Income Tax Return for Individuals

 

Introduction: In general terms, an income tax return is a form containing details of income that a person is required to submit to the Income Tax Department for each financial year. In this document, we will discuss the circumstances under which a person is required to file an ITR and which regime he should opt for while doing so.

 

    > Income-Based Criteria:

A person is required to file an ITR if their total income (after deductions) exceeds the basic exemption limit. The basic exemption limit to determine the requirement to file an ITR is Rs. 3 lakhs in the case of individuals aged less than 80 years and Rs. 5 lakhs for those aged more than 80 years during the relevant financial year.

Note: It is to be noted that the payment of tax and the filing of a return are two different requirements, which may not always happen in conjunction. There are cases where a person is NOT required to pay tax even when their income exceeds the basic exemption limit due to the benefit of a rebate, but that doesn’t relieve them of their obligation to file an ITR.

    > Non-Income Based Criteria

Other non-income related circumstances which require filing of ITR are:

* Having a financial interest or owning any asset outside India

* Deposits more than 1 Cr. in one or more current accounts

* Incurred more than 2 Lakh on foreign travel of any person

* Incurred more than 1 lakh on electricity bill

    > Voluntary Filing:

An individual can voluntarily opt to file an ITR even if they are not covered under the above scenarios. Voluntary filing of an ITR promises certain benefits in the future, which include:

 

* Refund of tax if the tax paid to the government exceeds the actual tax liability.

* Assistance in loan processing and visa applications.

* Benefit availment by way of carrying forward of losses incurred, if allowed.

 

2. Old regime vs. new regime: A person can opt to pay tax and file an ITR under either the Old Regime or the New Regime of Income tax. The New Regime was introduced in Budget 2020, dropping the tax rates at the cost of non-availability of deductions and exemptions (except for a few covered in the next point). The question of which regime is most beneficial for whom has been of mass appeal among taxpayers. This guide will help you decide which regime is best suited for you in lowering your taxes.

 

    > Income Tax Rates In Old And New Regime

 

Old Regime
Slabs	Individuals (Age < 60 years)	Resident Senior citizens  (≤60 Age <80 years)	Resident Super Senior Citizens  (Age more than 80 years)
Up to 2.5 L	Nil	Nil	Nil
2.5 L - 3.0 L	5%	Nil	Nil
3.0 L - 5.0 L	5%	5%	Nil
5.0 L - 10.0 L	20%	20%	20%
Above 10.0 L	30%	30%	30%
New Regime
Slabs	Rates
Up to 3.0 L	Nil
3.0 L - 6.0 L	5%
6.0 L - 9.0 L	10%
9.0 L - 12.0 L	15%
12.0 L - 15.0 L	20%
Above 15.0 L	30%

 

    > Exemptions/Deductions Available In The New Regime:

The deductions and exemptions available in the new regime are:

 

* Compensation travel expense on tour/transfer- Daily allowance to meet the ordinary charges or expenditure incurred due to absence from the  regular place of duty.

-       Perquisites for official reasons

-       Exemption on voluntary retirement, gratuity, and leave encashment

-       Interest on a home loan on let-out house property

-       Transport allowances in the case of specially-abled persons

* Conveyance allowance received to meet the conveyance expenditure as part of employment

-       Deduction for the employer’s contribution to the NPS account

-       Standard deduction of Rs. 50,000

-       Deduction from family pension under section 57

-       Deposits in Agniveer Corpus fund under section 80CCH(2)

 

   > Exemptions/Deductions Not Available In The New Regime:

   Deductions/exemptions not claimable in the new regime include:

* Deduction under section 80TTA/TTB

* Professional tax and entertainment allowance

* LTA and HRA

* Allowances to MPs/MLAs

* Minor child income allowance

* Helper allowance

* Children's education allowance

* Other special allowances under section 10(14)

* Interest on housing loan on self-occupied property under section 24

* Chapter VI-A

* Meal allowance

* Employee’s own contribution to NPS

* Donation to a political party

    > Change In Default Regime:

For FY 2022-23, the default regime for the payment of tax and filing of the return was the old regime. The new regime had to be specially opted for by filing form 10-IE. However, once the due date passed, the taxpayer was compulsorily required to file taxes under the old regime.

However, from FY 2023-24, the default regime for tax has been changed to the new regime. The taxpayer must file form 10-IEA if they wish to switch to the old regime. The return has to be filed before the due date if one wishes to file taxes under the old regime in order to avail all deductions and exemptions.

    > Other Key Differences

* There is a difference in income tax rebate under section 87A between the old regime and the new regime. In the old regime, the rebate renders the tax liability nil if the income is up to 5L. For the new regime, no tax is required to be paid if the income is up to 7L.

* The tax rates under the new regime are not bifurcated based on the age of the individual.

* For income exceeding 5 Cr., the surcharge applicable under the new regime is limited to 25% compared to 37% under the old regime.

 

    > Which Regime Is Beneficial For Me?

A salaried individual must opt for any of the regimes at the start of the financial year by declaring the same in Form 12BB issued by the employer. The same can be changed at the time of filing the ITR for that year. The most beneficial regime depends on the income level and the deductions that can be claimed or chosen to be claimed depending on the individual's investment/expense preference. The employee should make a comparison of these and choose the regime that results in a lower tax liability.

For example, an employee may prefer the new regime due to the lower rate of taxes if their total income is 8 lakhs and they don’t have any exemptions or deductions to claim. But they may not end up paying any tax at all in the old regime if they are paying rent (claiming HRA exemption) and make tax-saving investments, resulting in claiming exemptions/deductions up to 3 lakhs, making their income after deductions below 5 lakhs.

Analyzing both regimes, it can be said that the new regime is suited for individuals who are in the early stages of their careers with their salary in a lower bracket. They will benefit from the lower rates of taxes in the new regime even without being forced to spare money for tax-saving investments. However, experienced individuals on higher salary packages can make the old regime beneficial for them by opting for various tax-saving deductions and exemptions available in the old regime of income tax.

It is to be noted that the TDS shall be deducted by the employer during the year, based on the regime opted by the employee at the start of the year. However, if the employee chooses to switch to another regime at the time of filing ITR, the difference in tax liability under both regimes shall be credited as an income tax refund once the processing of the return is completed, provided they have no additional income to declare in their ITR.

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