1. Determine Your Residential Status First
The first and most important step before filing your Income Tax Return is determining your residential status.
Your residential status is not a matter of choice. It is determined strictly under the provisions of the Income-tax Act based on the number of days you stayed in India during the relevant period.
Broadly, a taxpayer may qualify as:
- Resident and Ordinarily Resident (ROR)
- Resident but Not Ordinarily Resident (RNOR)
- Non-Resident (NR)
If you qualify as a Resident and Ordinarily Resident (ROR), your global income becomes taxable in India. You are also required to disclose your foreign assets wherever applicable.
If you qualify as a Non-Resident, generally only income that accrues, arises, is received, or is deemed to accrue or arise in India is taxable. Foreign income and foreign assets are generally not required to be reported in the Indian return.
If you are a Resident but Not Ordinarily Resident (RNOR), your Indian income is taxable. Additionally, income from a business controlled from India or a profession set up in India is also taxable. In certain situations, interest earned on an NRE account may also become taxable and should be appropriately disclosed.
Therefore, before preparing your return, always determine your residential status correctly.
2. Report Foreign Income and Foreign Assets Carefully
Foreign reporting has become one of the most sensitive areas of income tax compliance.
The Income Tax Department now receives financial information from several countries through international exchange of information mechanisms. In many cases, foreign financial details are also reflected in the Annual Information Statement (AIS).
If you are an ROR, make sure your foreign disclosures are complete and accurate.
Report all foreign income
This includes:
- Salary
- Pension
- Interest
- Dividends
- Rental income
- Capital gains
- Any other taxable foreign income
Remember, the taxability of foreign income does not depend on whether the money is brought into India. Even if the income remains abroad, it may still be taxable in India.
Report all foreign assets
Where applicable, disclose:
- Foreign bank accounts
- Foreign shares
- Mutual fund investments
- Retirement accounts
- Overseas immovable property
- Any other specified foreign assets
One important point many taxpayers overlook is that Schedule FA is based on the Calendar Year, not the Indian Financial Year.
Review your retirement accounts
If you hold retirement accounts such as 401(k), IRA, or similar eligible foreign retirement plans, do not ignore them merely because no withdrawal has been made.
Under Indian tax laws, such income may become taxable on an accrual basis. However, eligible taxpayers may claim deferment of taxation by filing Form 10EE, subject to the prescribed conditions.
Claim Foreign Tax Credit properly
Where taxes have already been paid outside India, examine the relevant Double Taxation Avoidance Agreement (DTAA) and claim the Foreign Tax Credit correctly.
Also ensure that Form 67 is filed wherever required.
Maintain consistency across all schedules
Your disclosures should match throughout the return.
For example, interest earned from a foreign bank account should be reflected in:
- Income from Other Sources
- Schedule FSI
- Schedule TR, where Foreign Tax Credit is claimed
- Schedule FA
Incomplete or inconsistent reporting can result in scrutiny and significant penalties.
Therefore, review all your foreign bank statements, investment statements, retirement account statements, and overseas tax documents carefully before filing your return.
3. Don’t Depend Solely on AIS for Capital Gains
The Annual Information Statement is a useful reference, but it should never be treated as your final capital gains statement.
Some common issues include:
- Purchase cost reflected as zero.
- Missing acquisition dates.
- Incorrect classification between Short-Term and Long-Term Capital Gains.
- Wrong classification of equity and non-equity investments.
- Corporate actions such as bonus issues, stock splits, mergers, or demergers not being accurately captured.
Always obtain the Capital Gain Statement from your broker, mutual fund house, or investment platform and reconcile it with AIS before filing your return.
4. Review the Pre-filled Return Carefully
Many taxpayers assume that because the Income Tax Department has pre-filled the return, the information must be correct.
That is not always the case.
Before filing, reconcile the pre-filled data with:
- Form 26AS
- AIS
- TIS
- Form 16 or salary records
- Interest certificates
- Capital Gain Statements
Ultimately, the responsibility for filing an accurate return rests entirely with the taxpayer.
5. Select the Correct ITR Form and Tax Regime
Choosing the correct ITR form is equally important.
Do not continue using last year’s form without checking whether it is still applicable.
Similarly, avoid assuming that one tax regime is automatically better than the other.
Calculate your tax liability under both the Old Tax Regime and the New Tax Regime before making your decision.
For many taxpayers, the New Tax Regime may result in lower tax because of reduced slab rates.
However, if you claim substantial deductions and exemptions—such as House Rent Allowance, home loan interest, or eligible investments—the Old Tax Regime may still offer greater tax savings.
Always compare both options before filing your return.
6. File Your Return Before the Due Date
For most individual taxpayers, the due date for filing the Income Tax Return is 31 July.
Although a belated return can generally be filed up to 31 December 2026, delaying your return may have several consequences.
These include:
- Interest on outstanding tax.
- Late filing fees.
- Loss of the benefit of carrying forward certain losses.
- Delay in processing your refund.
If you are claiming Foreign Tax Credit, timely filing becomes even more important.
Therefore, avoid waiting until the last few days.
7. Verify Your Return After Filing
Submitting the return is not the final step.
Your return must also be verified.
If verification is not completed within the prescribed time, the return will be treated as invalid, as though it had never been filed.
The easiest method is verification through Aadhaar OTP.
Other options include:
- Net Banking
- Electronic Verification Code (EVC)
- Digital Signature Certificate (DSC)
If electronic verification is not possible, you can print the ITR-V Acknowledgement, sign it using blue ink, and send it to CPC, Bengaluru, within the prescribed timeline.
Conclusion
Filing an Income Tax Return is much more than a statutory obligation.
It is an opportunity to accurately report your income, make complete disclosures, and claim every deduction, exemption, or tax relief available under the law.
A carefully prepared return not only minimizes the chances of future notices but also ensures peace of mind, knowing that your tax compliance is accurate and complete.
If you have any further questions or need assistance, feel free to reach out to us at admin@ushmaassociates.com or info@nricaservices.com, or contact us via call/WhatsApp at +91 9910075924.
Stay Updated, Stay Compliant! Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.