Income Tax Return: How to choose the correct ITR form for tax filing

Filing income tax returns (ITR) is an essential responsibility for every taxpayer in India. The process begins with selecting the appropriate ITR form, which varies depending on your income sources, residential status, and other financial particulars.

Choosing the correct form ensures compliance with tax laws and helps in accurate reporting of income. This article serves as a guide to help taxpayers navigate through the selection process effectively.

Understanding different ITR forms

The Central Board of Direct Taxes (CBDT) in India has designated several ITR forms, each catering to different categories of taxpayers. As of the latest updates, the forms commonly used include:

1. ITR-1 (Sahaj): This form is applicable to individuals who have income from salary, one house property, and other sources like interest income or family pension. It is suitable for residents whose total income does not exceed ₹50 lakhs.
2. ITR-2: Used by individuals and Hindu Undivided Families (HUFs) who do not have income from business or profession. It includes income from salary, more than one house property, capital gains, and other sources.
3. ITR-3: Applicable to individuals and HUFs who have income from business or profession. This form requires detailed reporting of income, including profit and loss statements and balance sheets.
4. ITR-4 (Sugam): Designed for taxpayers opting for presumptive income scheme under Sections 44AD, 44ADA, or 44AE of the Income Tax Act. It is suitable for small businesses and professionals.
5. ITR-5: For firms, LLPs (Limited Liability Partnerships), Association of Persons (AOPs), and Body of Individuals (BOIs). It includes entities other than companies that are not required to furnish audit reports under any law.
6. ITR-6: Applicable to companies other than those claiming exemption under Section 11 (income from property held for charitable or religious purposes).
7. ITR-7: For persons including companies required to furnish returns under Sections 139(4A) or 139(4B) or 139(4C) or 139(4D) (i.e., trusts, political parties, institutions, etc.).

Factors to consider when choosing an ITR form

1. Nature of income: Begin by categorising your income into salary, house property, capital gains, business or profession, and other sources. Different ITR forms are tailored to accommodate specific types of income.
2. Residential status: Your residential status under the Income Tax Act (resident, non-resident, or resident but not ordinarily resident) determines the forms you are eligible to use.
3. Income thresholds: Certain forms have income thresholds beyond which they cannot be used. For example, ITR-1 is restricted to individuals with total income up to ₹50 lakhs.
4. Owning foreign assets: If you have foreign assets or foreign income, ensure that the chosen ITR form allows for their declaration, such as ITR-2 or ITR-3.
5. Presumptive taxation: If you are eligible for presumptive taxation under Sections 44AD, 44ADA, or 44AE, you may opt for ITR-4 (Sugam).
6. Audit requirement: Whether your accounts need to be audited under the Income Tax Act is also a crucial factor in determining the appropriate ITR form.

Step-by-step guide to choosing the correct ITR form

1. Gather income details: Compile all relevant documents showing income from salary, house property, capital gains, business or profession, and any other sources.
2. Determine residential status: Confirm your residential status as per the Income Tax Act.
3. Review eligibility criteria: Refer to the eligibility criteria and income thresholds specified for each ITR form.
4. Consult a tax advisor if necessary: If you are unsure about which form to use, seek advice from a qualified tax advisor or consult the Income Tax Department’s website for guidance.
5. Fill out the form carefully: Once you have selected the appropriate form, fill it out accurately, providing all necessary details and supporting documents.
6. Verify and submit: Review the completed form for accuracy and completeness before submitting it either online or offline, as per the prescribed method.

In conclusion, choosing the correct ITR form is the first step towards fulfilling your tax obligations efficiently. It ensures that your income is properly disclosed and taxed according to the provisions of the Income Tax Act. By understanding your income sources, residential status, and other relevant factors, you can navigate the selection process with confidence. 

Always stay updated with the latest guidelines from the Income Tax Department to ensure compliance and avoid penalties. Remember, accurate tax filing contributes to the smooth functioning of the nation’s economy and upholds your rights as a responsible taxpayer.

CA Ruchika Bhagat, MD, Neeraj Bhagat & Co.