Understanding the intricacies of income tax returns (ITR) can sometimes be overwhelming. However, understanding this aspect of finance is essential and can lead to substantial benefits. Filing your ITR goes beyond fulfilling a legal requirement; it represents a strategic move towards enhancing your financial well-being and securing the tax refunds that are rightfully yours.
As the deadline for filing income tax returns (ITRs) for the financial year 2023-24 approaches on July 31, salaried employees across India are likely preparing to maximise their potential refunds.
This article will examine a variety of tactics you can employ to increase the likelihood of a larger tax refund. With a deep understanding of ITR and a keen eye for strategic investments, it will equip you with the knowledge to transform tax filing from a mundane task into a promising opportunity.
Understanding the basics of ITR
Submitting an income tax return (ITR) enables individuals to report their earnings, expenditures, and relevant tax information to the tax authorities. It’s a process where individuals report their yearly earnings, request tax deductions, and notify the government of the taxes they have paid throughout the fiscal year.
This form provides a comprehensive breakdown of the taxpayer’s income from different sources and tax obligations, ensuring adherence to the tax system. There are different types of income tax returns that are designed to meet the needs of various taxpayers. These include individuals, businesses, trusts, and estates. Each category has its own specific forms which are customised to their specific filing requirements.
The deadlines for filing ITR can vary each year, but typically, for individual taxpayers, the due date for regular filing is July 31st of the assessment year. Even if you miss the deadline, you still have time to file a late return by December 31st of the same year.
However, there may be a requirement to pay a late filing fee of up to ₹5,000. In addition, there will be an obligation to pay interest on any tax liability, if applicable.
You may also like: What is ITR? How to file ITR Declaration?
Understanding income tax return refund
When more taxes are paid than are really due for a given fiscal year, the difference is known as a tax refund. This is the case in India when a taxpayer’s total tax obligations are more than their advance tax, self-assessment tax, and tax deducted at source (TDS) payments.
Taxpayers are able to claim this refund by filing their income tax return (ITR) and verifying it within the specified time period.
According to Section 244A of the Income Tax Act, 1961, individuals who are owed a refund will also receive simple interest at a rate of 0.5% for each month or part of a month along with the refund amount. Interest payments are not necessary for refunds that are less than 10% of the tax amount, as calculated under subsection (1) of section 143 or during the standard assessment process.
Checking your income tax refund status is a simple process that can be quickly done online. This guarantees you’ll be quickly informed about the confirmation, acceptance, or sending of your return.
Key sections for maximising tax refunds
- Section 80C
- Eligible investments: Several investment options are eligible for tax deductions under Section 80C, such as the Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), and National Savings Certificate (NSC). These investments not only provide tax savings but also promote long-term savings.
- Life insurance premiums: Section 80C permits tax deductions for the premiums paid on life insurance policies. This insurance protects the taxpayer, their spouse, and any minor children.
- Tuition fees: You can claim the tuition fees for the full-time education of two children at any university, college, school, or educational institution in India under Section 80C.
Must read: Overview of section 80C deduction and its sub-sections in income tax
- Health insurance premiums: Tax deductions under Section 80D are available for health insurance premiums paid for individuals, families, and senior citizens. The limit for individuals is up to ₹25,000, while senior citizens can claim up to ₹50,000.
- Section 24(b)
- Interest on home loan: Under Section 24(b), you are entitled to claim a deduction for the interest component of your home loan payments for a property, regardless of whether it’s used for personal residence or given out on rent. The maximum deduction is limited to ₹2 lakh per year.
- Other relevant sections
- Section 80E (Education loan interest): Education loan interest for higher studies is deductible under Section 80E, with no limit on the amount that can be claimed.
- Section 80G (Donations to charitable institutions): Contributions to specific funds and charitable institutions may qualify for a deduction under Section 80G. Depending on the organisation, the deduction can be anywhere from half to all of the donation amount.
- Section 80TTA/80TTB (Interest on savings account): Interest income from savings accounts can be deducted under Section 80TTA for individuals and Section 80TTB for senior citizens.
These sections offer taxpayers the chance to lower their taxable income by making different investments, expenses, and contributions, which can help them maximise their tax refunds. It’s crucial to stay on top of these deductions and strategically manage finances to maximise the tax benefits available.
Also read: How to claim tax deductions on personal loans in India?
Strategies for maximising tax refunds for businesses
Optimising tax refunds for businesses requires careful planning and a comprehensive grasp of tax regulations to make sure that all possible deductions and credits are utilised. Businesses can maximise their tax returns by implementing the following strategies:
- Claim all eligible deductions and credits
- Make sure to take advantage of depreciation for all applicable fixed assets. Utilise the elevated depreciation rates for new machinery as permitted under specific sections.
- Take advantage of different deductions offered under these sections, such as 80C (for investments in PPF, NSC), 80D (health insurance), along with others.
- Take advantage of deductions available under Section 35 to reduce your scientific research and development expenses.
- Startups are eligible for deductions under Section 80-IAC if they fulfil specific criteria.
- Tax credits and reliefs
- Companies that are liable for Minimum Alternate Tax (MAT) have the option to carry forward and offset their MAT credit for a maximum of 15 years.
- For businesses with international operations, it is important to claim credit for taxes paid in foreign countries to prevent double taxation.
- Proper documentation and record-keeping
- Ensure thorough documentation of all transactions, receipts, invoices, and proof of expenses to support claims.
- Make sure to accurately document all donations made, as they are eligible for claiming under Section 80G.
- Capital gains planning
- Utilise Sections 54, 54EC, and 54F to effectively minimise capital gains tax by reinvesting the proceeds in specified assets.
- Strategise the disposal of assets to take advantage of the favourable tax rates on long-term capital gains.
- Utilise carry-forward provisions
- You can carry forward business losses for up to eight years to offset against future business profits.
- Use the amount of unabsorbed depreciation as a credit against future income from other sources.
- Make tax preparation a year-round priority
- Regularly analyse financial statements and evaluate potential tax obligations throughout the year.
- It is advisable to seek guidance from a tax advisor or financial planner to ensure you are well informed about any modifications in tax legislation and to discover potential avenues for tax savings.
- Leverage government schemes and incentives
- Keep yourself updated on government programmes that provide tax breaks, such as the Production Linked Incentive (PLI) programme for factories.
- Consider utilising incentives for exports and SEZs if they are relevant to your business.
Bottomline
Navigating the complexities of income tax returns (ITR) can initially seem daunting, but with the right approach and understanding, it can become a powerful tool for financial optimisation.
When it’s time to submit your income tax return, keep in mind that well-informed and carefully thought-out tax planning is essential for optimising your tax refunds and ensuring financial stability in the long run. Take advantage of the available resources, stay diligent in your financial record-keeping, and approach the tax filing season with confidence and foresight.
