Filing your Income Tax Return (ITR) using the wrong form can lead to various consequences. The Income Tax Department may reject your return, requiring you to refile with the correct form. Additionally, using the incorrect form may result in additional compliance requirements, such as providing clarifications or documents. This can cause delays and extra effort. Moreover, filing in the wrong form can attract penalties and legal implications as per the Income Tax Act. It is, therefore, crucial to understand these potential outcomes and ensure accurate filing to comply with tax regulations.
Read More: Tax Dates In May 2023: Income Tax Challan, TDS, TCS; Know All Details Here
However, choosing the right Income Tax Return (ITR) form depends on various factors, including your sources of income, the type of taxpayer you are, and the nature of your financial transactions. Atul Sharma, Founder, Lex N Tax tells in detail how to select the appropriate ITR form:
Determine your residential status: Are you a resident or non-resident of India for tax purposes? The ITR forms differ for resident individuals, non-resident individuals, Hindu Undivided Families (HUFs), companies, firms, etc.
Identify your income sources: Consider the various types of income you earn, such as salary, house property, capital gains, business or profession, and income from other sources. Different ITR forms cater to specific types of income.
Assess your eligibility for simplified forms: If you have a straightforward income structure, you may be eligible to use the simplified ITR forms, such as ITR-1 (Sahaj) or ITR-4 (Sugam). These forms are applicable for individuals and HUFs meeting specific criteria regarding income sources and total income.
Analyse your financial transactions: If you have engaged in certain financial transactions, such as foreign asset ownership, investments in unlisted equity shares, income from abroad, or income from agricultural activities, you may need to use specific ITR forms that require detailed reporting.
Check turnover thresholds: If you are a business owner or self-employed professional, the turnover of your business or profession plays a role in determining the applicable ITR form. Different forms are available based on the turnover thresholds specified by the Income Tax Department.
Read More: ITR 2 form now available for individuals, HUFs; know details about filing return
Review form instructions: Each ITR form comes with detailed instructions and eligibility criteria. It is crucial to go through t6hese instructions provided by the Income Tax Department to understand the requirements and choose the appropriate form.
What form applies to the salaried class?
Atul Sharma, Founder, Lex N explains, for the salaried class in India, the most commonly used ITR form is ITR-1 (Sahaj). This form is applicable to individuals who have income from the following sources:
Salary or pension income
Income from one house property (excluding cases where losses are carried forward)
Income from other sources (excluding income from lottery, racehorses, legal gambling, etc.)
Agricultural income up to Rs 5,000
ITR-1 (Sahaj) is a simplified form and is suitable for individuals with relatively straightforward income structures. It does not cater to individuals with income from business or profession, capital gains, or those claiming double taxation relief. Additionally, there are other eligibility criteria such as being a resident individual, having total income up to Rs 50 lakhs, and owning only one house property.
If an individual falls outside the eligibility criteria for ITR-1, they may need to use other ITR forms such as ITR-2, ITR-3, or ITR-4, depending on the nature and complexity of their income sources. It is advisable to review the instructions provided with each ITR form or consult a tax professional to determine the appropriate form based on specific circumstances.
Read More: Online Income Tax Return filing for AY 2023-24: ITR-1, ITR-4 e-filing with prefilled data starts
Which ITR form applies to consultants and business people?
For consultants and business people in India, the applicable ITR form depends on the nature and scale of their business or profession. The commonly used ITR forms for consultants and businesspeople are:
ITR-3: This form is suitable for individuals and Hindu Undivided Families (HUFs) who have income from the following sources:
a. Income from a business or profession as a partner (not applicable for individuals who are partners in a firm but do not have any business income)
b. Income from a profession (such as doctors, lawyers, architects, etc.)
c. Salary or pension income
d. Income from house property
e. Income from other sources
It is important to note that ITR-3 is applicable if the individual or HUF does not have any income from presumptive taxation under sections 44AD, 44ADA, or 44AE of the Income Tax Act.
ITR-4 (Sugam): This form is specifically designed for individuals, HUFs, and firms (other than Limited Liability Partnerships) who have opted for the presumptive taxation scheme under sections 44AD or 44AE of the Income Tax Act. It is applicable if the total turnover or gross receipts of the business do not exceed Rs 2 crores or for profession 50 lakhs in a financial year.
(The government in the budget 2023 extended the limit for presumptive tax for small businesses from Rs 2 crore to Rs 3 crore and for individual professionals from Rs 50 lakhs to Rs 75 lakhs) This limit is applicable for AY 2024-25.
The presumptive taxation scheme allows eligible businesses and professions to declare income at a prescribed percentage of the total turnover or gross receipts without the need to maintain books of accounts.
What are the restrictions in various ITR forms?
Sharma explains, the restrictions and eligibility criteria vary for different Income Tax Return (ITR) forms in India.
ITR-1 (Sahaj):
Applicable to individuals who have income from salary, one house property, and other sources (excluding income from business or profession).
Restrictions:
Total income should not exceed Rs 50 lakhs.
Individuals who are directors of a company, have investments in unlisted equity shares, or have more than one house property cannot use this form.
ITR-2:
Applicable to individuals and Hindu Undivided Families (HUFs) who have income from salary, house property, capital gains, and other sources (excluding income from business or profession).
Restrictions:
Individuals with income from business or profession cannot use this form.
Individuals who are eligible for ITR-1 cannot use this form.
ITR-3:
Applicable to individuals and HUFs who have income from business or profession as a partner or proprietor.
Restrictions:
Individuals with income from sources other than business or profession as a partner cannot use this form.
Individuals who have opted for presumptive taxation under sections 44AD, 44ADA, or 44AE cannot use this form.
ITR-4 (Sugam)
Applicable to individuals, HUFs, and firms (excluding Limited Liability Partnerships) who have opted for presumptive taxation under sections 44AD or 44AE.
Restrictions:
Total turnover or gross receipts should not exceed Rs 2 crores in a financial year.
Professionals (such as doctors, lawyers, architects) are not eligible to use this form.
Individuals with income from sources other than the presumptive taxation scheme cannot use this form.
It is crucial to understand the restrictions and limitations of specific ITR forms. Carefully reviewing the instructions provided with each form is essential to ensure eligibility and compliance. Tax regulations and forms can change over time, so staying updated with the latest guidelines issued by the Income Tax Department or seeking professional advice is advisable for accurate information based on the current tax laws.
