Filing income tax is very important. Furthermore, the process of filing income tax has become easier as it can be done online. However, it can be difficult for first time taxpayers.
In this article, we will discuss six tips that can help first time taxpayers.
The process of filing taxes can be difficult for first time taxpayers. However, as taxpayers can file income tax online, the tax filing process has become hassle-free.
Here are some tips for first time taxpayers-
- Taxpayer Should Know Which ITR form is Applicable for Them
There are different types of ITR forms. Therefore, selecting the right ITR form while filing income tax is important. A taxpayer needs to choose an ITR form based on his/her category and income source. There are seven ITR forms, and ITR-1, ITR-2, ITR-3, and ITR-4 are applicable for individuals.
- Collect the Important Documents for Income Sources
The income sources are categorised into 5 heads according to the Income Tax Act- income from salary, income from house property, income from business and profession, income from capital gains, and income from other sources.
A taxpayer needs to collect documents that describe the income he/she earned from all the sources. For instance, if a taxpayer has earned income from salary, then he/she needs to collect Form 16. Form 16 is a TDS certificate provided to the employee by his/her employer.
- Don’t Make Mistakes While Providing Information About Income and Deductions in ITR
Once all the documents are gathered, a taxpayer needs to provide his/her financial information, such as capital gains/loss (if any), dividend (if any), salary, rent received, professional receipts received, etc. A taxpayer also needs to gather information about tax-saving investments. This can help a taxpayer report his/her income and claim deductions in the right way.
- Verify Form 26AS
Form 26AS is a document that provides tax information of a taxpayer, like TDS, etc. This form mentions income credited or paid as well as TDS deducted.
A taxpayer can find all the income details in Form 26AS on which TDS was deducted. While this form provides information about TDS deducted on the income earned, it also mentions a taxpayer’s high-value transactions.
- Calculate Tax Liability Based on the Tax Regime
There are two tax regimes- the old tax regime and the new tax regime. A person can opt for any one while paying taxes.
While the old tax regime has high tax rates, it offers various exemptions and deductions that can help in reducing tax liability. The new tax regime has lower tax rates for almost every income tax slab, but a taxpayer isn’t allowed to claim most exemptions and deductions.
A taxpayer needs to determine his/her tax liability based on both the tax regimes and choose the one that allows him/her to save more taxes.
- Pay Tax Dues Before Filing the ITR
Once a taxpayer calculates the income tax liability, he/she should deduct prepaid taxes from the total income tax liability. This will allow the taxpayer to understand his/her net tax liability. A taxpayer needs to pay the income tax dues before filing the ITR.