When filing your taxes, it is important to choose the correct income tax return (ITR) form. Let's examine it.
If you are a resident Indian and have an annual income below Rs 50 Lakhs from salary, single house property, or interest from savings account or fixed deposits, you need to file ITR 1
When filing your taxes, it is important to choose the correct income tax return (ITR) form. Let's examine it.
Understanding ITR Forms
ITR-1 – Resident individuals with income from salary (below Rs 50 lakh annually ), one house property ( including rental income ), Interest Income from a savings account or fixed deposit, and any other investments.
ITR 2 – Resident individuals/non-resident Indian/ HUF who have income from capital gains (sale of assets including shares or mutual funds), who are owners of more than 1 house property, and who have an annual income of over Rs 50 lakh. Earnings from business or profession are not permitted under this category.
ITR 3 – Resident Individuals/non-resident Indian/ HUFs having income from business or profession, including freelancers/ consultants, or having income from partnership or intraday trading.
ITR 4 - Resident individuals/ non-resident Indians/ HUFs presumptive income under sections 44AD, 44ADA, or 44AE.
Says Suresh Surana, a Mumbai-based chartered accountant: “As per the Income-tax Law, various ITR forms are designated for various classes of taxpayers. For example, ITR-1 (commonly referred to as Sahaj) is for resident and ordinary resident with income from specified sources up to Rs. 50,00,000. Again, ITR-2 is for Individuals and Hindu Undivided Family without having any income in the form of profit and gains from business or profession etc. Hence, the taxpayer must keep in mind the eligibility criteria while choosing the ITR form pertaining to him/her. Wrong ITR form selection could make the return be considered as defective and may make ITR invalid. Hence, submitting the tax return in proper ITR is of utmost importance.”
The Differences Between The ITR Forms
If you are a resident indian and have an annual income below Rs 50 lakh from salary, single house property, or interest from savings account or fixed deposits, you need to file ITR 1.
"If your residential status is NRI or you're a HUF, automatically you are qualified for ITR 2 even if your annual income is below Rs 50 lakh annually. As a Resident Indian, if you have income over Rs 50 lakh annually or have Income from Capital Gains, you need to file ITR 2.
ITR 1 is the easiest and smallest form an assessee can use to file his tax returns, where ITR 2 is the most comprehensive ITR form and has detailed Financial Disclosures to be made," says Deepak Kumar Jain, Founder and CEO of TaxManager.in, a tax advisory and efiling portal platform.
ITR 3 is meant for individuals and HUFs earning income from business or professional activities, whereas ITR 4 is applicable to those who have chosen the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE of the Income Tax Act. Salary or pension income.
Common Mistakes To Avoid
Choosing the right ITR Form based on income source and residential status is important.
"Assessee having income from capital gains or having multiple house properties should choose ITR 1 to File Income Tax Return because their primary source of income is from salary and is below Rs 50 lakh annually," says Jain.
A non-resident Indian choosing ITR 1 is a mistake because an NRI must choose ITR 2 or ITR 3.
Also, for a director in a company, filing his ITR through ITR 1 is a mistake, as it is required for a Director in the company to file ITR 2.
"It is always suggested to choose the correct ITR Form based on your residential status and income source. One should ensure proper matching of income and tax records from 26AS and AIS, along with reporting of income from all sources, even if it is required voluntarily," says Jain.