Overview of Income Tax Compliances

There are certain benefits of paying Income Tax in India, which include the following:

Legal Compliance and Avoidance of Penalties:

• Paying income tax ensures compliance with the law, as it is mandatory for eligible individuals and entities.
• Non-compliance can result in penalties, fines and legal consequences, which can be avoided by fulfilling tax obligations on time.

Access to Government Services and Benefits:

• Income tax payment is often a prerequisite for availing various government services and benefits, such as obtaining loans, subsidies, grants and government contracts.
• Individuals who pay income tax have better access to government-funded facilities and schemes, improving their overall quality of life.

Avoidance of Legal Issues:

• Paying income tax honestly provides peace of mind, eliminating the fear of legal repercussions and potential tax audits.
• Individuals who fulfil their tax obligations can focus on their personal and professional endeavours without the worry of legal issues arising in the future.

Nation Building:

• Income tax is a vital source of revenue for the government, enabling it to fund infrastructure development, social welfare programs, education, healthcare and defense.
• By paying income tax, individuals contribute to the overall progress and growth of the nation, helping to build a better future for themselves and fellow citizens.

Contribution to Social Welfare:

• Income tax plays a significant role in funding social welfare programs and initiatives aimed at uplifting marginalised communities, promoting education, healthcare and poverty alleviation.
• By paying income tax, individuals contribute directly to these initiatives, fostering social equality and inclusivity.

Building a Strong Economy:

• Income tax revenue fuels economic growth by enabling the government to invest in infrastructure, public services and industry development.
• A strong economy benefits taxpayers through increased job opportunities, improved business environment and overall prosperity.

Personal and Professional Reputation:

• Paying income tax demonstrates integrity and responsible citizenship, enhancing an individual's personal and professional reputation.
• Compliance with tax obligations establishes trust among business partners, clients and stakeholders, leading to enhanced opportunities and growth.

Access to Financial Services:

• Paying income tax regularly enhances an individual's financial credibility and creditworthiness.
• It improves the chances of obtaining loans, mortgages and financial services from banks and financial institutions, ensuring access to capital for personal and professional goals.

Participating in Democratic Governance:

• Paying income tax is a fundamental aspect of democratic governance, as it enables citizens to contribute to the decision-making process and hold the government accountable.
• By fulfilling their tax obligations, individuals actively participate in shaping the nation's policies and priorities.

Avoidance of Unnecessary Stress and Legal Battles:

• Paying income tax on time eliminates the stress and anxiety associated with tax evasion or non-compliance.
• It helps individuals avoid lengthy legal battles, investigations and reputational damage that can arise from tax evasion allegations.

The necessary documents needed to file Income Tax return in India include the following:

1. Passbook for accounts held with:

• Public Provident Fund (PPF)
• Registered Retirement Savings Plans (RRSP)
• Savings accounts at banks and post offices

2. Pay slips

3. Aadhaar Card

4. PAN Card

5. Form-16: TDS Certificate provided by the employer, describing the salary received and TDS deducted, if applicable.

6. Form-16A: For reporting payments other than salaries, such as interest from permanent deposits, recurring deposits, etc., that exceed the TDS limits under current tax legislation

7. Form-16B: Provided by the buyer of real estate, which provides information on the amount of tax withheld from the proceeds of the sale

8. Form-16C: From the landlord, detailing any tax withholdings from rent

9. Form 26AS: Yearly tax statement containing information on taxes paid using your PAN

10. TDS certificates for:

• TDS deducted by your employer
• TDS deducted by banks
• TDS deducted by any other organisations from payments made to you

11. Proof of:

• Advance taxes submitted by you
• Self-assessment taxes paid by you

12. Documents for Tax Saving Investments

13. Evidence of Deduction Purpose for Articles 80C to 80U, such as:

• Health insurance premium for self and family
• Interest on education loan

14. Bank Statement for a Mortgage Loan

What are the Income Tax Compliances in India?

Following are the mandatory income tax compliances needed to be followed by entities in India:

Obtaining Permanent Account Number (PAN):

• Individuals and entities are required to obtain a PAN from the Income Tax Department, which serves as a unique identifier for tax purposes.
• PAN is mandatory for various financial transactions, including filing income tax returns.

Filing Income Tax Returns (ITR):

• Individuals, companies and other entities must file their income tax returns annually, reporting their income, deductions and taxes paid.
• The deadline for filing ITR is generally July 31st of the assessment year, but it may vary based on the taxpayer's category.

Paying Taxes:

• Taxpayers are obligated to pay their taxes on time, either through advance tax payments or self-assessment tax before the ITR filing deadline.
• Non-payment or delay in tax payments may result in penalties and interest.

Tax Deducted at Source (TDS):

• Certain entities, such as employers and financial institutions, deduct TDS from payments made to individuals and deposit it with the tax department.
• Taxpayers must ensure that the TDS deducted is reflected correctly in their Form 26AS and claim it as credit while filing their ITR.

Tax Audits:

• Entities meeting specific criteria, such as certain income thresholds or professional turnover, are required to get their accounts audited by a qualified chartered accountant.
• Tax audit reports need to be filed along with the income tax returns.

Maintenance of Books of Accounts:

• Entities engaged in business or profession are required to maintain proper books of accounts, including records of income, expenses, assets and liabilities.
• The books of accounts should be preserved for a specified period and made available for inspection by tax authorities if required.

Advance Tax Payments:

• Taxpayers with significant tax liability are required to make advance tax payments in instalments during the financial year, as per prescribed due dates.
• Failure to pay advance tax or underpayment may attract interest and penalties.

Compliance with Tax Deduction and Collection Account Number:

• Entities deducting TDS or collecting TCS (Tax Collected at Source) are required to obtain a TAN and quote it in relevant documents.
• TAN facilitates proper tracking and accounting of TDS/TCS.

Tax Computation and Assessment:

• Taxpayers need to compute their taxable income as per the prescribed rules and rates for different sources of income.
• The Income Tax Department may initiate assessments or scrutinise the filed returns to ensure compliance.

Record-keeping and Documentation:

• Taxpayers should maintain proper documentation, such as bills, invoices, receipts and supporting documents for deductions and exemptions claimed in their returns.
• The documents should be retained for a specific period as required by the income tax laws.

Compliance with Tax Notices:

• Taxpayers must respond to tax notices received from the Income Tax Department within the stipulated time frame, providing the necessary information or clarifications as requested.

Transfer Pricing Compliance:

• Entities involved in international transactions with associated enterprises need to comply with transfer pricing regulations, ensuring that transactions are conducted at arm's length prices.

Compliance with Specific Reporting Requirements:

• Taxpayers may be required to report certain transactions, such as high-value transactions, foreign assets and income and transactions with related parties, in prescribed formats.

Seeking Professional Assistance:

• To ensure proper compliance with income tax laws, taxpayers can seek assistance from qualified professionals such as chartered accountants or tax consultants who specialise in tax compliance and can provide guidance on various aspects.
•  StartupFino also specialises in providing a range of services for compliance with Income tax laws and regulations in the country.

The process of filing IT return involves several steps, which have been mentioned below:

Gather Required Documents:

• Collect all the necessary documents, including Form-16, interest certificates, TDS certificates, bank statements, proof of tax-saving investments and other relevant financial records.

Choose the Correct ITR Form:

• Identify the appropriate Income Tax Return (ITR) form based on your income sources, residential status and other specific criteria. The Income Tax Department provides different forms (ITR 1 to ITR 7) to cater to various taxpayer categories.

Calculate Total Income:

• Compute your total income for the financial year by adding up income from all sources, including salary, business profits, capital gains, house property and other taxable income.

Calculate Tax Liability:

• Determine the tax liability by applying the applicable tax slabs and deductions according to the income tax laws for the relevant assessment year.

File Online or Offline:

• Decide whether to file the income tax return online (e-filing) or offline (physical filing). Herein, E-filing is considered to be the most convenient and popular method, whereas physical filing requires submitting a physical copy of the return.

Register on the Income Tax Department Portal:

• If e-filing, register yourself on the official website of the Income Tax Department to obtain a user ID and password.

Fill in the ITR Form:

• Fill in the ITR form with accurate details, including personal information, income details, deductions and tax computations. Ensure all fields are correctly filled and cross-check the information to avoid errors.

Verify ITR:

• After filling in the form, verify the details either electronically using methods like Electronic Verification Code (EVC), Aadhaar OTP or Digital Signature Certificate (DSC) or by sending a signed physical copy, if filing offline.

Review and Submit:

• Review the entire form to ensure accuracy and completeness. Make any necessary corrections before submitting the return. Once satisfied, submit the ITR form.

Receive Acknowledgement:

• Upon successful submission, you will receive an acknowledgment from the Income Tax Department. The acknowledgment serves as proof of filing.

Respond to Notices (if applicable):

• If any discrepancies or issues arise, the Income Tax Department may issue a notice seeking additional information or clarification. Respond promptly and provide the requested details within the given timeframe.

Income tax compliance holds utmost importance in India, as it enables tax obligations to be fulfilled and regulatory requirements to be met by individuals and businesses. This encompasses the timely filing of tax returns, ensuring accurate income reporting and strict adherence to tax laws. Ensuring proper compliance helps avoid penalties, maintain transparency and contribute to the overall growth and development of the country.

Startupfino is a company that specialises in offering complete services for income tax compliance. We can help you with everything from providing advice in the initial phase to ensuring that you meet all the necessary requirements of compliance under numerous laws and regulations.

Our Income tax compliance services include the following:

• Expert consultation and advisory services on income tax compliance in India, ensuring adherence to the latest tax laws and regulations.
• Comprehensive preparation and filing of income tax returns for individuals and businesses, optimising tax benefits and minimising liabilities.
• Assisting with tax planning strategies to maximise deductions, exemptions and credits, thereby optimising overall tax liability.
• Conducting thorough reviews and audits of financial records to ensure accurate income reporting and compliance with tax regulations.
• Tax audit services to ensure proper maintenance of books of accounts and compliance with auditing requirements.
• Advisory on tax-saving strategies, deductions and exemptions to optimise tax liability while ensuring compliance with applicable laws.

By availing our services, entrepreneurs can avoid the negative outcomes of non-followance of rules and compliances. StartupFino works hard to provide services that are prompt and effective, so you can manage your business without any issues and without facing penalties or problems.