Types of Income Tax Returns for Salaried Employees: A Comprehensive Guide

The commonly discussed and confused topic that the return preparers face at the time of filing their income tax return is to categorize the type of ITR to be actually used for each of their cases. Understanding the nuances of income tax returns is vital for salaried employees to navigate the complexities of tax obligations. This comprehensive guide explores the various types of income tax returns available to them, shedding light on each form’s applicability and restrictions. By delving into the specifics of forms like ITR 1, ITR 2, ITR 3, and ITR 4, individuals can make informed decisions regarding their tax filings, ensuring compliance and maximizing benefits. In this regard, below is some of the information discussed in brief in order to obtain the clarification on the concerned topic.

-TYPES OF INCOME TAX RETURNS FOR SALARIED EMPLOYEES

The following are the types of incomes tax returns used:

-ITR 1

-ITR 2

-ITR 3

-ITR 4

Now let us understand on each of the forms and their applicability to individuals.

ITR 1:

This type of return is applicable for a resident individual (only resident and ordinarily resident) having total income of any of the following sources:

1. Salary / Pension Income
2. Income from only one House Property
3. Income from other sources(e.g.: Interest, Dividend etc.)
4. Agricultural Income up to INR 5000

Up to INR 50 lakh. 

*Note: ITR 1 cannot be filed by the following individuals who: 

1. Is a director of a company
2. Has held unlisted equity shares at any time during the previous year
3. Has any asset located outside India(includes financial interest in any entity)
4. Has a signing authority in any bank account outside India.
5. Has an income from any source outside India.
6. Is a person who’s TDS is under section 194 N(TDS has to be deducted if a sum or aggregate of sum withdrawn in cash by a person in a particular FY exceeds: INR 20 lakh(if no ITR has been filed for all the three previous AYs), or. INR 1 crore(if ITRs have been filed for all or any one of three previous AYs).
7. Is a person for whom tax has been deferred on ESOP.
8. Has any kind of loss(i.e. under any head of income) brought or any loss which is to be carried forward.
9. Has a total income exceeding INR 50 Lakh.

ITR 2

This type of return is applicable for a resident individual and a Hindu Undivided Family not having any income under the head “Income from Profit and Gains from Business or Profession “. Meaning, such individual who is not eligible to file ITR in form 1 as per above.

ITR 3

This type of return is applicable for a resident individual and a Hindu Undivided Family having income under the head “Income from Profit and Gains from Business or Profession “. Meaning, such individual who is not eligible to file ITR in form 1, 2 or 4.

ITR 4

This return is applicable for an Individual or Hindu Undivided Family (HUF), who is Resident and ordinarily resident only or a Firm (other than LLP) which is a Resident having Total Income up to INR 50 lakh and having income from Business or Profession which is computed on a presumptive basis (u/s 44AD / 44ADA / 44AE) and having income from any of the following sources:

1. Salary / Pension Income
2. Income from only one House Property
3. Income from other sources (e.g. Interest, Dividend etc.)
4. Agricultural Income up to INR 5000

*Note: ITR 4 cannot be filed by the following individuals who: 

1. Is a director of a company
2. Has held unlisted equity shares at any time during the previous year
3. Has any asset located outside India(includes financial interest in any entity)
4. Has a signing authority in any bank account outside India.
5. Has an income from any source outside India.
6. Is a person for whom tax has been deferred on ESOP.
7. Has any kind of loss(i.e. under any head of income) brought or any loss which is to be carried forward.
8. Has a total income exceeding INR 50 Lakh.

*Note:  ITR-4 (Sugam) is not a mandatory return. It is a simplified return form to be used by an Assesse, at his option, if he is eligible to declare Profits and Gains from Business or Profession on presumptive basis u/s 44AD, 44ADA or 44AE. 

-TYPES OF TAX FORMS ISSUED TO INDIVIDUALS BY VARIOUS AUTHORITIES:

An individual would come across various taxation documents to be prepared and to be received from concerted authorities which is of relevance for their Income tax return and various tax data. Few of such forms are being discussed below:

FORM 12BB:

This is one kind of form which is provided by the employer to the employee to disclose their various investments and expenditure details in order to enable the employer to compute the tax liability for the year.

FORM 16

This is the form provided by the employer to the employee at the end of year which assists the employee in filing the income tax return for the year. This form contains the details of the income of the employee for the year and the deductions being considered by the employee based on the data provided in Form 12BB as mentioned above and the tax paid by the employee for the year in respect of his salary income. This helps the individual to analyze the tax payable or refundable for the year.

FORM 16A

This the form issued by the tax deductor to the deductee for deducting the tax on income other than income from salary. This form is generally issued quarterly which explains the nature of payment, the amount of tax deducted etc.

FORM 26AS

This is the form which is generated by the income tax department and the same is available to the person on their IT login portal. This form contains the details of tax deducted or tax collected from the person for each year. These details can be accessed in the below steps:

Login>e file>Income tax return>view form 26AS 

ANNUAL INFORMATION STATEMENT (AIS)

This is the statement which was introduced by the Government of India through the Finance Act, 2021 which was implemented from November 2021. This contains the detailed summary of a tax payer containing the details of the tax deducted  or tax collected at source, details of dividend received, details of the statement of financial transaction(SFT) which means to say the  reportable financial transactions that took place in the specified financial year by the tax payer such as purchase and sale of mutual funds, stocks, Interest received on savings and deposits,  details of taxes paid, details of any payment towards any demand or a refund received and such other information as prescribed.

AIS has been a major declaration post its implementation which is being considered for every return filing process as the Income tax authorities use this data to compare and validate the returns filed by every tax payer.

This statement is available to every tax payer and can be accessed as below:

Go to e-filing portal > login > AIS

Conclusion: In conclusion, grasping the intricacies of income tax returns empowers salaried employees to fulfill their tax responsibilities effectively. By recognizing the nuances of each form and understanding the documentation provided by authorities, individuals can streamline the filing process and minimize errors. This guide has provided invaluable insights into the types of income tax returns available, equipping readers with the knowledge to navigate the tax landscape with confidence and accuracy. As tax regulations evolve, staying informed remains key to financial well-being and compliance.