Income Tax Return contains information about the person's income and the taxes to be paid on it during the year.
We have two types of taxes in India – Direct Tax and Indirect tax.

Direct Tax is a tax that is calculated directly on your Income e.g. tax on salary etc. Income tax is a Direct Tax.

Indirect Tax is a tax that is indirectly charged. And is put on goods or services. So if you are purchasing a mobile phone or a new suit. Most indirect taxes have now come under Goods and Services Tax (GST).

Income Tax (Direct Tax)

Anyone earning an income above a certain amount is subject to income tax. The income could be from salary, rent, and interest income from savings, income from mutual funds, sale of property or business or professional income. Income tax rates are decided at the start of the financial year in the Union Budget (in the Parliament of India). The tax paid on these incomes is called the income tax.

Income Tax Return

It is simply a form to be filed with the Income Tax Department. A Form to be filed as a statement of income earned. It is arranged in such a way that calculating tax liability, scheduling tax payments, or requesting refunds for the overpayment of taxes has been made convenient for the taxpayers. They must, first, determine the type of Income Tax Return (ITR) Form they need to fill before actually filing their Returns. Which Form is to be filled, depends on the income that the taxpayer earns. Its purpose is to report our income and taxes paid thereon to the government.

Many investors have very low or zero tax liability and therefore this section does not have to file returns mandatorily. Even though they have some sort of income occurring.

And there is another section that only file returns when something urgent requirement comes up asking for their last few years of ITR. They approach a nearby CA and file their old tax returns.

There has been low-Income Tax filing Compliance in India. However, in recent years, the Govt. of India has taken some stringent measures to enforce the Income Tax Law by linking various benefits for prompt tax filers.

Advantages of tax filing are, but not limited to:

• Processing of Loans & Visa: If you apply for any loans such as a home loan, car loan, etc., the eligibility and quantum of loan would depend on your income. This can be established through filed ITRs. ITR will help your lender to assess your repayment capacity. If you plan to travel overseas, proof of earning is required. If you are salaried then a certificate from the employer will work. But if you are self-employed then income proof & details need to be submitted.
• Claiming Refund:There could be some TDS cut on some investment. And you will have to file the ITR to claim a refund of the same. Or you may have paid excess tax on your income. To get this refund, you must file ITR.
  Many salaried individuals don't file ITR as they think that the tax on their income has already been deducted and they have Form 16. But your employer may have paid more tax on your behalf. Not taking into consideration your actual house rent, children's school fees, tax-saving investments, or insurances. So, the filing of ITR will enable you to get a refund from the IT department.
• Carry-forward Losses: As per Income tax rules, losses are allowed to be carried forward and set off against capital gains. But this applies only to those individuals who file ITR in the relevant assessment year. If you have incurred losses for a year and you have earned below the exemption limit. You must file your returns to be able to carry forward the losses you have incurred. And it gets balanced against future gains and income.
  The capital losses can be carried forward for 8 consecutive years, as per the IT Act.
• Self-Employed Individual Filing for Tenders:Businessmen, consultants, and partners do not get any Form 16. For such self-employed individuals, ITR receipts become an important document. ITR is the only proof of income and tax payment for them, in all sorts of financial transactions. And if they want to take up some contract or tender, they may be asked to show their tax return receipts of the previous 3 to 5 years.

• Ensure proper maintenance and correctness of books of accounts and certification of the same by a tax auditor
• Reporting observations/discrepancies noted by tax auditor after a methodical examination of the books of account
• To report prescribed information such as tax depreciation, compliance of various provisions of income tax law, etc.
• It helps verify the correctness of the income tax returns which are filed with the IT department.

Tax Audit is applicable for all those classes of individuals that are mentioned under Section 44B of the Income Tax Act. According to the regulations of Section 44B of the Income Tax Act, 1961, the list is mentioned below that states class of people who are mandated to get Income Tax Audit done.

• An individual who is doing business and has an annual turnover of up to Rs 1 Crore and above.
• An individual who is engaged in any profession and getting income receipts in a year up to 50 Lakh and above.
• An individual who is being qualified for the presumptive taxation scheme under Section 44AD but later claims that the profit of that said business should be lower than the profit calculated following the presumptive taxation scheme. It happens in those cases where the income on record exceeds the amount that comes under the 'tax free' category.
• An assessee who gets qualification under the presumptive taxation scheme but opts for the scheme after a specific period, in that case, he would lose the ability to revert to the presumptive taxation scheme for a continuous terms of 5 assessment years after the decision to opt-out is taken.
• An individual who qualifies to presumptive taxation scheme as per Section 44AE but then claims that profit for such business are lower than profit calculation in accordance with presumptive taxation scheme of Section 44AE.