What is ITR Filing - Know E-Filing Process & Benefits

Filing your income tax return (ITR) is essential for everyone who earns and does business in India. It also contributes to the country’s development while ensuring that one complies with the law.

Tax filing complexities might sometimes feel overwhelming, but you can understand them better provided there is correct enlightenment.

This article explores all you must understand concerning income tax return filing in India, including its importance, the process involved and advantages that could come from it, especially on loans.

What is ITR filing?

ITR filing is the process by which taxpayers declare their income, deductions, and tax payments to the Income Tax Department of India. ITR filing serves as a record of your earnings and the taxes you've paid over a financial year. Filing your ITR is not just a statutory obligation but also a reflection of your financial transparency.

Also Read: Income Tax Return - New Tax Regime vs. Old Tax Regime

Why is ITR filing important?

Filing your Income Tax Return (ITR) is more than just a legal requirement - it’s a crucial step for financial planning, credibility, and accessing benefits. Whether you are an individual, freelancer, or business owner, understanding the importance of income tax e-filing helps you stay compliant and make informed financial decisions.

1. Mandatory Legal Compliance

• Filing ITR ensures you adhere to the tax laws set by the government. Non-compliance can lead to penalties and legal consequences.
• Avoids Penalties (Section 234F)
• Individuals who fail to file their ITR by the due date may face a penalty of up to ₹5,000, as prescribed under Section 234F of the Income Tax Act.
• Interest on Unpaid Taxes (Section 234A)
• If tax is due and not paid on time, interest is charged under Section 234A. Filing ITR on time helps you avoid unnecessary interest accumulation.
• Protects from Prosecution
• Timely filing of ITR safeguards taxpayers from legal action, including prosecution for tax evasion.
• Essential for Companies & Firms
• For businesses, timely filing is crucial for legal compliance, financial audits, and regulatory reporting, ensuring smooth operations and credibility

2. Proves Financial Credibility

• Filing your ITR helps establish a documented proof of your income and financial stability.
• Income & Address Proof
• An ITR serves as an official record of your income and residential address, often required for legal, financial, and government processes.
• Loan & Credit Card Applications
• Banks and financial institutions use ITRs to assess eligibility for home loans, personal loans, or credit cards, ensuring lenders have verified financial data.
• Higher Insurance Coverage
• Insurance companies may require ITR copies for high-value insurance plans to validate your income and assess premiums accurately

3. Enables Financial Benefits

• ITR filing is not only about compliance - it also allows you to unlock financial advantages.
• Claim Tax Refunds
• If excess tax has been deducted at source (TDS), filing your ITR enables you to claim refunds from the Income Tax Department.
• Carry Forward Losses
• Filing ITR allows you to carry forward business or capital losses to subsequent years, reducing taxable income in profitable years.
• Access to Tax Deductions (Sections 80C, 80D, etc.)
• Filing your ITR ensures you claim all eligible tax deductions such as investments under Section 80C or health insurance premiums under Section 80D, optimizing your tax savings.

Who should file an income tax return?

In India, the following entities are mandated to file an income tax return:

1. Individuals & HUFs

Mandatory Filing Based on Income (New vs Old Regime Limits)

Individuals whose income exceeds the basic exemption limit must file ITR. The exemption limit varies depending on the tax regime selected (old vs new).

Mandatory Filing Based on High-Value Transactions

Even if income is below the exemption limit, filing ITR is required if an individual has conducted high-value transactions, such as buying property, investing in mutual funds, or spending above specified thresholds.

Filing for Specific Reasons (Refunds, Losses, Loans/Visas)

Individuals may voluntarily file ITR to claim refunds, carry forward losses, or fulfill documentation requirements for loans, credit cards, or visa applications.

2. Companies & Firms

Mandatory Filing Regardless of Income

All companies and registered firms (including LLPs) must file ITR irrespective of profit or loss. This is essential for regulatory compliance, financial reporting, and audit purposes.

3. Other Entities

AOPs & BOIs (Above Exemption Limit)

Associations of Persons (AOPs) and Bodies of Individuals (BOIs) must file ITR if total income exceeds the basic exemption limit.

Charitable/Religious Trusts (Above Exemption Limit)

Trusts and non-profit organizations with income above the exemption threshold must file ITR to maintain tax compliance and claim benefits under relevant sections.

Political Parties, Educational Institutions, Research Associations, News Agencies (Above Exemption Limit)

These entities must file ITR if their annual income exceeds prescribed limits, ensuring transparency and adherence to tax laws.

NRIs (If Taxable Income in India)

Non-Resident Indians must file ITR if they earn taxable income in India, such as rent, business income, or capital gains, even if their global income is not taxable in India.

Benefits of filing ITR

1. Financial Benefits

Filing ITR opens up several financial advantages that can help in effective money management and planning:

• Claim Tax Refunds: If excess tax has been deducted at source (TDS), filing ITR allows you to claim refunds from the Income Tax Department.
• Carry Forward Losses: ITR filing enables individuals and businesses to carry forward losses to set off against future profits, reducing taxable income.
• Proof of Income: ITR serves as official proof of income, which is crucial for financial transactions.
• Access to High-Value Insurance: Insurance companies may require ITR to verify income for high-value policies.
• Claim Tax Deductions: Ensure that eligible deductions under sections like 80C, 80D, etc., are claimed.
• Obtain Government Tenders: ITR copies are often required to participate in government contracts or tenders, proving financial credibility.

2. Legal & Procedural Benefits

Besides financial advantages, ITR filing provides legal protection and streamlines various procedural requirements:

• Avoid Penalties: Timely filing helps avoid fines or legal consequences under sections like 234F and 234A.
• Smoother Visa Processing: Consulates may require ITR receipts as proof of financial stability when applying for visas.
• Address and Identity Proof: ITR can act as an official document for identity verification and residential address.
• Secure Startup Funding: Banks and financial institutions often require ITRs for loan approval or funding applications for startups.
• Protection Against Black Money Scrutiny: Filing ITR regularly helps maintain transparency and shields against allegations of unaccounted income.

Also Read: Role of Financial Planning: ITR for a Business Loan

How to File ITR Online - Step-by-Step

The following steps will guide you through the process of filing income tax returns:

Step 1: Register on the e-filing portal

Visit the Income Tax Department's official website and register using your PAN (Permanent Account Number).

Step 2: Choose the appropriate ITR form

Select the form that matches your income sources.

Step 3: Fill in the details

Enter your personal and income information accurately.

Step 4: Compute tax liability

Calculate your tax based on the details provided.

Step 5: Pay any due tax

If there's an outstanding amount, pay it before filing.

Step 6: Submit and verify

After submission, verify your return through methods like Aadhaar OTP or net banking.

Choosing the Right ITR Form

Filing the correct Income Tax Return (ITR) form is a crucial step in the ITR filing process. Selecting the wrong form can lead to rejections or penalties. Different forms cater to different types of taxpayers based on income sources, business activities, and legal entities. Understanding which ITR form applies to your situation simplifies compliance and ensures accurate reporting.

Quick Lookup Table: ITR Forms and Applicability

Also Read: Is ITR for Home Loan Required? - 2025

Documents Required for ITR Filing

Proper documentation is essential for smooth ITR filing and ensures accurate reporting of income, deductions, and taxes paid. Gathering the required documents beforehand helps avoid delays, errors, or rejections during the e-filing of income tax. The documents you need depend on your income sources, investments, and type of taxpayer.

Essential Documents for ITR Filing

• PAN Card – Mandatory for all taxpayers as a unique identifier.
• Aadhaar Card – Required for linking with PAN and e-verification.
• Form 16 – Issued by your employer, shows salary income and TDS deducted.
• Form 26AS / Annual Information Statement (AIS) – Displays tax deducted, deposited, and refund details.
• Bank Statements / Passbook – For interest income, salary credits, or other financial transactions.
• Investment Proofs – Documents for tax-saving investments under Sections 80C, 80D, etc.
• Capital Gains Information – Details of share sales, mutual funds, property transactions, and TDS on capital gains.
• Business/Professional Income Records – For self-employed individuals or businesses, including invoices, expenses, and accounting records.
• Other Income Proofs – Rental income, dividend income, or any other sources of taxable income.

E-Verification: Completing the Filing Process

Filing your Income Tax Return (ITR) online is only half the process. To complete the e-filing of income tax, your return must be verified. Verification confirms that the return is genuine and ensures it is processed by the Income Tax Department. Without e-verification, your ITR is considered invalid, and you may face penalties or delays in refunds.

1. Aadhaar OTP

• Link your Aadhaar with PAN.
• Receive a one-time password (OTP) on your registered mobile number and email.
• Enter the OTP to instantly verify your ITR online.

2. Electronic Verification Code (EVC) via Bank

• Generate an EVC through your bank account registered with the Income Tax Department.
• Enter the EVC on the e-filing portal to verify your return instantly.

3. Digital Signature Certificate (DSC)

• Professionals and businesses can use a DSC to e-verify their ITR.
• Suitable for companies, LLPs, and individuals filing ITR-3 or ITR-4 for business income.

4. Sending Signed ITR-V by Post

• If you cannot e-verify online, download the ITR-V acknowledgment, sign it, and send it via post to the Centralized Processing Centre (CPC) within 30 days of e-filing.
• Delayed or non-receipt may lead to your ITR being treated as invalid.

Consequences of Not Verifying

• Your ITR will be considered invalid, and taxes paid will not be processed.
• Refunds may be delayed or rejected.
• Legal and compliance issues may arise for businesses and high-income individuals.

Also Read: Is ITR for Home Loan Required? - 2025

Common ITR Filing Mistakes & How to Avoid Them

Even experienced taxpayers can make errors during the process of ITR filing. These mistakes may lead to penalties, delayed refunds, or notices from the Income Tax Department. Understanding common pitfalls and how to avoid them ensures a smooth ITR filing experience

1. Selecting the Incorrect ITR Form

• Filing with the wrong ITR form can result in rejection or re-submission requests.
  How to avoid: Carefully check your income sources, type of taxpayer, and eligibility before selecting the form (ITR-1 to ITR-7). Use the Income Tax Department’s guidelines for reference.

2. Not Reporting All Income Sources

• Omitting income from salary, business, capital gains, or interest can lead to penalties.
  How to avoid: Cross-verify your income with Form 16, Form 26AS, and AIS before filing. Include all taxable and exempt income as applicable.

3. Ignoring Form 26AS and AIS

• Failing to reconcile tax deducted at source (TDS) or advance tax can cause mismatches.
  How to avoid: Always check Form 26AS and Annual Information Statement (AIS) to ensure all TDS, TCS, and advance tax payments are reflected.

4. Forgetting to Verify the ITR

• An unverified ITR is treated as invalid, delaying refunds and causing compliance issues.
  How to avoid: Complete e-verification using Aadhaar OTP, EVC via bank, DSC, or by sending signed ITR-V within 30 days.

5. Providing Incorrect Personal or Bank Details

• Mistakes in PAN, name, bank account, or IFSC can lead to failed refund transfers.
  How to avoid: Double-check personal and bank information before submission.

6. Choosing the Wrong Tax Regime

• Selecting an incorrect tax regime may result in higher tax liability or missed deductions.
  How to avoid: Evaluate the new vs old tax regime and choose the one that maximizes your benefits.

7. Missing the Filing Deadline

• Late filing attracts penalties under Section 234F and interest on unpaid taxes.
  How to avoid: Keep track of deadlines—generally 31st July for individuals—and file early to avoid last-minute issues.

8. Not Paying Advance Tax

• Skipping advance tax payments can lead to interest under Section 234B/234C.
  How to avoid: Calculate and pay advance tax installments on time, especially for freelancers, business owners, and high-income earners.

9. Forgetting to Claim Eligible Deductions

• Failing to claim deductions under Sections 80C, 80D, 80G, etc., increases tax liability.
  How to avoid: Keep investment proofs and claim all eligible deductions while filing.

10. Ignoring Notices from the Income Tax Department

• Not responding to IT notices can escalate into penalties or legal complications.
  How to avoid: Regularly check your income tax e-filing account and respond to notices promptly with the required documents or clarifications.

ITR filing and loan applications

ITR filing plays a pivotal role when applying for various loans:

• Home loans: Lenders assess your ITR to gauge repayment capacity.
• Education loans: ITRs of parents or guardians may be required to evaluate financial support.
• Business loans: Consistent ITRs reflect business stability, aiding loan approvals.

ITR Filing for New Digital & Gig Workers

With the rise of the digital economy and gig platforms, many individuals now earn income as freelancers, influencers, or gig workers. Proper ITR filing ensures compliance and financial credibility, even for non-traditional income sources. The Income Tax Department has updated forms and professional codes to accommodate these new income streams.

Key Updates for Gig & Digital Income

• Applicable ITR Forms: Gig and digital workers can file income through ITR-3 (for business/professional income) or ITR-4 (presumptive income under sections 44ADA/44AD).
• Professional Codes: To classify the income correctly, the government has introduced specific profession codes:
  • 16021 – Freelance/consultancy services
  • 21010 – Digital influencer or content creator
  • Other codes for platform-based services and gig economy work
• Income Disclosure: Include all earnings from platforms like YouTube, Instagram, freelancing portals, ride-sharing apps, and delivery services.
• TDS and Advance Tax: Some platforms deduct TDS; however, you may still need to pay advance tax if total tax liability exceeds INR 10,000 in a financial year.

Why Filing Matters

• Establishes financial credibility for loans, credit cards, or visas.
• Helps in claiming deductions for expenses incurred in generating digital/gig income.
• Ensures legal compliance, avoiding penalties under Section 234F or 234A.

What Happens If You Miss the ITR Deadline?

Missing the ITR filing deadline can have significant financial and compliance consequences. Filing your return late not only attracts penalties but also affects your ability to claim refunds, carry forward losses, and maintain a clean tax record. Understanding the rules around belated filing helps you plan and avoid unnecessary costs.

Consequences of Missing the ITR Deadline

1. Penalty under Section 234F

• Late filers are liable to pay a fee of up to ₹5,000, depending on income and delay.

2. Interest on Unpaid Taxes under Section 234A

• Interest accrues on any outstanding tax amount for the period of delay until payment is made.

3. Belated Return Rules

• Returns can still be filed after the deadline, but only up to the end of the relevant assessment year.
• Certain deductions and benefits may be restricted in belated returns.

4. Restrictions on Loss Carry-Forward

• Losses from business or capital gains cannot be carried forward if the return is filed late.

5. Inability to Claim Refunds

• Late filing may delay or nullify your tax refund claims, causing financial inconvenience.

Also Read: How to File ITR After Due Date

The Bottom Line

Filing your income tax return is more than a legal formality; it's a testament to your financial responsibility. It opens various financial opportunities, including loan approvals and tax benefits. Staying informed about the latest regulations and ensuring timely compliance will keep you in good legal standing and enhance your financial well-being.

Explore your options today if you're considering leveraging tax benefits through loans. Apply for a loan with favorable tax implications and move towards achieving your financial goals.

If you want to check your eligibility for a loan, use a loan eligibility calculator. This free online tool will take in all the necessary information and let you know the amount you can borrow through a loan.

FAQs

Q.1. What should one know before filing ITR?

A. One should know income sources, deductions, applicable tax slabs, required documents, filing deadlines, and the correct ITR form before filing. Ensure that your personal details like PAN, permanent address, contact details, bank account details, and other information are correct.

Q.2. Can I fill my ITR myself?

A. Yes, you can file your ITR using the Income Tax Department’s e-filing portal, provided you understand tax rules and requirements. The pre-filling and filing of ITR-1 service is available to registered users on the e-Filing portal.

Q.3. How much salary is required for ITR filing?

A. Individuals must file income tax returns if their gross income exceeds ₹2.5 lakh per financial year. For senior citizens (60-79 years), the limit is ₹3 lakh, and for super senior citizens (80+ years), it is ₹5 lakh.

Q.4. Do I need to file ITR if TDS is deducted?

A. If a person has Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) equal to or more than INR 25,000, ITR filing is mandatory. For senior citizens, this threshold is set at INR 50,000.

Q.5. Is ITR filing difficult?

A. Filling an ITR for the first time has become simpler and easier, thanks to the internet and e-filing measures through the e-Filing portal. Anyone can easily do it nowadays.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.