The following guide aims to simplify the types of Income Tax (ITR) forms to help taxpayers understand which form applies to them based on their income sources so that they avoid any mistakes and penalties.

After reading this guide, the reader will be able to know of the following:

• The different types of ITR forms and which kind of form applies to whom.
• Each form covers eligibility criteria and income sources.
• Common filing mistakes in filing an ITR form and their solution.
• The improvements made and future improvements that are in process by the income tax department related to filing ITR forms.

Income Tax Return (ITR)

Income Tax Return is a form that includes information about the taxpayer’s income earned and tax applicable. The taxpayer must file this information in the ITR and submit it annually to the Income tax department.

Purpose of ITR filings: The income tax department uses ITR filing to evaluate the taxpayer’s liability. It also gives them an insight into whether the taxpayer complies with the tax rules.

Income tax:

Income tax is a type of tax that the government imposes on the income that companies or businesses generate. According to the Income Tax Act 1961, taxpayers must file an income text return (ITR) annually to determine their tax obligations.

Income Tax Act, 1961:

The Income Tax Act 1961 is the set of rules upon which the Income Tax Department imposes, administers, collects, and recovers taxes. It is a law that governs the taxation of income earned by either individuals or companies.

Types of ITR: Importance of choosing the filing the correct ITR form

The Income Tax department has notified seven forms of Income tax filings, i.e. ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, and ITR-7 till 2024. Every taxpayer must file their correct ITR form because the applicability of ITR depends upon the sources of income and the category of the taxpayer, like individuals, Hindu Undivided Families (HUF), companies, etc. If the taxpayer files for the wrong form of Income Tax Return (ITR), it may prevent them from claiming certain tax exemptions because every form of ITR allows specific tax exemptions. The taxpayer might also have to face high penalties for filing the wrong form of ITR. Moreover, the Income Tax department may also launch an audit to verify the accuracy of the information, in which the company might have to submit detailed documentation and financial statements to prove their accuracy and authenticity.

Recent changes and updates:

The Income tax department has made several changes to the ITR forms over the years. Some significant changes have been made in the financial year 2022-2023.

1. Changes and updates in forms: Several New ITR forms have been included, and updates are made to the already existing ones., e.g., ITR-1 (Sahaj)- simplified for salaried individuals, ITR-4 (Sugam)-for businesses under presumptive taxation scheme, ITR-6-for domestic companies, ITR-7-for trusts, political parties, etc., prefilled forms, etc.
2. E-filling systems:  The e-filing system has also been improved by improving its website interface. The website also includes a step-by-step guide on how to file for income tax. Moreover, it also contains prefilled forms with details such as income, Tax Deducted at Source (TDS), and the tax paid. This has made it easier for taxpayers to submit their income taxes online.
3. Extended deadlines: ITR filings have also been extended several times. Especially during COVID-19, the government extended the deadline for tax filing multiple times. The Income Tax department also extends deadlines for specific categories of taxpayers, e.g., the companies that undergo tax audits (under section 44AB) due to their exceeded total revenue, sales, or gross receipts. Moreover, sometimes, the deadlines are extended for companies that are asked to prepare and submit detailed financial statements and tax-related disclosures to the Income Tax Department. Since they must also comply with the Companies Act 2013, they are given extra time to ensure accuracy and compliance.

Understanding ITR Forms

Different types of ITR form caters to different types of taxpayers. However, each form has a basic structure which includes:

The basic structure of ITR forms:

Part A: In this section of the ITR form, the taxpayer has to fill in their general information, e.g., personal details like name, address, permanent account number (PAN), Aadhar number, etc.

Part B:  In this section of the ITR form, the taxpayer has to write their gross total income along with the details of various income sources, e.g., salary, property, business, etc.

Part C: In this section, the taxpayer has to write information on deductions under various sections of the Income Tax Act, 1961, e.g., deductions under Chapter (6-A), such as Section 80C(investment), Section 80D(health insurance), etc.

Part D: In this section, the taxpayer has to write information about the total tax liability, tax paid, and any tax due or refund.

Deadlines and compliance requirements:

Filing the ITR form timely is very important. If an individual or company doesn’t file the tax timely, they might face high penalties and fines, depending on the type of ITR.

Individuals and HUFs: The deadline for individuals and HUFs is usually July 31st of the assessment year.

Businesses Requiring Audit: The deadline for businesses that require audits is usually September 30th of the assessment year.

Revised or Belated returns: The deadline for taxpayers to file the revised and belated returns is usually December 31st of the assessment year.

Penalties for late filling:

If taxpayers don’t file their ITR form before the due date, they might face penalties under Section 234F of the Income Tax Act. The penalty amount is 1000 INR if the total income exceeds 5 lac INR and 5000 INR if the income exceeds 5 lac INR.

Types of ITR

ITR-1 (Sahaj)

Eligibility criteria:

Income tax return (ITR-1) is for resident individuals whose total income during the financial year doesn’t exceed 50 lac INR.

Types of Income covered:

The income sources include salary, pension, single house property, and income from other sources, e.g., saving accounts or recurring deposits.

Ineligibility for ITR-1:

Individuals falling in the following category are not eligible for ITR-1:

• If the taxpayer’s total income is more than 50 lac INR.
• If their agricultural income is more than 5000.
• If they have income from business or profession.
• If they had investments in unlisted equity shares during the financial year.
• Owning assets in any entity.
• Having any foreign income.
• If tax has been deducted under section 194N.

ITR-2

The income tax-return-2 (ITR-2) form is for individuals or a Hindu Undivided Family (HUF) who are residents, non-residents, or residents but not ordinarily residents (RNOR). Have a total income of more than 50 lac INR.

Types of Income covered:

The types of income covered by ITR-2 are:

• Income from salary, pension
• Income from multiple properties
• If the taxpayer is an individual director in a company or business.
• If they had invested in unlisted equity shares at any time during the financial year.
• They have some foreign income.
• If their agricultural income is more than 5000.
• If they own assets outside India.
• If tax has been deducted under Section 194N.
• Income from capital gains like the sale of assets, real estate, shares, mutual funds, gold, etc.

Special provisions:

Suppose the total income of an individual exceeds 5 lac INR. In that case, they must declare their asset and liabilities in the “Schedule AL” (Asset and liability Schedule), e.g., owning a house property, jewelry, vehicles, and loans payable.

The taxpayer who gains any foreign income must report details of foreign bank accounts, investments, and property to comply with the Double Tax Avoidance Agreement (DTAAs) and to avoid penalties under the Black Money Act.

If the taxpayer gets any clubbing income (minor children’s income), it must be reported in ITR-2.

Ineligibility for ITR-2:

If an individual or Hindu Undivided Family (HUF) earns money from a business or property, they cannot complete the ITR-2 form.

ITR-3

The income Tax Return-3 form is for individuals or Hindu Undivided Families (HUFs) who have income from a proprietary business or are carrying a profession.

Types of Income covered:

The types of income covered by ITR-3 are:

• Income from a business or a profession
• Income from speculative business or profession.
• Profit and gains from business or profession
• ITR-3 also applies to those who have an income from being a partner in a partnership firm.

Profit and loss account requirements: if the individuals are getting income from businesses or professions, they must have a maintained book of accounts.

The profit and loss account section would include gross receipts or turnovers, cost of goods sold, net profit or loss, depreciation, other deductions, etc.

Balance sheet inclusions:

The balance sheet is a financial statement that shows the financial position of a business, including assets, e.g., land, machinery, bank balance, and liabilities, e.g., loans, expenses, dues, etc., of the business.

Ineligibility for IRF-3:

Companies and Limited Liability Partnerships (LLPs) cannot file for ITR-3.

Individuals with presumptive income under Sections 44AD, 44ADA, or 44AE cannot file for ITR-3. The individuals who only gain income from salary or pension cannot file for ITR-3. If an individual has income from other sources like interest or dividends but doesn’t have a professional or business income, then that individual cannot file for ITR-3.

Individuals who don’t have an income from business or profession in India (non-residents) are not allowed to file for ITR-3.

ITR-4 (Sugam)

Income Tax Return-4 is for individuals, Hindu Undivided Family (HUFs), and partnership firms (other than LLPs) eligible for the presumptive taxation scheme under sections 44AD, 44ADA, or 44AE.

Presumptive Taxation Scheme:

A presumptive taxation scheme makes calculating taxes for small businesses with fewer turnovers or transactions easier than maintaining a detailed book of accounts. Moreover, there is a lower audit requirement than regular business income tax returns.

Eligibility criteria:

• Individuals, HUFs, and companies that have an annual income of up to 3 crore (according to presumptive income scheme under section 44AD)
• Professional with a total income of 50 lac INR during the financial year, according to section 44ADA.
• Individual or HUF having a maximum 50 lac INR form on house property (excluding the amount of brought forward loss or loss to be carried away)

Turnover limits:

For Businesses: The annual turnover limit is up to 3 crores according to section 44AD of the Income Tax Act, 1961.

For professionals: The turnover limit is up to 50 lac INR according to Section  44ADA of the Income Tax Act, 1961 for professionals.

For vehicle owners: The monthly income depends upon the number of vehicles for the vehicle owners; e.g., 7500 INR for a truck per month according to section 44AE of the Income Tax Act, 1961

Calculation of presumptive income:

Section 44AD (for business income): If the taxpayer owns a small business, they can declare 8 of their total gross turnover.

Section 44ADA (for professional income): Professionals can turn 50% of their total gross turnover.

Ineligibility for ITR-4:

In the following cases, the individual or HUF is not eligible for ITR-4 filing

• If an individual or a HUF has an annual income of more than 50 lac INR.
• If they have any foreign assets or income.
• If they have invested in unlisted equity shares during the financial year.
• If they are being an RNOR and non-resident.

ITR-5

Income Tax Return-5 (ITR-5) is for firms, limited liability partnerships (LLP), Association of Persons (AOP), Body of individuals (BOIs), artificial juridical persons (AJP), and Business trust and investment funds.

Partnership firm-specific Requirements: ITR-5 includes detailed sections for partners’ details and profit-sharing ratios for partnership firms. The income derived from the partnership firm and the share of profit must be reported in the profit and loss statement of the return.

Association of Persons:

An association of persons (AOP) is a group of individuals or entities who come together for a common purpose or business but do not have a formal partnership agreement. The association of persons is treated as a separate taxable entity.

Body of Individuals (BOI): A Body of Individuals (BOI) is a group of individuals who come together for a specific common purpose. These include individuals only, e.g., family, friends, etc. In BOI, the entities are taxed as separate entities.

ITR-6

Income tax return-6 (ITR-6) is for companies excluding those claiming exemption under section 11, e.g., charitable trusts. ITR-6 is a detailed form and requires detailed information about the company’s income, deductions, tax computations, etc. If the registered domestic and foreign companies are required to file ITR-6, they must not claim exemptions under Section 11. The ITR-6 must be filed online through the website using the digital signature, as manual filing is prohibited. Domestic companies must provide details about revenue, expenses, and profit/ loss in the ITR-6. Moreover, foreign companies must also give details on income from operations in India. Foreign companies are taxed at 40% on income received in India.

Special economic zone (SEZ) implications:

Companies operating under special economic zones (SEZs) can also get several tax exemptions, e.g., tax holidays, the periods during which they got exemptions from paying certain taxes, investment-linked deductions under Section 35AD, etc. These tax exemptions must be reported in the ITR-6 form.

ITR-7

The income tax return-7 (ITR-7) form is for specific entities such as charitable trusts, political parties’ news agencies, and similar organizations.

Charitable trusts: The charitable trusts file for ITR-7 under section 11 or 12A of the Income Tax Act, 1961.

Income is exempt if spent on charitable purposes in India, but 85% of the total income must be applied towards charitable purposes to get tax exemptions.

Political parties: The political parties file for ITR-7 under section 13A of the Income Tax Act 1961.

Exemptions are made on contributions if the party maintains a proper record, but the contribution amount must be above 20000 to get exemptions. Moreover, the parties must also give detailed information about the donor. The income which doesn’t belong to political activities is taxable.

News agencies:

The news agencies file for ITR-7 under Section 10(22B) of the Income Tax Act 1961.

News agencies get an exemption on the income from news distribution, but they must use the funds only for their operations. Any income other than that is taxable.

Special filing requirements:

The individuals or entities must follow the filing requirements.

Detailed report: They must provide a detailed report about income, donations, expenditures, etc. in the form.

Audit reports: The entities must submit audit reports.

For educational institutions and medical institutions: If the income of educational institutions is solely applied for education purposes or

Following the regulations: the entities must comply with the rules and regulations of the Income Tax Act.

Common Filing Mistakes and How to Avoid Them

Sometimes, people make mistakes when filing income tax returns, which leads to high penalties.

Some of the common filing mistakes are:

Form selection errors:

Mistake: Some individuals file for the wrong ITR form, which doesn’t apply to them, as the ITR form implication depends on their income.

Solution: To avoid this mistake, first of all, individuals or entities should identify whether they are getting income through salary, pension business, or other sources. Moreover, they should use government resources like income tax e-filing websites for guidance.

Income disclosure issue:

Mistake: Sometimes, individuals don’t give details about sources, profit, and loss information of their income. Moreover, sometimes, they fail to include details of their foreign income.

Solution: To avoid this mistake, individuals must check all sources of income thoroughly, mention the exempt income, and cross-verify with form 26AS, which records all taxes deducted or paid.

Documentation Requirements:

Mistake: Another mistake that individuals make is the incorrect or incomplete submission of documents, Along with errors in financial records like bank statements or investments, which can delay the processing and might lead to rejection.

Solution: To avoid this mistake, the taxpayer must prepare a checklist and double-check the numbers and dates in their documents before submission. Moreover, they must retain copies of the records for at least six years for future reference.

Verification process:

Mistake: Sometimes, the taxpayer doesn’t complete the e-verification process within the 30-day deadline.

Solution: The taxpayer should e-verify immediately using net banking or other online methods and track their submissions.

Digital ITR filing process

The Steps for online filing of income tax return (ITR) are:

Register on the income tax e-filing portal:

Step 1: register or login to the income tax portal:

Login: Firstly, the individual has to visit the official website of the income tax portal to log in; there, they have to enter their PAN and password in the user ID section and then click continue to proceed.

New registration:  If the individual is a new user, they must first register using their permanent account (PAN) number, Adhaar, and other details.

Step 2:  selection of assessment, the year, and mode of filing:

In 2nd step, the individual has to click on the e-file tab >File income tax return. After that, they must select the correct assessment year for filing. The individual also has to choose the mode of filing as’ online.’

Step 4: selection of status:

The person should select the applicable filing status, e.g., individual, HUF, or others.

Step 5: selection of ITR form

In step 3, the person is asked to select the ITR form. They must choose the correct ITR form that applies to them based on their income.

Step 6: reason for filing ITR:

In step 6, the person has to state the reason for filing the income tax return, which should be selected appropriately.

Step 7: validate prefilled information:

While validating information, most of the information of a person, like a permanent account number (PAN), aadhar number, name, and date of birth, will be prefilled; the person has to read the details and validate it carefully.

Step 8: E- verification of ITR:

Doing the E-verification within 30 days is the last and most crucial step in filing for the ITR form. The person who doesn’t e-verify their income tax return (ITR), their filing doesn’t get approved. The person can e-verify their income tax return (ITR) through different methods, e.g., by Aadhar OTP, electronic verification code (EVC), Net banking, or by sending a physical copy of ITR-V to a Centralized Processing Centre (CPC), Bengaluru.

Conclusion

The selection of the correct ITR form is very crucial to avoid penalties. It ensures that all income sources are correctly reported and deductions are accurately claimed. E- Filing makes it easy for taxpayers to pay taxes, as they don’t have to submit any physical document, saving them time. Seeking professional assistance during the e-filing process can benefit people facing any difficulty filing an ITR. By getting professional help, they can get advice related to tax-saving investments and deductions.

Moreover, by getting professional help, the chances of errors being made are minimized, which ensures compliance with all regulations. The landscape of Income Tax Return (ITR) filing is evolving quickly over time. The Income Tax department is continuously improving the e-filing platform to make the process more user-friendly by introducing prefilled forms, reducing the chances of errors. Real-time processing leads to quicker issuance of refunds. Data integration, which integrates the income tax department with other financial systems like banks and investment platforms, allows for seamless data flow. To ensure transparency, the government also aims to implement stricter compliance measures, creating a more robust and transparent tax system in the future.