Introduction
The Income Tax Return season is highly critical season for all the taxpaying citizens of a nation. Taxation is a mark of civilisation. Tax evolved and developed independently in the great ancient empires. The concepts that evolved were transported to other empires and cultures where tax ideas took root. This pattern continues through to today as nations are influenced by developments in tax from other countries. Hence, taxes are an important source of revenue for any nation’s Government.
As we know Direct taxes are levied on people’s income or profits. For example, a taxpayer pays the government for different purposes, including income tax, personal property tax, FBT, etc. The burden has to be borne by the person on whom the tax is levied and cannot passed on to someone else. Central Board of Direct Taxes (CBDT) governs and administers the Direct Tax. The Income Tax Return or ITR is a form in which the taxpayers submit information about their income and tax payments to the income tax department. A taxpayer should file ITR on or before the due date specified. The ITR form applicable to a taxpayer depends on the type of taxpayer, whether individuals, HUF, company, etc., and you choose the ITR based on the nature and type of income and total income. Every taxpayer should also calculate the tax payable and make payments before filing the ITR.
Types of ITR
ITR-1
ITR-1 is also known as Sahaj Form, is for a person with an income of up to Rs.50 lakh. It is a one-page form for individuals receiving income of up to Rs 50 lakh from the following sources:
a. Salary/pension (from one or multiple employers)
b. One house property (excluding cases where loss is brought forward from previous years)
c. Income from other sources (excluding winning from the lottery and income from race horses)
d. In the case of clubbed Income Tax Returns, where a spouse or a minor is included
It is, however, important to note that certain income will not form part of ITR-1 which include profits and gains from business and professions, capital gains, income from more than one house property and winning from lottery, maintaining race horses, or have any foreign income, or have any agricultural income more than 5000 Rs.
ITR-2
ITR-2 forms are used by individuals or Hindu Undivided Families whose total income for the assessment year includes:
a. Salary/Pension; or
b. Income from House Property; or
c. Income from short-term or long-term capital gains/ sale of investments/ property.
d. Income from Other Sources (including Winnings from Lottery and Income from Race Horses)
e. Foreign Assets
f. Individuals generating income of Rs.5000 and above from agricultural sources
g. Individual who is a director of the company or an individual invested in unlisted equity shares
h. The total income generated from above-mentioned sources may be Rs.50 lakh and above
The ITR-2 form is for individuals and HUFs not carrying any profession or business. If the Income Tax Returns are clubbed with a spouse, minor child etc., then their returns can only be filed together if the sources of income are similar to the ones mentioned above. Should there be a variation in earnings in even one category, the Assesses is liable to fill up a separate and relevant Income Tax Returns Form.
It is, however, important to note that certain income will not form part of ITR-2 which include Any individual or HUF having income from business or profession and Individuals who are filing the ITR-1 form.
ITR-3
This form is applicable for individual and HUF who have income from profits and gains from business or profession. The case may include both tax audit and non-tax audit cases. The form also includes include income from house property, salary/pension, capital gains and income from other sources. The remuneration from partnership is also to be included in this return.
It is, however, important to note that no persons other than individuals & HUF are eligible to file ITR -3 Form. Individuals & HUFs not having income by way of business or profession or partnership firm are not eligible to file the ITR-3 Form.
Documents to be kept ready:
If you have income from business or profession, intra-day trading or Futures and Options (F&O) trading.
ITR-4
Form ITR -4 is generally applicable to individuals and HUFs, Partnership firms (other than LLPs). It is for the taxpayers with total income includes:
a. Business income according to the presumptive* income scheme under section 44AD or 44AE
b. Professional income according to presumptive income scheme under section 44AD
c. Income from salary or pension up to Rs 50 lakh
d. Income from one house property, not more than Rs 50 lakh (excluding the amount of brought forward loss or loss to be carried forward)
e. Income from other sources having income not more than Rs 50 Lakh (excluding income from lottery and race-horses )
Freelancers can also opt for presumptive scheme if their gross receipts are not more than Rs 50 lakhs.
*Presumptive income is when an individual or an entity opts to derive its income on a presumptive basis, i.e. when the income is presumed at a minimum rate based on a percentage of gross receipts / gross turnover or based on ownership of commercial vehicles.
ITR-5
ITR 5 Form is for a specific class of taxpayers, such as a Firm, LLP, AOP, Estate of deceased, Estate of insolvent, Business trust and investment fund. The Income Tax Department recommends assesses to follow the sequence mentioned below while filling out the income tax return: Part A, Schedules, Part B, Verification.
ITR -5 cannot be filed by the following taxpayers:
Individual assesses
Hindu Undivided Family (HUF)
Company
Taxpayers who must file tax returns in Form ITR-7
ITR-6
ITR 6 is specifically for the companies registered under the Companies Act 1956 or 2013. Companies claiming exemption under section 11 are those whose income from property is held for charitable or religious purposes and such companies cannot use ITR-6.
When a company is required to get audited under section 44 AB, then providing details of such audit reports is also required to be given. Since the company is required to get the accounts audited under Companies Act, the accountant must submit the audit report in FORM 3CA and 3CD.
ITR-7
ITR-7 is usually applicable to when persons including companies are required to file their returns as per this section:
section 139(4A): Income of Charitable and Religious Trusts
section 139 (4B): Political Parties
section 139 (4C): Scientific research institutions
section 139 4(D): University, college or other institution
Usually, no annexures or document or TDS certificate are required to be attached.
Documents Required:
Some of the general document’s requirements are listed as below:
a. Form 26AS
b. Form 16, 16A
c. Pension income if applicable
d. Interest certificate
e. Rental income documents
f. Bank account details
g. Audit reports
h. Salary slips
i. Investments details
j. Books of accounts (Balance Sheet)
Conclusion:
ITR season is one of the most pivotal times for all the taxpayers since it is more than just a regulatory requirement. Gathering information for reporting various incomes from various sources is highly essential to ensure all the liabilities are met. It is important for financial discipline and transparency. It is also a crucial time for Government since it fosters accountability and revenue generation. This in turn will influence the trajectory of Indian economy.
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(Authors Kinjal Paresh Shah, Associate Consultant, can be reached for inquiries at blogs@bilimoriamehta.com or by contacting +91 52559271.)
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