Types of ITR: Which One Should You Choose?

Filing your taxes, a.k.a. Income Tax Return (ITR) in India, can be a tough task, especially with multiple forms to choose from. There are seven different types ITR forms available and each ITR form caters to a specific taxpayer category and income situation. Picking the wrong one can lead to delays, errors, and even penalties.

This blog is your one-stop guide to navigating the world of ITR forms as it breaks down the key features of each form and who should use them. By the end of this blog, you can confidently choose the correct ITR form and file your taxes smoothly.

Table of Contents

Overview

ITR stands for Income Tax Return. It is a form you file with the Indian Income Tax Department to report your income earned during a financial year, i.e., April 1^st to March 31^st. There are two things: one is Financial Year (FY), and another is the Assessment Year (AY). The FY is the one in which you earn the income, and the AY is the one in which you have to pay taxes on the income earned in the FY. Confused? Let’s understand through an example:

Suppose, you are a salaried person and earned INR 10 lakhs in the Financial year 2023-24 (1 April 2023 – 31 March 2024). Now, you have to calculate your taxable income and pay taxes for FY 23-24 in the next year, i.e., FY 24-25. This next year is your Assessment Year (AY).

Coming back to the ITR form, it asks about your income sources, any deductions you claim, and the taxes you owe. The ITR lets the government know about your income from various sources like salary, businesses, property, investments, etc.

If you have paid excess tax during the year, you can claim a refund through the ITR.

Types of ITR

There are different ITR forms depending on your income sources and filing category.

Individual ITR (ITR 1)

ITR 1, also known as Sahaj, is the simplest income tax return form in India. It is designed for resident individuals with a specific income profile.

Eligibility

ITR 1 can be filed by a resident individual with income from salary or pension, one house property (excluding cases where loss is brought forward from previous years), other sources excluding lottery winnings and agricultural income up to INR 5,000. Your total income for the financial year must not exceed INR 50 lakhs.

Individual ITR (ITR 2)

ITR 2 is another income tax return form used in India. Unlike ITR 1, it caters to a wider range of income sources.

Eligibility

ITR 2 can be filed by an individual or HUF who is not eligible to file ITR 1 and who:

Does not have income from profit and gains or profession and also does not have income from profits and gains of business or profession like interest, salary, bonus, commission by whatever name called, due to, or received by him from a partnership firm.
Have the income of another person like a spouse, minor child, etc., be clubbed with their income.

Additionally, any individual or HUF who receives income in the such as interest, salary, bonus, commission or remuneration from a partnership firm and whose total income for the year includes profit and earnings from a business or profession is not eligible to file an ITR-2.

From AY 2021-22, you can choose to opt for the new tax regime under section 115BAC in ITR-2.

Individual ITR (ITR 3)

ITR 3 Form relates to income earned via business or profession. It is used by an individual or a Hindu Undivided Family who has income under the head “profits or gains of business or profession” and who is not eligible to file Form ITR‐1 (Sahaj), ITR‐2 or ITR‐4 (Sugam).

Eligibility

Individuals and HUFs who have income from profits and gains of business or profession can file ITR 3.

This includes income from:

Sole proprietorship businesses like shops, consultancy firms, etc.
Professionals like doctors, lawyers, architects, etc.
Partnership firms.
Investments in unlisted shares.
Others such as Fees earned as a director in a company, House Property, Salary, etc.

ITR 3 is often called a master form because it allows reporting income from almost all sources, including business or profession, salary, capital gains, house property, etc.

Furthermore, if your turnover exceeds INR 2 crore or you claim certain deductions or exemptions, you are also required to maintain books of accounts and get them audited.

ITR 4

ITR 4, also known as Sugam, is an income tax return form designed for a specific category of taxpayers in India.

Eligibility

ITR-4 can be filed by a Resident Individual / HUF / Firm (other than LLP) who has:

– Income not exceeding INR 50 lakhs during the FY.
– Income from Business and Profession, which is computed on a presumptive basis u/s 44AD, 44ADA, or 44AE.
– Income from Salary/Pension, one House Property, Agricultural Income (up to INR 5,000)
– Other sources excluding winning from the Lottery and Income from racehorses.

What is the Presumptive Taxation scheme for filing ITR 4?

Section 44AA of the Income Tax Act (1961) mandates that, in certain situations and under certain conditions, an individual involved in business or the profession maintain proper books of accounts. To alleviate the difficulty of compliance for small taxpayers, the Income Tax Act has established a presumptive taxation structure under sections 44AD, 44ADA, and 44AE. A person using the presumptive taxation scheme may report their income at a set rate.

Additionally, a presumptive taxation scheme can be adopted by a resident in India carrying on a specified profession whose gross receipts do not exceed INR 50 akhs in a FY.

ITR 5

ITR 5 is designed for a specific set of entities distinct from individuals and HUFs.

Eligibility

This form is mandated for entities like firms, limited liability partnerships, associations of persons, bodies of individuals, artificial juridical persons, business trusts, corporate societies, etc.

ITR 5 requires detailed disclosure of financial information including income statement, balance sheet and other particulars related to the entity’s income and expenses, and consists of several schedules.

ITR 6

This form used in India by companies for filing their income tax returns.

Eligibility

Companies registered under the Companies Act, 2013 or 1956, are required to file ITR 6 if they do not claim an exemption under section 11 of the Income Tax Act, 1961.

Exemption under section 11 offers a tax exemption for income derived from property held for religious or charitable purposes. Companies claiming exemption would not use ITR 6.

ITR 6 caters specifically to the income reporting needs of companies, with relevant schedules to capture details like business income, expenses, and TDS.

The form consists of various schedules for different aspects of the company’s income.

ITR 7

ITR 7 is the form used for a specific set of entities different from individuals and regular businesses.

The form has been divided into Part A, Part B, and Schedules where Part A includes general information, and Part B includes a statement of the total income and tax computation for income chargeable to tax.

Eligibility

ITR 7 is used by entities that fall under specific sections of the Income Tax Act. These entities include:

Charitable and religious trusts created for charitable or religious purposes under Section 139(4A) of the Income Tax Act.
Political Parties with income exceeding the non-taxable limit come under Section 139(4B).
Research institutions claiming tax exemptions under section 139(4D) can use ITR 7.
Educational Institutions such as universities and colleges can file ITR 7 under section 139 (4D).

The entities mentioned above claim exemptions under several clauses and might not be subject to regular corporate tax filing.

Conclusion

The ITR forms in India report your income earned during a financial year to the Income tax department. There are seven different types ITR forms, each catering to a specific taxpayer category and income situation. Choosing the right ITR form depends on your income profile and the nature of your income sources.

It is suggested to consult with a tax advisor, especially in case of complex situations. Keep in mind that timely filing of ITRs is important to avoid penalties and avail benefits like claiming deductions. For most forms, you can easily file your ITR electronically through the Income Tax Department’s e-filing portal.

Further, if you’re having difficulty in calculating your taxable income, check our free to use Income Tax Calculator: https://www.pocketful.in/calculators/income-tax-calculator

Frequently Asked Questions (FAQs)

1. What are ITR forms?

Ans. ITR forms are used in India to report your income earned during a financial year to the Income Tax Department.

2. Which ITR form should I use?

Ans. The appropriate ITR form depends on your income profile. This includes sources of income and your total income amount.

3. What if I have income from capital gains or multiple house properties?

Ans. You will likely need to file ITR-2 or ITR-3 which caters to individuals and HUFs with these income sources. Further, it is advisable to consult your tax advisor to get a clear picture.

4. Can I file ITR forms online?

Ans. Yes, you can file most ITR forms electronically through the Income Tax Department e-filing portal.

5. How to calculate the taxable income?

Ans. One can use our free-to-use Income Tax Calculator: https://www.pocketful.in/calculators/income-tax-calculator

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.