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Major Compliance Requirements Under Income Tax India: A Complete Guide

Navigating India's complex income tax system requires strict adherence to various compliance requirements. This guide covers the essential compliance obligations for businesses and individuals, ensuring that taxpayers understand their responsibilities and avoid penalties.

1. Filing of Income Tax Return (ITR)

All taxpayers, including individuals, firms, and companies, are required to file their Income Tax Return (ITR) annually. Depending on the type of taxpayer, different forms apply:

ITR-1 (Sahaj): For individuals with income from salary, house property, and other sources.

ITR-2: For individuals and HUFs not having income from business or profession.

ITR-3: For individuals and HUFs with income from business or profession.

ITR-4 (Sugam): For those under the presumptive taxation scheme.

Returns are typically filed between July and September of the assessment year.

2. Advance Tax Payment

Those with significant income beyond their salary must pay advance tax in four installments throughout the year:

15% by June 15.

45% by September 15.

75% by December 15.

100% by March 15.

Failure to do so results in penalties under Sections 234B and 234C.

3. Tax Deduction at Source (TDS)

Employers, businesses, and other entities must deduct TDS for specific payments like salary, rent, and contractual payments. TDS should be deposited within the prescribed deadlines, with quarterly returns filed using:

Form 24Q for salary payments.

Form 26Q for non-salary payments.

Form 27Q for payments to non-residents.

4. Tax Audit (Section 44AB)

Businesses and professionals with turnover above specific thresholds must undergo a tax audit. This ensures that the accounts conform to tax laws and accurate tax liability is computed. The tax audit report is filed along with the income tax return.

5. Maintenance of Books of Accounts

Businesses and professionals are required to maintain detailed books of accounts if their turnover or income exceeds certain limits. Proper accounting helps ensure accurate tax calculations and compliance during audits.

6. Form 15CA/15CB for Foreign Payments

Payments to non-residents may require filing Form 15CA and 15CB. This ensures that any applicable tax is deducted before remitting payments overseas.

7. Furnishing of PAN

PAN is mandatory for numerous financial transactions, such as property purchases, mutual fund investments, and bank deposits. Failure to provide PAN may result in higher tax deductions or penalties.

8. Annual Information Return (AIR)

High-value transactions like property purchases, large deposits, or expensive credit card payments must be reported by financial institutions in the Annual Information Return (AIR). This helps the Income Tax Department detect unreported income.

9. Responding to Tax Notices

Taxpayers may receive notices for various reasons such as discrepancies in returns or scrutiny assessments. Timely responses to these notices are crucial to avoid penalties or legal action.

10. Transfer Pricing Compliance

Companies engaged in international transactions with related entities must comply with transfer pricing regulations to ensure transactions are at arm’s length. This includes filing Form 3CEB and maintaining documentation.

Conclusion

Being compliant with India’s income tax laws involves meeting various deadlines, maintaining accurate records, and understanding specific obligations. By staying informed and following these key requirements, taxpayers can avoid penalties and legal consequences.