Filing Income Tax Returns (ITR) may be difficult, but the rewards greatly exceed the brief annoyance. According to income tax regulations, submitting an ITR is required for some individuals but optional for others; nonetheless, filing an ITR is required regardless of which category an individual belongs to.
ITR is a tax return form that people submit to the Indian Income Tax Department to declare their income and assets (Indian Revenue Authorities). It contains information regarding the taxpayer’s personal and financial information. The ITR is essentially a kind of self-declaration by the taxpayer regarding their income, assets, and taxes paid. While it is predominantly completed electronically, senior residents also have the option to file it manually.
Every natural or artificial person, corporation, or other entity subject to specified exemption restrictions must file ITR. A taxpayer may be a person, an artificial legal person, a body of individuals (BOI), a Hindu Undivided Family (HUF), an association of persons (AOP), a firm, a trust, a corporation, or a society, according to the legislation.
Since ITR forms do not require attachments, taxpayers are not required to include papers such as evidence of investments, tax deducted at source (TDS) certificates, etc. with their electronically or manually filed return of income. However, it is prudent to save these records and present them to the tax authorities when requested, especially in cases such as assessment, investigation, etc.
The process is complete when the taxpayer’s ITR is e-verified using the Aadhaar-registered mobile phone or internet banking.
What is ITR?
ITR Meaning: The direct taxation system applies to all earning entities — individuals, Hindu Undivided Families (HUFs), Body of Individuals (BOI), Association of Persons (AOP), firms, corporations, and businesses.
These entities must submit their taxable income via Income Tax Return Form to the IT Department before the deadline for filing ITR. However, the income tax varies for individuals, HUFs, AOPs, BOIs, businesses, and corporations. Similarly, the incomes of Indian nationals and foreigners are taxed differently. During tax filing, Indian nationals are expected to include the entirety of their income from India and abroad, whilst foreigners are taxed just on their income from India. Different types and amounts of non-corporate entities’ incomes are categorised under distinct income heads and tax brackets.
The income heads under Income Tax legislation are Salary Income, Income from Other Sources, Capital Gains, Business and Profession Income, and Real Estate Income. When filing an income tax return, the relevant bodies/entities must list their annual revenue from various sources under the appropriate headings. The appropriate income tax rates for various income levels are 5%, 20%, and 30%. However, Capital Gains are subject to different tax rates.
Income Tax Returns (ITR) filing date
The deadline for filing the Income Tax Return for taxpayers whose accounts are not subject to audit was July 31, 2022. Therefore, it is recommended that you complete your ITRs on time, lest you incur a high charge or penalty for filing your income tax return past the deadline.
ITR and Its Filing Benefits
- Carrying unabsorbed losses to future years
The ability to carry forward losses from the current fiscal year to the following fiscal year is contingent upon the timely filing of ITR.
- Avoid interest Liability
To submit ITR, you must pay all required taxes in full. Section 234A of the Act imposes additional interest of 1% per month or a fraction of a month on the remaining unpaid tax if the ITR is not filed by the deadline. It is prudent to pay taxes and file the ITR within the allotted time frame.
- Avoid late filing costs and penalties under Section 234F
If an ITR is filed beyond the specified deadline, penalties of up to INR 10,000 may be imposed. It is in addition to any other penalties imposed by the Act.
Why Should You File ITR?
Noncompliance with this rule may result in many disciplinary actions against Indian taxpayers. In addition to the necessary obligation, if a taxpayer’s income does not exceed the stipulated exemption limit (below which ITR filing is not required), filing the ITR is recommended for the following reasons:
- Access to loans and credit facilities without difficulty
Regular ITR filing is documentary evidence of a steady income and a sign that a person has paid their taxes in a conscientious manner. In order to approve loans and other credit lines, such as overdrafts, credit cards, cash credits, and bill discounting facilities, financial institutions require ITR reports from prior years. In addition, it plays a crucial part in determining a taxpayer’s credit history through the Credit Information Bureau (India) Limited (CIBIL) score.
- For expedited visa processing
The ITR is valid evidence of income that is frequently considered by many host nations. Although voluntary, it facilitates the issuance of visas.
- Provides income and address verification
ITR files can also act as income and address verification. In contrast to employed individuals who receive salaries and possess tax withholding certificates, ITR filings are advantageous for self-employed individuals who lack income proof.
- Income tax refund
Every year, millions of taxpayers file for refunds of income taxes. Those who paid in excess of their tax liability are eligible for a refund. Interest on term deposits and dividend income may be excluded for taxpayers whose income falls below the exemption threshold. Regardless of any exclusions, it is likely that taxes will be withheld. The refund of income-deducted taxes can be requested by filing an ITR.
- Tax clearance certificate
In accordance with Section 281 of the Act, a tax clearance certificate must be provided for high-value or international transactions, including the sale or transfer of assets. Filing an ITR on a regular basis is required to acquire this tax clearance certificate.
- Make one eligible for government projects
In order to qualify for participation in government projects through the submission of bids, the ITRs of the preceding few years are required. It is one of the determining variables for eligibility to submit bids for such contracts.
- Serves as documentation of accrued income
In essence, the ITR gives information regarding annual revenue and its sources. Later on, these particulars play an important role in high-value transactions, particularly those involving the purchase of the real estate, investments, etc.
- Beneficial if the dead taxpayer left no inheritance deed.
In the case of a deceased taxpayer, the ITR serves as a record of their assets and obligations throughout their life. In turn, this can facilitate the distribution of these assets to their legal heirs.
Who Should File Income Tax Returns?
Certain groups of taxpayers are required by the income tax law to file ITR by the due dates. Below are the ITR filing requirements for Indian taxpayers:
- Individuals with a yearly gross income in excess of the following exemption thresholds:
- For individuals below 60 years of age: Rs. 2.5 lakhs
- For individuals above 60 years of age: Rs 3 Lakhs
- For Individuals above 80 years of age: Rs 5 Lakhs
- Every business and company (irrespective of their profit or loss)
- An individual, being a resident and ordinary resident in India, if he or she possesses, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) situated outside India, has signing authority in any account situated outside India, or is a beneficiary of any asset (including any financial interest in any entity) situated outside India.
- A person who has deposited more than 1 crore Indian rupees in one or more current bank accounts.
- A person who has spent a total of more than 2 lakh rupees on overseas travel for oneself or another person is required to register.
- A person who has spent above 1 lakh rupees on their electricity consumption.
What Are The Tax Implications For Indian Residents Investing in US Stocks?
When Indian residents invest in the Indian stock market, they are aware of the tax consequences. What are the tax implications, though, when the investment is made on U.S. stock exchanges? How will it be taxed, and will any exemptions apply? To comprehend tax implications, it is essential to comprehend the nature of stock investment gains. There are the following benefits:
- Capital Gains
In order to distribute gains, companies typically pay dividends on their stock. Therefore, if the stock invested in delivers a dividend, the investor receives income. This income is subject to taxation, hence it is taxed at a fixed rate of 25%. As a result of the US-India tax treaty, the rate applicable to Indian investors is significantly lower than that applicable to other international investors. US companies will withhold the amount of taxation, and only the remaining 75% will be paid as dividends. The dividends received in cash or reinvested by an Indian investor will be added to the resident’s income and taxed at the standard slab rates. Due to the Double Tax Avoidance Agreement (DTAA), however, the tax withheld in the United States can be deducted from the tax burden in India.
Mr Bharat made an investment in Amazon’s stock. He receives a $200 dividend. The corporation withholds a tax equal to 25% of $200, or $50. The dividend payout net amount is $150. Mr Bharat reports a 200-dollar income on his tax return. The income is taxed according to the tax brackets in effect. Mr Bharat can seek a $50 tax credit that was withheld by an American corporation. Therefore, $50 will be removed from Mr Bharat’s total tax liability, leaving only the remainder to be paid.
The other gain that investing in stocks in US markets might generate is a profit or advantage derived from the sale of stocks, i.e. when the stocks are sold at a higher price than they were purchased. The good news is that there are no tax implications in the United States if the investment is sold for a profit. However, as an Indian resident, you must abide by the country’s tax regulations, which will have the following consequences: Have you owned the stocks for over two years? If Yes, LTCG will be applicable, on the contrary, STCG will apply.
- Long Term Capital Gains tax: When US stocks are held for more than 24 months, the gains on their sale are considered long-term capital gains and are taxed at 20% plus any applicable surcharges and levies.
- Short Term Capital Gains Tax: When stocks are held for less than 24 months, the gains on their sale are considered short-term capital gains, are included in current income, and are taxed at the investor’s applicable slab rates.
How To File Income Tax Return If You Invest In US stocks & ETFs From India By Kuvera?
- Foreign Asset Disclosure:
Schedule FA requires you to report your overseas investments (where FA stands for Foreign Asset). Schedule FA is available as part of Form ITR-2 when submitting income tax returns. This part will be accessible on the government website and across all major tax filing systems. In this section, you list the asset you possess, the country where it is held, the company’s address, and the asset’s initial–peak and closing value in rupees. You may copy the information regarding specific stocks from the Excel sheet given by Vested.
You declare the profits from your US holdings, just like you would with Indian stocks.
- Capital Gains: The figure in the file is in Indian Rupees (converted at the specified rate as per tax rules). It makes the process of filing taxes simpler. The gains could be added as a single line item (if the amount is not large). Let your tax professional answer this. Indicate that the company is not publicly traded. Do not choose the “STT paid option” if prompted because the securities transaction tax is not paid.
- Dividend & Interest Income: Under other revenue, add the INR amount from the CG file. From the summary file, add the gross dividend from overseas corporations (in INR). Add interest from the summary file (in INR).
Which ITR form to use in case you have investments in US stocks?
If you have direct investments in US stocks, you should utilise the ITR 2 form.
Do investors with only dividend and interest income and no gains or losses need to submit ITR2 or can they instead file ITR1?
They only need to use ITR 2 because they have foreign assets.
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