Tuesday 8 December 2015

How to Select the Correct IT Form

There are about 9 types of ITR or income tax return forms. Which income tax return form a taxpayer should file depends on the taxpayer's income and sometimes on the disclosure requirements applicable to the taxpayer, where he/she may be a resident with foreign income or assets
Before discussing the ITR forms applicable to you, it is worthwhile to understand what an assessment year is. This year you will be filing your income tax returns for the income earned by you from April 1, 2014 to March 31, 2015. For tax purposes, the return is usually for a particular 'assessment year'. Put simply, assessment year is the year in which your income is 'assessed' or reviewed by the tax authorities. Therefore, the assessment year is usually the year that follows the year in which income is earned. The assessment year is 2015-16 for income earned during financial year 2014-15. Only forms ITR-1, ITR-2A, ITR-2 and ITR-4S have been announced by the Central Board of Direct Taxes (CBDT), the apex policy making body of the Income Tax Department, as of now.

Broadly, if you have salary income and do not have income from a business or profession, your choice of the form is among ITR-1, ITR-2A and ITR-2. Those who have income from capital gains and do not run a business have to file ITR-2. If you are running a business or a profession, you can file ITR-4 or ITR-4S, depending on certain conditions. Those who have income from a partnership firm file ITR-3. Please note that you  can choose the form applicable to you based on the source of your income. You can refer to the following detailed guidelines to learn about the income tax return form applicable to you:

ITR-1: Amongst the salaried this is one of the most widely used income tax return forms. 
  • This form is applicable to taxpayers who have income from salary and own one house property. If you own more than one house property, you are not eligible to fill this form and you may file ITR-2A or ITR-2.
  • If you have 'loss' brought forward from previous years, this form is not applicable. This form is not applicable if your income from other sources includes winning from lottery and income from race horses. Similarly, those who earn agricultural income exceeding Rs 5,000 cannot file their return in this form. They may have to file ITR-2 or ITR-2A in these cases.

ITR-2A: This is the new income tax return form which has been introduced in the current assessment year. 
  • If you have salary income but own more than one house property and do not have any capital gains, this form is applicable to you. Earlier, those who owned more than one house property had to file ITR-2 whether or not they had capital gains. Now such taxpayers can file ITR-2A which is much shorter form than ITR-2. 
  • This form can still be filed if you have earned long-term capital gains from sale of shares on which STT (securities transaction tax) is paid - these are exempt from tax. NRIs can also file this form if they meet the conditions listed therein. However, resident Indians who have foreign bank accounts, or foreign assets or sources of income or have a financial interest in an entity located outside India cannot file their return in ITR-2A; they will have to file ITR-2.

ITR -2: This form is for those who have earned capital gains income or those who are residents with foreign sources of income, or are a signing authority in a foreign bank account or have foreign assets or financial interest in an entity outside India. You may also have salary income and income from house property. 
  • This form can be filled in almost all cases except where there is partnership income (ITR-3) or business income (ITR-4 or ITR-4S) and where you have speculative income (ITR-4). If your agricultural income exceeds Rs 5,000 - and you do not have any business or professional income - you can file ITR-2. This form is also applicable for those who have losses brought forward from previous years or have income from lottery winnings or income from race horses.

ITR-3: This form is applicable when an individual or an HUF (Hindu undivided family) who is a partner in a firm but does not carry business under proprietorship. 
  • This form can be filed where taxable business income has no other income except income by way of any interest, salary, bonus, commission or remuneration, due to or received by a partner from such firm. If the partner does not have any income from the firm by way of interest, salary, etc. and has only exempt income by way of share in the profit of the firm, the taxpayer shall use this form, ITR-3, and not ITR-2.

ITR-4: This form is applicable for those who have business or proprietorship income.
  • Generally, ITR-4 can be filled by anyone who is running a business or undertaking a profession. 
  • There is no minimum income you should be earning to file this return. Say if you are a shopkeeper, construction contractor, doctor, tutor, retailer, wholesaler, insurance agent, interior decorator or fashion designer, you can file ITR-4. Absolutely all businesses are eligible to file ITR -4. 
  • You can include your salary income, house property income, income from lottery winnings, speculative income, and all your incomes in this return if you have earned them besides your business income.

ITR-4S: This form is for a special case ITR, applicable for businesses where income is calculated on 'presumptive method'. 
  • As per the presumptive method, net income is estimated to be 8 per cent of gross receipts (Section 44AD of the Income Tax Act) or Rs 7,500 per month for each vehicle where the taxpayer plies, leases or hires trucks (Section 44AE of the I-T Act). 
  • This is a special scheme of the Income Tax Department - those who opt for this scheme don't have to maintain accounting records. ITR-4S is a very simple return - just about 3 pages and that's all the I-T department wants to know.

  1. Please note that where gross receipts or turnover of a business or profession is more than Rs 1 crore, ITR-4S cannot be filed and ITR-4 has to be filed by the taxpayer. 
  2. Taxpayers who own more than one house property cannot file this return form. 
  3. Those who have income from commission or brokerage, agency business or profession, such as those who are carrying on the profession of legal, medical, engineering, architectural, accountancy, technical consultancy or interior decoration services, or an authorized representative, film artist, company secretary and information technology, are not eligible to file this form. 
  4. ITR-4S cannot be filed if there are losses to be carried forward, or capital gains, or agricultural income in excess of Rs 5,000. 
  5. Residents who have foreign income or foreign assets cannot file ITR-4S. 
  6. This form is not filed when the taxpayer has any speculative income. In all the above cases, ITR-4 shall be filed by the taxpayer where the income from business/profession can be included.

ITR-5: This IT form is meant for firms, LLPs (limited liability partnership), AOPs (association of persons) and BOIs (body of individuals).

ITR-6: Companies other than companies claiming exemption under Section 11 must furnish their income tax in form ITR-6. Companies claiming exemption under Section 11 are those whose income from property is held for charitable or religious purposes.

ITR-7: This IT Form is filed when persons including companies fall under Section 139(4A), Section 139 (4B), section 139 (4C) or section 139 4(D). 
  • Returns under Section 139(4A) are required to be filed by every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes. 
  • Return under Section 139(4B) is required to be filed by a political party if the total income without giving effect to the provisions of Section 139A exceeds the maximum amount that is not chargeable to income tax. 
  • Returns under Section 139(4C) are required to be filed by every scientific research association, news agency, association or institution referred to in Section 10(23A), institution referred to in Section 10(23B), fund or institution or university or other educational institution or any hospital or other medical institution. 
  • Returns under Section 139(4D) are required to be filed by every university, college or other institution, which is not required to furnish return of income or loss under any other provision of this Section.
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