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Which ITR Form Should You Choose Based on Your Income Sources?

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What is ITR?

ITR, or Income Tax Return, is a document wherein individuals provide details regarding their earned income and the corresponding tax obligations to the income tax department.

The department has officially designated seven distinct forms, namely ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, and ITR-7. It is mandatory for every taxpayer to submit their respective ITR on or before the specified deadline. The selection of the appropriate ITR form depends on factors such as the taxpayer's sources of income, the amount of income earned, and the taxpayer's classification (e.g., individuals, HUF, company, etc.).

To pay your taxes, you need to file an ITR (Income Tax Return). This is not only important for you, but also for the nation. It is a matter of great pride that Indian citizens took their responsibly very seriously and took the total number of ITRs for FY23-24, filled till October 31, 2023, to over 7.65 crores.

The ITR form has the details of your income and tax in a financial year. Since it is submitted to the Income Tax Department, it is considered a verified and official document. It is used as a proof of income for various purposes, including home loan application and background checks for a new job.

Many people get confused when filing ITR, as there are multiple forms. But the choice is easy, as it simply depends on your income source. For correct ITR filing, here’s a look at the different forms to understand which one applies to you.

Which Form Should You Choose?

The appropriate ITR form is determined mostly by your sources of income. For example, if you are a salaried individual, you can use ITR Form 1 to file your returns. You should utilize ITR Form 2 if you have both salary income and capital gains from assets.

If, on the other hand, you are self-employed and earn money from your business, you should file your taxes using ITR Form 3.

Here is a detailed look at each form:

ITR 1 or Sahaj

This is a one-page form for resident Indians earning up to ₹50 lakhs per annum. Your income must be from salary or pension, one house property, other sources like interest or dividends (excluding horse racing, gambling, and lotteries), or agricultural income up to ₹5,000. ITR 1 can be filled using Form 16 by salaried taxpayers. This is one of the country’s most used forms for ITR filing.

ITR-1 is no longer available for non-resident individuals (NRIs). Anyone earning from capital gains, cryptocurrencies, or virtual digital assets is not eligible as well. Further, someone taxed under Section 194N cannot fill out ITR 1.

ITR 2

This is to be used by individuals and HUFs who tick off the following:

  • Income of more than ₹50 lakhs per annum.
  • Income from sources including lotteries, gambling, and racehorses.
  • Income from foreign assets.
  • Agricultural income of more than ₹5,000.

Anyone with a tax deduction under Section 194N or a tax payment or deduction deferred on ESOP can fill out ITR 2. This form is also for an individual director of a company, a resident not ordinarily resident (RNOR), or a non-resident. Taxpayers who are 80 years or older can fill out and submit this ITR form offline.

ITR-2 is not meant for anyone with income from profits and gains from business or profession.  For this, you will need ITR-3 or ITR-4.

ITR 3

This is for filing income tax returns for individuals and HUFs who have income under ‘Profits or Gains of Business or Profession’. You can pick ITR-3 if the income is offered for taxation under a presumptive basis yet exceeds ₹50 lakhs per annum. You need to be filing ITR-3 if you:

  • Have earnings from investments in unlisted equity shares, house property, and firm partnerships.
  • Are a director of a company or a salaried person earning money from intraday stock exchange and futures and options.
  • Own a business and have opted for a presumptive scheme, with your business turnover exceeding ₹2 crores. Here you need to fill ITR-3 with an audit report.

Companies, charitable trusts, local authorities, and LLPs cannot use ITR-3. Also, if your only income is from salary, capital gains, and house property, ITR-3 is not for you.

ITR 4 or Sugam

This is for resident individuals, HUFs, and partnership firms (other than LLPs). The total income must include income from salary or pension up to ₹50 lakhs per annum. However, you must opt for presumptive taxation under Section 44AD, 44ADA, or 44AE of the Income Tax Act.

Income from one house property can also be included. if it is less than ₹50 lakhs per annum. Further, anyone earning money from other sources, excluding lottery and racehorses, which does not exceed ₹50 lakhs per annum, should fill ITR-4. Businessmen, who opted for a presumptive scheme, with a turnover of up to ₹2 crores can also consider this ITR form.

Anyone who has income from outside India and more than one house property cannot file ITR-4.

ITR 5

This is for filing income tax returns by:

  • Firms
  • Association of Persons (AOPs)
  • Body of Individuals (BOIs)
  • Estate of Insolvent
  • Estate of Deceased and
  • Business Trusts

You must disclose your profits from your profession or business along with other income sources. If you are filing returns under Section 139(A), 139(4B), 139(4C) or 139(4D), you do not need an ITR-5 form.

ITR 6

With ITR-6, you can file income tax return online. This form is for all companies registered either under the Companies Act, 2013 or Companies Act ,1956. ITR 6 is specially designed for companies that do not claim exemptions under Section 11 of the Income Tax Act. Any company that earns from property for religious or charitable purposes are not required to file ITR 6.

ITR 7

Companies filing returns under the following section can utilize ITR 7.

  • Section 139(4A) - Property under trust or legal obligations for religious and charitable purposes.
  • Section 139(4B) - Political parties.
  • Section 139(4C) - Every news agency, medical institution, research association, and think tanks.
  • Section 139(4D) - Universities and colleges where loss or revenue are not required to be reported.
  • Section 139(4E) - Business trust that is not required to file a return of income or loss.

Individuals or companies not seeking exemptions under the above sections do not have to file ITR-7.

Why should you consider filing your Income Tax Return (ITR)?

  1. Claiming Tax Refund: By filing your ITR, you can apply for an income tax refund from the department, ensuring you receive any excess taxes paid.

  2. Foreign Assets and Income: If you have earned income from or invested in foreign assets during the fiscal year, filing your ITR is crucial to meet compliance requirements.

  3. Visa or Loan Application: Filing your ITR is often a requirement when applying for a visa or a loan, as it serves as proof of your financial stability.

  4. Mandatory for Companies and Firms: Whether your company or firm has made a profit or incurred a loss, filing the ITR is obligatory.

  5. Loss Carryforward: If you've experienced losses under the business/profession or capital gains category, filing your return before the due date is necessary to carry them forward to subsequent years.

Familiarising yourself with Indian tax norms and filing ITR correctly is necessary. Else, the form will be rejected by the Income Tax Department. You may also attract penalties under the Income Tax Act. To file income tax returns online, visit the tax e-filing portal. Register, log in, and get started from the comfort of your home.

 

Swati Tumar - Travel & Finance Writer   

Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.

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