Filing an income tax return is easier for individuals who have only one source of income, particularly if it is from salary. Chances are, you’ll qualify to use the ITR-1 form, renowned for its straightforward filing process. Additionally, as a salaried individual, your employer should furnish you with Form 16, which includes most of the details required for pre-filling the Income Tax Return (ITR) form. Someone earning solely from salary typically encounters fewer deductions and calculations.
Taxing multiple income sources
Although filing for a single income source is simpler, many individuals have income from multiple sources, which can complicate the process. However, there are effective ways to manage this situation.
- Selecting the appropriate ITR form: Depending on the sources of your income, you may not qualify to use ITR-1, which is designed for straightforward salary income. You might need to choose ITR-2, ITR-3, or another form corresponding to your specific income type.
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Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates shared, “Use ITR 1 – for Salary and Pension Income, ITR -2 for Multiple income except income from business and Profession, like Salary, Capital Gain and Rent Income. ITR-3 for Income from Business and Profession and any other income. ITR-4 for Income under Business and Profession but Opted presumptive taxation.”
- Collecting documents: You’ll need specific documents for each income source, such as Form 16 (for salary), rental agreements (for rental income), investment receipts (for dividends), and so on. Form 26AS is also essential as it displays all tax deducted at source (TDS) throughout the year.
- Assessing income to calculate tax: Income and tax calculation involves determining earnings from each source and aggregating them to determine your total taxable income. Various income sources may carry distinct tax implications.
- Deductions and exemptions: Make sure to consider potential deductions and exemptions that could lower your tax burden.
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Tax filing: A challenge for many
Filing ITRs with multiple income sources can be overwhelming for individuals unfamiliar with tax terminology and regulations. Here are the reasons why it can pose difficulties:
- Variety of ITR forms: With seven distinct forms, each tailored to specific eligibility criteria, selecting the appropriate form can be perplexing, particularly when managing diverse income sources.
- Calculating income and taxes: Each income source may have unique tax considerations. Grasping concepts like capital gains, business income calculations, and how they differ from salary income can be daunting.
- Deductions and exemptions: Identifying eligible deductions and exemptions, and accurately computing them, demands a solid understanding of tax regulations. Overlooking these opportunities could result in paying more tax than required.
- Document management: It’s essential to maintain records for each income source, such as investment statements, rental agreements, or receipts. Keeping track and ensuring you have all the necessary documents can be quite a task.
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In the end, the optimal approach hinges on your familiarity with tax processes and the intricacy of your income streams. If you find yourself overwhelmed, consulting a tax advisor or Chartered Accountant can guarantee an accurate and efficient filing of your ITR.
