Income Tax Return (ITR) Filing

Any person falling under the purview of the Income Tax Act, 1961 has to pay tax on the income earned in a particular financial year. The person (commonly referred to as “assessee”) could be an individual, partnership, Hindu Undivided Family, Company or any other business entity.

The categorization in taxpayers has been done to ease the compliances. Each category of taxpayer has to compute the taxable income in the manner as laid down in the Income Tax Act, 1961. Post computation, Income Tax Return is filed in the Form applicable to that category of taxpayer.

Residential Status

Taxation of individuals in India is primarily based on their residential status in the relevant tax year. The residential status of individuals is determined independently for each tax year and is ascertained on the basis of their physical presence in India during the relevant tax year and past years.

The following types of residential status are envisaged for an individual:

  • Resident in India, which is further divided into the following two categories:
    • Resident and ordinarily resident (ROR).
    • Resident but not ordinarily resident (RNOR).
  • Non-resident in India (NR).

Under Indian tax laws, the scope of taxation differs as per the residential status of an individual:

  • RORs are subject to tax in India on their worldwide income, wherever received.
  • RNORs are subject to tax in India only in respect to income that accrues/arises or is deemed to accrue/arise in India, or is received or deemed to be received in India, or is from a business controlled in or a profession set up in India.
  • NRs are subject to tax in India only in respect to income that accrues/arises or is deemed to accrue/arise, or is received or deemed to be received in India.

RNOR and NR individuals are not subject to tax in respect to their income earned and received outside of India.

ITR-1 Form Filing
For Individuals being a Resident (other than Not Ordinarily Resident) having Total Income upto 50 lakhs, having Income from Salaries, One House Property, Other Sources (Interest etc.), and Agricultural Income upto 5,000/- (Not for an Individual who is either Director in a company or has invested in Unlisted Equity Shares)

Form ITR-1 (also referred to as SAHAJ popularly) has to be filed by individuals who have an income of not more than INR 50 lakhs from the following sources in a financial year:

  • Salary/Pension: Salary refers to the remuneration/consideration that a person receives for the services that he/she renders under a contract of employment. For an amount to be considered salary, the existence of employer-employee relationship is must or through other means such as pension.
  • One House Property (does not include those cases in which income has been brought forward from previous years): If the taxpayer I the owner of a property from which he/she is earning rent, the rent proceeds become taxable. However, if the taxpayer is using the property for running some business or profession, the same would be taxable under the heading “Income from Business or Profession.”
  • Other sources (does not include income earned from winning lottery or race horses)
  • Agricultural Income (Up to ` 5,000)

ITR-2 Form Filing
For Individuals and HUFs not having income from profits and gains of business or profession

The ITR-2 Form is an important Income Tax Return form used by Indian citizens, as well as Non Resident Indians to file their Tax Returns with the Income Tax Department of India. Individuals who are not eligible to use ITR-1 can use the ITR-2 Form.

Individuals and Hindu Undivided Families who have their Income for the Financial Year through Salary or Pension, more than one House Property, Income from Capital Gains, Income from foreign assets/Income, Income from business or profession as a partner (not proprietor) and other sources including lottery, racehorses, legal gambling are eligible to file their IT Return using ITR-2. Individuals who are not eligible to file using ITR-1, because of their income exceeding ₹ 50 Lakhs, also need to file using ITR-2.

ITR-2 form should not be filed by any individual who has income under the head of Business or Profession from a proprietorship. ITR-2 form can also not be filed by a company or LLP or other types of legal entity.

ITR-3 Form Filing
For individuals and HUFs having income from profits and gains of business or profession

The ITR-3 Form applies particularly to those Individuals and Hindu Undivided Families who have income from carrying on a profession or from Proprietary business. If an Individual/HUF is having income as a partner of a partnership firm that is carrying out business/profession, he cannot file ITR-3. In such case, he is required to file ITR 2.

ITR-3 form is to be used when the assessee has income that falls into the below category:

  • Income from carrying on a profession
  • Income from Proprietary Business
  • Along with income from a profession or proprietary business, return may also include income from House property, Salary/Pension and Income from other sources

The assessee needs to provide detailed balance sheet and profit and loss account and has to disclose that he is maintaining books under Section 44AA of the Income Tax Act, 1961.

ITR-4 Form Filing
For Individuals, HUFs and Firms (other than LLP) being a Resident having Total Income upto Rs.50 lakhs and having income from Business and Profession which is computed under sections 44AD, 44ADA or 44AE
(Not for an Individual who is either Director in a company or has invested in Unlisted Equity Shares)

Form ITR-4 is used for filing Income Tax Return by those taxpayers who have opted for the presumptive income scheme under Sections 44AD, 44ADA and 44AE of the Income Tax Act, 1961. This is, however, subject to the business turnover limit of ` 2 crores, exceeding which the taxpayer would be required to file ITR-3. Presumptive Taxation scheme is a scheme that exempts the small taxpayers from maintenance of books of accounts.

Features of Presumptive Taxation Scheme:

  • There is no requirement of maintenance of books of accounts
  • The net income is estimated to be 8% of gross cash receipts. However, for payments received via digital mode, the net income is assumed to be 6% of such gross receipts.
  • Deduction of any business expense against this income is not allowed.
  • The business owner has to pay 100% Advance Tax by 15th of March. There is no need to comply with quarterly installments of due dates of Advance tax (i.e. in June, Sep, Dec)

ITR-5 Form Filing
For persons other than:- (i) Individual, (ii) HUF, (iii) Company and (iv) Person filing Form ITR-7

Let’s explore in detail the taxpayers who are required to file Form ITR-5 and other relevant instructions pertaining to the same. The various provisions and sections mentioned in this article are of the Income Tax Act, 1961.

The following are eligible for filing Form ITR-5:

  • A Firm;
  • Limited Liability Partnership;
  • Association of Persons (AOP);
  • Body of Individuals (BOI);
  • Artificial Juridical Person (AJP) referred to in Section 2(31)(vii);
  • Local Authority referred to in Section 160(1)(iii) or 160(1)(iv);
  • Cooperative Society;
  • Society registered under Societies Registration Act, 1860 or under any State law trust (except trusts eligible for filing Form ITR-7)
  • Estate of Deceased person
  • Estate of an insolvent
  • Business Trust referred to in Section 139(4E)
  • Investment Fund referred to in Section 139(4F)

It is pertinent to mention that a person who is required to file return of income under Section 139(4A) or 139(4B) or 139(4D) cannot use Form ITR-5 for filing return.

ITR-5 Form Filing
For Companies other than companies claiming exemption under section 11

Every Company irrespective of its structure registered under the Companies Act 2013 or earlier under the Companies Act, 1956, shall file Income Tax Return through form ITR-6. However, those companies whose income is from the charitable or religious organization are not required to file Form ITR-6 (exempt under Section 11).

The taxpayer liable to file Form ITR-6 must obtain an audit report under Section 44AB. As per section 44AB, an entity whose sales, turnover, or gross receipt exceed ` 2 Crore in the preceding financial year must compulsorily get its accounts audited from a Chartered Accountant.

ITR-7 Form Filing
For persons including companies required to furnish return under sections 139(4A) or 139(4B) or 139(4C) or 139(4D)

The following entities are eligible to file ITR-7 as per Income Tax Act, 1961:

  1. ITR-7 u/s 139(4A)
    Those persons whose income is from property used either solely or partially for charitable or religious trust and such property must be held under a legal obligation or trust.
  2. ITR-7 u/s 139(4B)
    This section specifically applies to political parties. As per section 13A political parties are exempted from filing income tax return provided they file the annual return through form ITR-7.
  3. ITR-7 u/s 139(4C)
    Under this, ITR-7 is filed by following entities:
    • Association conducting scientific research
    • News agency
    • Association u/s 10(23A)
    • Other institutes enlisted u/s 10(23B)
  4. ITR-7 u/s 139(4D)
    Schools, colleges, and institutions not covered under any section of the Income Tax Act are required to file ITR-7 under this regulation.
  5. ITR-7 u/s 139(4E)
    Filing of Return of Income by a business trust
  6. ITR-7 u/s 139(4F)
    Filing of Return of Income by Investment Fund