In an earlier article we have discussed about who can and cannot use the ITR 1 (Sahaj). In addition to ITR 1, ITR 2, ITR3, and ITR 4 can also be used by an Individual, so it is fit and proper for us to understand as to who can submit the   remaining ITRs. 

Form ITR 2

As far as simplicity and ease of filling up an ITR is concerned, next to ITR 1 comes ITR 2. ITR 1 cannot be used by an HUF but ITR 1 and ITR 2 both can be used both by Individual and HUFs. The ITR 2 can be used by all the persons who are not eligible to use ITR 1 and do not have any business or professional income. So you can use it even if you have more than one property or have agricultural income over Rs. 5,000/- or are a non resident or are resident  and have any asset of income outside India. You can also use ITR 2 for furnishing your income from other sources against which you wish to claim certain expenses.

All those residents who have an authority to sign  in respect of any account situated outside India can also use ITR 2.  In case you have any brought forwards losses to be set off against current year’s income or have some losses during the current years and which cannot be set off against current year’s income and therefore have to be carried forward for set off in subsequent years. For all those who are directors and any Company or own shares of listed Company  and who are ineligible to use ITR 1 can use ITR 2.

Briefly stated ITR 2 cannot be used by an Individual or an HUF who have any business or professional income. The income here includes loss also and in case you have incurred any loss in your business howsoever small the amount is, you cannot use ITR 2 and have to invariably use ITR 3 or ITR 4. This form can also be used by the individuals who are partner in a firm but are not carrying on any business or profession in your own name.

People who do day trading in shares or commodity are under the impression that this income can be offered under the residual head “Income from other sources” as they are not engaged in business as they do not have proper business set up. In my opinion such transactions amount to business activity and one has to use ITR  3 or ITR 4.

ITR 3

This is the most complicated ITR form for Individuals and HUFs and is difficult for a layman to fill up  by himself without committing any mistake. As far eligibility to use ITR 3 is concerned, it is simple. You have to use ITR if you are an Individual or an HUF engaged in any business or profession, income whereof is not being offered for taxation under presumptive taxation. However in case you are offering your business or professional  income on presumptive basis but your total income exceeds 50 lakhs, you have to use ITR 3 only. 

Form ITR 4

ITR 4, known as Sugam, can be used by any individual, HUF or a partnership firm which wishes to offer their income on presumptive basis, where income is presumed at a minimum rate based on ownership of commercial vehicles or as percentage of your gross receipts. Please note an LLP is not eligible to use ITR 4. This form can only be used by a person who is resident for income tax purposes and thus a non resident cannot use it even if his income is below 50 lakhs and has income taxable on presumptive basis. In case you are director in any company or own shares in any unlisted companies you can not use ITR 4 and have to use ITR in case you have business or professional income taxable eligible for presumptive scheme of taxation.

In case your actual business or professional income is lower than that was is presumed  by law, you cannot use this form and have to use ITR 3. Moreover you have to get your accounts audited and get the report it submitted before submission of the ITR.

I am sure that with the discussion in this article and earlier article it is clear to you as to which ITR form you need to use this year.

The writer is a tax and investments expert and can be reached at jainbalwant@gmail.com

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3 Comments

  1. Harini Laxminarayan says:

    I am an Indian citizen and hold a PAN card and Aadhar Card. I have for the first time filed my income tax through my SBI account for AY2020/2021.

    Most of my earnings are from Family Pension offered by my mother and husband. I wanted to disclose my financial assets, or let us put is as losses, when it comes to the Balance Sheet.

    Money went into education (training courses) and setting up an enterprise on the cloud. But at the launch of this bussiness site campaign , marketing was done through Twitter and Google my bussiness. Putting all this on my balance sheet reflects a Loss.
    However, filing an ITR-3 was my only solutikk on n to seek transparency and refuge in the Indian Financial System.

    The Agri Reforms introduced by Modi Government should help me tide over my stringent financial situation. Should I disclose my ITR3 verification documents for availing this Agri Reform??

    My enterprise was an educational centre for science advocacy. hariniscience.com

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