How to classify your bank transactions for your income-tax return

Every income-tax return starts with the same question: where did the money in your bank account come from, and where did it go? Answering it for a whole financial year, one transaction at a time, is the slow part of filing. This guide shows a way to do it that stays manageable even with several accounts.

Start with two levels: head and sub-head

It helps to classify every transaction on two levels.

• The head is the broad bucket: Business, Personal, Movement (money moving between your own accounts, which is neither income nor spending) and Taxes.
• The sub-head is the detail inside it: Salary, Rent, Interest, Groceries, Professional fees, and so on.

Keeping the two apart is what makes the year-end summary readable. Your CA wants to see total business receipts and total personal spending first, and the detail only when a number looks odd.

Get Movement right first

The most common mistake in a home-made summary is counting your own transfers twice: ₹50,000 moved from savings to a credit card shows up as money out of one account and money in to another. Mark these as Movement and they drop out of your income and expense totals, while still showing in the account-by-account view.

Credit-card bill payments, transfers between your own accounts and sweep deposits are the usual suspects.

Classify the payee, not the row

Most of a year is the same few payees repeating — your landlord, your employer, a utility, a SIP. In LekhaLens, when you set a head or sub-head on one transaction you can choose Apply to all similar transactions, and it is remembered for that payee: every past row is updated, and statements you upload later arrive already classified.

Work down the list of payees by amount and a few dozen decisions usually cover most of the year.

Use the Summary to check your work

Switch Transactions to the Summary view to see the year as your CA will: Head → Sub-head → your own descriptions, with debit, credit and net for each line and a grand total. If a number looks wrong, pick that sub-head to drop straight back to the rows behind it.

When it looks right, the Excel export gives your CA the same summary plus every transaction, in a workbook they can sort and tie back.

What to leave for your CA

Classification gets your data in order; it doesn't decide the tax treatment of every item. Large one-off receipts, capital gains, foreign income and anything you are unsure about are worth a note in the Remarks column for your CA to review.