower tax rates but you forgo most of the popular deductions and exemptions (except standard deduction for salaried employees and employer’s NPS contribution).
| Total Income | Rate of Tax |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 to ₹6,00,000 | 5% |
| ₹6,00,001 to ₹9,00,000 | 10% |
| ₹9,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Rebate u/s 87A: The income limit for a full rebate is ₹7,00,000 under this regime.
Important Decision: Taxpayers must carefully evaluate which regime is more beneficial based on their income level, investments, and eligible deductions. Once you opt for the new regime, it’s generally difficult to switch back to the old regime in subsequent years.
5. How to Calculate the Tax Amount? A Step-by-Step Computational Guide
Calculating your income tax is a meticulous, multi-step process. Let’s break it down with a hypothetical example for Mr. Sharma, a 35-year-old salaried individual.
Mr. Sharma’s Financials for PY 2023-24 (AY 2024-25):
- Salary Income: ₹12,00,000 (After standard deduction of ₹50,000)
- Interest from Fixed Deposit: ₹40,000
- Investment in ELSS (80C): ₹1,50,000
- Health Insurance Premium (80D): ₹25,000
- TDS deducted by employer: ₹1,20,000
We will compute his tax liability under the Old Tax Regime.
Mr. Sharma is a resident and ordinary resident of India. This means his global income is taxable in India. For most salaried individuals in India, this is the default status.
Head 1: Income from Salaries: ₹12,00,000
Head 5: Income from Other Sources (Interest from FD): ₹40,000
Mr. Sharma has no income from his spouse or minor children that needs to be clubbed with his own. This step is skipped.
Mr. Sharma has no losses to carry forward or set off this year.
GTI = Salary + Other Sources = ₹12,00,000 + ₹40,000 = ₹12,40,000
- Deduction u/s 80C (ELSS): ₹1,50,000
- Deduction u/s 80D (Health Insurance): ₹25,000
- Total Deductions: ₹1,75,000
TI = GTI – Deductions = ₹12,40,000 – ₹1,75,000 = ₹10,65,000
Now we calculate tax on ₹10,65,000 as per the old regime slabs:
- Up to ₹2,50,000: Nil
- ₹2,50,001 to ₹5,00,000: 5% of ₹2,50,000 = ₹12,500
- ₹5,00,001 to ₹10,00,000: 20% of ₹5,00,000 = ₹1,00,000
- Above ₹10,00,000: 30% of (₹10,65,000 – ₹10,00,000) = 30% of ₹65,000 = ₹19,500
Total Tax before Rebate & Cess: ₹0 + ₹12,500 + ₹1,00,000 + ₹19,500 = ₹1,32,000
Since Mr. Sharma’s total income (₹10,65,000) is above ₹5,00,000, he is not eligible for this rebate.
Cess = 4% of Income Tax = 4% of ₹1,32,000 = ₹5,280
Total Tax = Income Tax + Cess = ₹1,32,000 + ₹5,280 = ₹1,37,280
TDS already deducted by employer: ₹1,20,000
Tax Payable = Total Tax Liability – TDS = ₹1,37,280 – ₹1,20,000 = ₹17,280
Mr. Sharma needs to pay ₹17,280 as the balance tax while filing his return.
This step-by-step computation demonstrates the systematic approach required for accurate tax calculation. Each step builds upon the previous one, ensuring that all aspects of income, deductions, and tax credits are properly accounted for in the final liability.
6. What are the Types of Forms for the Return of Income?
Choosing the correct ITR form is critical. Filing in the wrong form can lead to your return being deemed defective or invalid. The forms are designed to capture information relevant to different types of taxpayers and their income sources.
1. ITR-1 (Sahaj)
Who can use it? Resident Individuals having:
- Income from Salary/Pension
- One House Property
- Income from Other Sources (excluding lottery winnings and horse races)
- Total Income up to ₹50 Lakh
Who cannot use it? Directors of companies, those with investments in unlisted equity shares, or income from more than one house property.
2. ITR-2
Who can use it? Individuals and HUFs who:
- Have income from any of the five heads except “Profits and Gains of Business or Profession”
- This includes those with capital gains, income from multiple house properties, foreign assets/income, and directors of companies
3. ITR-3
Who can use it? Individuals and HUFs who have income from a proprietary business or profession. This is the form for sole proprietors.
4. ITR-4 (Sugam)
Who can use it? Resident Individuals, HUFs, and Firms (other than LLPs) who have opted for the Presumptive Taxation Scheme under Sections 44AD, 44ADA, or 44AE. It can also include income from salary, one house property, and other sources.
5. ITR-5
This form is for persons other than:
- Individual
- HUF
- Company
- Person filing ITR-7
It is used by Firms, LLPs (Limited Liability Partnerships), AOPs (Association of Persons), BOIs (Body of Individuals), and Artificial Juridical Persons.
6. ITR-6
This is for Companies that are not claiming exemption under Section 11 (Income from property held for charitable or religious purposes). A key point is that ITR-6 must be filed electronically.
7. ITR-7
For persons including companies who are required to furnish returns under Sections 139(4A), 139(4B), 139(4C), and 139(4D). This includes trusts, political parties, institutions, colleges, etc.
8. ITR-V
This is the Income Tax Return Verification form. When you e-file without a digital signature, you must generate, sign, and send this physical form to the Centralized Processing Centre (CPC) in Bangalore to complete the filing process. It is essentially the physical signature for your digitally filed return.
Selecting the appropriate ITR form is the first step toward accurate return filing. Using the wrong form can lead to processing delays, notices from the Income Tax Department, or the return being treated as defective. Always verify the eligibility criteria for each form before proceeding.
7. What is the Process of Filing the Income-tax Returns?
Filing your ITR has been greatly simplified through the e-filing portal (www.incometax.gov.in). Here is a detailed, step-by-step walkthrough.
Preparation is key. Collect all necessary documents:
- PAN Card & Aadhaar Card
- Form 16 (from your employer)
- Form 16A/16B/16C (for TDS on income other than salary)
- Bank Statements
- Interest Certificates from Banks/Post Office
- Details of Capital Gains (sale statements from brokers)
- Home Loan Interest Certificate (if applicable)
- Investment Proofs for deductions (80C, 80D, etc.)
- Prepaid Taxes Details (Advance Tax, Self-Assessment Tax)
You have several options for filing your return:
- Paper Return: Generally available only for individuals over 80 years of age or those with an income below ₹5,00,000 and no refund claim. Not recommended for most.
- Electronic Return with Digital Signature (DSC): The most seamless method. No physical verification is required as the DSC validates the return.
- Electronic Return without DSC, followed by ITR-V: This is the most common method. You file online and then download the ITR-V, which you must sign and send to CPC via ordinary or speed post within 120 days.
- Electronic Verification Code (EVC): The quickest and most popular method. You can generate an EVC through:
- Aadhaar OTP sent to your mobile number linked with Aadhaar
- Net Banking
- Bank Account-based validation
- Demat Account-based validation
Visit www.incometax.gov.in and log in using your PAN (which is your user ID) and password.
- Go to the ‘e-File’ menu and select ‘File Income Tax Return’
- Select the correct Assessment Year (AY 2024-25 for PY 2023-24)
- Choose the correct ITR Form (e.g., ITR-1 or ITR-2) based on your income
- Select the filing status as ‘Individual’ and the submission mode as ‘Prepare and Submit Online’
The portal will guide you through various sections:
- Personal Information: Pre-filled from your profile. Verify it
- Gross Salary: Fill in the details from your Form 16. The portal often pre-fills this data if your employer has uploaded it
- House Property: Enter details of your let-out or self-occupied property
- Other Sources: Enter interest income from FDs, savings accounts, etc
- Deductions: Under Chapter VI-A, enter your investments eligible for deductions under 80C, 80D, etc
- Taxes Paid: Enter details of TDS (from Form 26AS), and Advance Tax paid
- Tax Calculation: The portal will automatically compute your tax liability or refund based on the data entered
Cross-check every figure with your documents. Once satisfied, click ‘Proceed to Validation’. After validation, click ‘Proceed to Verification’.
This is the final and most crucial step. Choose your verification method:
- I would like to e-Verify: Select this and choose an EVC method (Aadhaar OTP is the easiest). Once verified, the filing process is complete
- I would like to send signed ITR-V through speed post: If you choose this, download the ITR-V, print it, sign it, and mail it to the CPC address within the stipulated time
Important: A return is not considered successfully filed until it is verified. An unverified return is equivalent to a return never filed.
After successful e-verification, you will receive an acknowledgment in Form ITR-V in your email. Keep this safe for your records.
The entire e-filing process is designed to be user-friendly, with pre-filled information and guided sections. However, accuracy remains paramount. Always double-check the information, especially the pre-filled data, as errors can lead to notices from the Income Tax Department or incorrect tax calculations.
Conclusion: Your Compliance, Your Contribution
Filing an Income Tax Return is a mark of a responsible citizen and a competent finance professional. For a CMA student, this is not just about personal compliance; it’s about building the foundational expertise you will use to guide countless clients and organizations in the future.
While the government often extends deadlines (like it did during the COVID-19 pandemic), it is always prudent to file your return well before the due date, which is typically 31st July of the Assessment Year for individuals not subject to tax audit.
We hope this exhaustive guide has demystified the process of Income Tax Return filing for you. The journey from understanding the philosophy of taxation to correctly filling out an ITR form is a rewarding one, equipping you with a skill set that is indispensable in the world of finance and accounting.
Thank you for dedicating your time to this comprehensive read. If you have any questions, doubts, or specific scenarios you’d like to discuss, please don’t hesitate to drop a comment below. Our team and community are here to help you succeed.
