‘Income Tax Return Form’ explained in detail. Filing for financial year 2020-21 deadline extended till Dec 2021. The extension is only applicable for individuals whose books of accounts do not require auditing.
Many auditors are thanking Infosys for causing this extension! The extension of the deadline is due to Covid-19 and a series of bugs on the new ITR filing website.
Which income tax return form I should use?
The income tax website shows 4 types of forms for individuals. ITR Form-1, Form-2, Form-3, Form-4 can be confusing for many. Below I have explained the purpose of these forms in simple language.
What is ITR Form 1 & who should use it?
If your total income does not exceed 50 lakh from all the sources then you have to use ITR form 1 to file your return.
Form 1 can be used to file your income from salary, rental income from one housing property and income from other sources.
This form cannot be used if you have income from capital gain.
When to use ITR Form 2?
- You must use ITR form 2 if your income exceeds Rs 50 lakh.
- If your income is below 50 lakh but you have rental income from more than 1 housing property, then you have to use ITR form 2!
- If you have income from capital gains (like shares, mutual funds or property sale) this ITR form-2 should be used.
For whom ITR Form 3 is applicable?
ITR form 3 is applicable for individuals & HUFs with proprietorship profession or business. A proper computation of income, P&L account and balance sheet needs to be enclosed with ITR form 3.
Please note that tax audit is not necessary if your aggregate turnover is less than 1 crore rupees.
What is ITR Form 4 & who should use it?
ITR Form 4 is a convenient return filing option given by the IT department under section 44AD, 44ADA & 44EE. This is called presumptive profit from business or profession. This is applicable for individuals, HUFs and partnership firms.
Below is a summary of how it works.
If you are a self employed professional then you have to declare 50% of your gross income as profit. As simple as that. You are not allowed to claim any other expenses including depreciation.
If you are in any other business with or without inventory & your gross total income is less than Rs 2 crores then you have to declare 8% of your gross income as profit.
The good news is that you can claim deduction under Section 80C and 80G as applicable.
What is ITR Form 5, 6 & 7?
It’s for persons other than individuals, HUFs and partnership firms. As an individual you should not worry about that. Infact incometaxindiaefiling.gov.in website does not show this option if you are an individual tax payer.
Please note that incometaxindiaefiling.gov.in no longer supported. The new portal address is eportal.incometax.gov.in (The old address is redirected to the new website url.)
Is filing Income Tax Return mandatory?
Yes. According to Indian Income Tax law, ITR filing is mandatory if your gross income total exceeds basic exemption limit. The exemption varies from 2.5 lakh to 5 lakh based on your age.
What are the documents needed for ITR filing?
If your source of income is salary then you need Form-16 and form 16-A if you are professional. If you are self employed businessman then you need P&L ac (Income & Expenditure ac)
You can also use ITR form 4 for filing under the presumptive business category.
Do I need to disclose all the income?
Absolutely! You should disclose income from all the sources like rent, dividend, interest on bank deposit, capital gain (if you are a stock market investor)
It is also a good idea to disclose exempted income like tax savings bonds, PPF interest, interest on Sukanya samrudhi account etc.
Is there any penalty for not filing ITR?
Ofcourse. The penalty for this year is Rs 5000. It was Rs 10,000 last year. The Govt. is giving a 50% discount on penalty this year to encourage late filing? Not!
My Income is less than 2.5 lakh – So ITR applicable?
There are some special cases in which you have to file the ITR even if your income is less than 2.5 lakh.
- TDS (tax deduction at source) was deducted by your bank on fixed deposit.
- You are a professional & your client (payer) deducted tax on your payment
- You earned affiliate commission from an Indian company (like Amazon.in, flipkart.in) or you earned referral fee from upstox, zerodha etc. after tax deduction.
Your payer (client or customer) deducted tax on your income to comply with IT policy. Now you have to file ITR to claim the refund. If the TDS on your income is more than Rs 1000 it’s definitely worth filing ITR to claim the refund.
I don’t want TDS refund!
You can choose not to file ITR & gift the money to the Govt by ignoring your TDS. However, that’s a bad idea because ITR is a strong & essential document to avail various financial products like personal loan, home loan and credit card etc.
Lenders normally ask for 2 years of ITR for 2 wheeler and personal loan. Some banks ask for 3 years of IT-return for sanctioning long term housing or mortgage loan.
Paying income tax and filing income tax return proves that you are a law-abiding citizen. Beware, if you are inverting and trading in stock market then the IT department is watching you! There is nothing wrong in paying tax to Govt. for national building assuming that you have taxable income.
Therefore, I encourage you to pay income tax and file the return on time!