Income Tax Sections You Must Be Aware Of Before Filing ITR

The Income Tax Department on Wednesday notified the ITR-1 and ITR-4 forms for AY 2025-26. These forms are meant for individuals and entities with a total annual income of up to Rs 50 lakh.

As the taxpayers prepare to file the ITR for FY 2024-25, it is important for them to clearly understand the various sections of the Income Tax Act, 1961, for a proper calculation of total tax liability. A detailed understanding of crucial sections of the I-T Act will help the taxpayers to claim their deductions and exemptions without any error.

The taxpayers also need to carefully choose the tax regime most suitable for them. The new tax regime offers lower tax rates and flexible tax slabs but limited deductions. On the other hand, the old tax regime allows several deductions under various sections of the I-T Act with higher tax rates.

Crucial Sections Of Income Tax Act To Know Before Filing ITR

Before going through the details of various sections of the I-T Act to claim multiple tax benefits, the taxpayers should know that it's a statutory obligation to file the ITR under Section 139(1) of the Income Tax Act, 1961.

As per Section 139(1), individuals and entities with income surpassing the pre-defined limit in a financial year are mandated to file their returns before the due date. The section outlines the process for both voluntary and obligatory income tax return filing.

Here are the benefits taxpayers can claim under various sections:

1. Investments In Tax-Saving Instruments (Sections 80C)

Those who opt for the old tax regime can claim deductions under Section 80C of the Income Tax Act, 1961, for investing in instruments such as Public Provident Fund (PPF), Employees' Provident Fund (EPF), Equity Linked Savings Scheme (ELSS), tax saving fixed deposits (FDs) and life insurance premiums. However, these deductions are capped at Rs 1.5 lakh in a financial year.

The new tax regime offers limited choices of tax-saving instruments. Under the new tax regime, the taxpayers can claim deductions under Section 80CCD(2) for up to 10% of the employer's contribution to the NPS scheme. Businesses can also claim benefits for employee costs under Section 80JJAA and contributions to the Agniveer Corpus Fund as per Section 80CCH.

2. Payment Of Home Loan Interest (Section 24B)

Individuals paying interest on home loans or home improvement loans can claim deductions on the same under Section 24B of the Income Tax Act. It is available under both the new and old tax regimes. A maximum deduction of up to Rs 2 lakh can be claimed under Section 24B.

3. House Rent And Other Exemptions

Those who live in a rented apartment or accommodation can get an exemption if the rent exceeds Rs 1 lakh in a financial year. This exemption can be claimed under the House Rent Allowance (HRA) and is covered under Section 10(13A). 

Exemptions such as those for leave travel allowance under Section 10(5) and gratuity income under Section 10(10) are also available. Section 10(10AA) covers leave encashment and Section 10(14) includes exemption for food and internet allowances. While some exemptions are limited to the old tax regime, others are available in the new tax regime as well.

4. Health Insurance Premium (Section 80D)

Under Section 80D, taxpayers can claim a deduction of up to Rs 1 lakh annually on premiums paid for health insurance. An individual can claim Rs 25,000 on health insurance premiums for themselves or their spouse and children. This goes up to Rs 50,000 for senior citizens.

5. Penalty For Late Filing Of ITR (Section 234F)

According to Section 234F of the Income Tax Act, 1961, if you file your ITR after the due date, you will face a penalty of Rs 1,000 if your income is below Rs 5 lakh. The penalty goes up to Rs 5,000 if your annual income is more than Rs 5 lakh. Regular delays in filing ITR can lead to interest payments and fines, as per Sections 234A and 234B.

To conclude, you must do a thorough analysis of the tax-saving investments you have made. Those who have fewer deductions to claim can maximise their income by opting for the new tax regime. On the other hand, those who have a significant number of deductions and exemptions to claim must check the benefits of the old tax regime while filing ITR.