Essential Steps for Filing Income Tax Returns (ITRs) 1 to 5

Introduction

Filing Income Tax Returns (ITRs) has become a multifaceted process that involves several steps and multiple checkpoints. This guide outlines the essential steps for filing ITRs 1 to 5, applicable to a broad range of taxpayers. Special cases of income should be handled with careful consideration and expertise. Each individual's sequence of steps may vary. The following list is not exhaustive but is designed to be a helpful resource. Any additional important steps can be shared for collective benefit.

Essential Steps for ITR Filing

Document Preparation

1. Gather Required Documents: Compile copies of the following:
   • Balance Sheet, Profit & Loss Account, Capital Account, Fixed Asset Ledgers, and Indirect Income Ledgers. Partner’s Capital Account required if associated with a firm.
   • Form 26AS along with Tax Information Statement (TIS) and Annual Information Statement (AIS).
   • Salary Certificates, proof of agricultural income, bank statements, interest certificates from banks (Savings, Fixed Deposits, Bonds, etc.).
   • Profit/loss report from Brokers for sale of shares/mutual funds to determine long-term (LT) or short-term (ST) and intraday trades.
   • Details of Capital Gains from any sale of property, gold, or capital assets.
   • For audit cases, verify the Capital Account from books as the audit report may lack complete information.
   • All investment proofs, including Life Insurance Corporation (LIC) and Unit Linked Insurance Plan (ULIP) premium receipts, medical insurance receipts, housing loan repayment certificates, donation receipts, and institute fee receipts (tuition fees only). This also includes PPF passbook up to March, National Savings Certificates (NSC), Kisan Vikas Patras (KVP), and contributions to the National Pension System (NPS).

Pre-Checking

2. Threshold Income Check: For non-presumptive cases without audit, ensure income from business and profession (B&P) exceeds 6%/8% after excluding Income from Other Sources (IFOS)/Capital Gains (CG)/House Property (HP) income.
3. Presumptive Income Verification: For presumptive taxation under sections 44AD/44ADA/44AE, verify eligibility based on last year's return and assess the 5-year continuity rule.
4. Business Loss Confirmation: If last year's ITR reported business losses, refer to section 143(1) of the preceding year to confirm loss amounts.
5. Partnership Firm Details: Include details of all partners (PAN, Aadhar, and share percentage) in the Partner Master.
6. Software Master Update: Update software with corrected address, PIN code, phone number, mobile number, ward, email ID, and Aadhar number.

Online Activity

7. Login and Import Data: Log in and import the 26AS text file into the software. This should be done before making further entries.
8. Access TIS/AIS: Maintain a logged-in session for both TIS and AIS for further verification in later steps.

Computation in Business & Profession

9. Net Profit Calculation: Initiate computation starting from the net profit under the business and profession head, adding back all disallowed expenses.
10. Income Addition: Add the same income to other applicable heads such as House Property, Salary, Long-Term Capital Gains, Short-Term Capital Gains, IFOS, Exempt income, Agriculture income, etc. Ensure to capture property sale and share transactions even if they are not in the books of accounts.

Other Important Entries in Software

11. Deductions: Accurately record deductions under sections 80C, 80G, 80D, 80CCD, 80U, and 80DD.
12. Audit Review: Examine the entire audit report thoroughly; check all clauses of Form 3CD to identify disallowances and deductions applicable to individuals.
13. Income Verification: Thoroughly review Form 26AS, TIS, and AIS. Identify any additional incomes that must be reported beyond what the client has presented to ensure all incomes are accounted for.
14. TDS/TCS Code Selection: Select the appropriate code for TDS/TCS credit based on the nature of income—whether it pertains to business or other sources.
15. Gain Classification: For any Long-Term or Short-Term capital gains from shares, review the AIS and TIS on the portal, download the CSV file, and consult the client regarding their transactions. If information is missing, utilize AIS and TIS figures from the report.
16. Check Financial Statements: Ensure the balance sheet and profit/loss statement align correctly, particularly regarding depreciation and income.
17. ITR-4 Particulars: For presumptive cases without formal accounting, record four key financial parameters—cash, deposit receipts, credit receipts, and cash balance. Include details of receipts for professions as well.
18. GST Information: Enter GST number and turnover details.
19. Nature of Business: Select the business code and provide a clear description of the trading activities.
20. Business and Audit Information: Record the nature of activity, method of accounting (cash/mercantile), and confirm that the books meet the requirements outlined in section 44AA.
21. Auditor’s Details: Enter auditor information, including audit report date.
22. 3CD Audit Information: Document any disallowed items identified in the audit report, if applicable.
23. Shareholder Information: Include details of opening and closing positions for unlisted shares if an individual is a shareholder or director of any company.

Important Considerations

• For speculative businesses, report as normal and deduct as needed before reporting under speculative.
• For Short-Term and Long-Term Capital Gains, ensure you report sales and purchases accurately, calculating profits and losses from those figures.
• Properly classify carried-forward losses into business losses and unabsorbed depreciation.
• If Form 26AS indicates LIC maturity, recognize the income appropriately as exempt or under other sources, depending on whether TDS has been deducted.

Computation and Tax Payable

26. Review Computation: Ensure all income is accurately categorized and matches or exceeds figures shown in AIS and TIS.

27. New Scheme Option: If any tax is owed, consult the new tax regime option and assess the potential benefits.

28. Print and Payment of Challan: If tax is payable, generate and print the challan. Enter challan details upon payment.

At the Time of Uploading

29. Name Consistency: Ensure the name is consistent across all platforms: Master, Online Profile, and the verification screen during upload.
30. Bank Account Details for Refunds: Confirm accurate bank account information for refunds. If a prior refund failed, make necessary corrections in bank details.
31. Answer Verification Queries: Respond accurately to verification questions regarding financial thresholds and cash transactions.
32. Post-Upload Documentation: Save the computation, ITR V, and document bills and receipts after filing.
33. E-Verification: Complete the e-verification process.