Introduction

Here’s a brief overview of the Income Tax Forms (ITR) used in India for filing tax returns. These forms are designed to capture different types of income and deductions based on an individual's or business entity’s financial status. Here’s a summary:

· ITR Form 1: For individuals with income from salary, pension, and other sources.

· ITR Form 2: For individuals and HUFs with income from multiple sources, including capital gains, (Except Income from Business or Profession).

· ITR Form 3: For individuals and HUFs who are in business or profession.

· ITR Form 4: For individuals, HUFs, and firms (other than LLPs) opting for the presumptive taxation scheme under section 44AD, 44ADA, or 44AE.

· ITR Form 5: For LLPs, AOPs, BOIs, cooperative societies, and other entities.

· ITR Form 6: For companies other than those claiming exemptions under section 11.

· ITR Form 7: For trusts, charitable organizations, political parties, and other similar entities claiming exemptions.

 

Now let us discuss all the forms below

ITR Form 1

ITR Form 1 is also known as Sahaj. It is a simple and user-friendly income tax return form meant for individuals who have a basic and straightforward income structure. This form is ideal for individuals with income from salary, pension, or other sources, and it is the most commonly used ITR form for salaried employees.

Here’s a detailed look at ITR Form 1:

Eligibility for ITR Form 1 (Sahaj)

You can use ITR Form 1 if:

• You are an individual.
• Your total income is up to ₹50 lakh during the financial year.
• Your income comes from:
• Salary or pension.
• One house property (income/loss).
• Other sources (like interest income, dividend income, etc.).
• You are not a business owner or self-employed. (If you are, you will need to file ITR Form 3 or 4).
• You are a resident (either ordinary or not ordinarily resident). Non-resident Indians (NRIs) cannot use this form.

Required Documents for Filing ITR Form 1:

• Form 16: Provided by your employer, it contains details of your salary, TDS, and deductions.
• Bank Statements: To calculate income from other sources (e.g., interest on savings accounts).
• Proof of Deductions: For example, receipts of investments made under sections 80C, 80D, etc.
• Form 26AS: A summary of taxes deducted and paid on your behalf by third parties like your employer or banks.

 

ITR Form 2

ITR Form 2 is designed for individuals and Hindu Undivided Families (HUFs) who have income from multiple sources and who do not have income from business or profession. It is one of the more comprehensive forms for filing income tax returns, as it covers income from salary, house property, capital gains, foreign income, and other sources.

Who Should Use ITR Form 2?

ITR Form 2 should be used by:

• Individuals and HUFs who do not have business or profession income.
• Individuals with income from:

1. Salary or Pension
2. House Property (income or loss)
3. Capital Gains (sale of property, stocks, etc.)
4. Foreign Income
5. Other sources (interest, dividend income, etc.)

• Those who have income from more than one house property.
• Individuals receiving income from foreign assets.
• Those with income from royalties or research grants.
• People needing to report capital gains.

Documents Required:

1. Form 16 (if you are a salaried employee) – shows your salary and TDS details.
2. Bank statements – for calculating interest income or other income sources.
3. Form 26AS – shows the tax deducted on your behalf.
4. Proof of deductions – receipts for life insurance, PPF, health insurance, etc.
5. Capital gains documents – details of asset sales, purchase, and capital gains calculations.
6. Rental income documents – proof of rental income and expenses.

Who Should Not Use ITR Form 2?

• Self-employed individuals or those with business income: They should use ITR Form 3 or ITR Form 4, depending on their specific business structure.
• Individuals claiming presumptive income under Section 44AD or 44ADA: They should use ITR Form 4.

ITR Form 3

ITR Form 3 is meant for individuals and Hindu Undivided Families (HUFs) who have income from business or profession. It is used by taxpayers who are self-employed, freelancers, or partners in a partnership firm. This form is designed to capture more detailed income information, including income from business, profession, and other sources.

Who Should Use ITR Form 3?

ITR Form 3 should be used by:

• Individuals and HUFs who have income from:

1. Business or Profession (either as a sole proprietor or partner in a firm).
2. Salary or Pension.
3. Income from House Property.
4. Capital Gains (e.g., from the sale of property, shares, etc.).
5. Income from Other Sources (e.g., interest income, dividends, etc.).

This form is suitable for those who need to report:

• Income from business: Whether you are a freelancer (e.g., consultants, doctors, lawyers) or a small business owner.
• Income from profession: Such as income earned by professionals like chartered accountants, architects, etc.
• Partners in a partnership firm: If you're a partner in a firm, you need to disclose income and share of profit.

Documents Required for Filing ITR Form 3:

1. Form 16: For salary and TDS details (if you are salaried).
2. Profit & Loss Account and Balance Sheet: For business income, detailing your business expenses and revenue.
3. Form 26AS: A statement of tax deducted at source (TDS).
4. Capital Gains Documents: Details of the sale of assets, purchase price, and capital gains.
5. Bank Statements: For interest income and other sources.
6. Proof of Deductions: For claiming deductions under sections like 80C, 80D, etc.
7. Partnership Deed: If you are a partner in a firm, the deed may be required to clarify your share in the profits.

Who Should Not Use ITR Form 3:

• Salaried individuals: They should use ITR Form 1 or ITR Form 2, depending on their income sources.
• Small businesses opting for presumptive taxation: If you are eligible for presumptive taxation (Section 44AD, 44AE, 44ADA), you can file ITR Form 4 instead of Form 3.

ITR Form 4

ITR Form 4 is designed for individuals, Hindu Undivided Families (HUFs), and sole proprietors who have income from a business or profession and wish to opt for the presumptive taxation scheme under sections 44AD, 44AE, or 44ADA of the Income Tax Act. This form is specifically meant for taxpayers with presumptive income and is often used by small businesses, freelancers, and professionals.

Who Should Use ITR Form 4?

ITR Form 4 should be used by:

• Individuals, HUFs, and sole proprietors who have income from business or profession and are eligible for the presumptive taxation scheme under:
• Section 44AD: For small businesses with a turnover of up to ₹2 crore.
• Section 44AE: For businesses engaged in the transport sector, specifically those using goods carriage vehicles (e.g., trucks).
• Section 44ADA: For professionals (e.g., doctors, lawyers, architects, consultants) with gross receipts of up to ₹50 lakh.
• Taxpayers who have no other income from salary, house property, capital gains, or other sources (if they opt for the presumptive scheme).

Documents Required for Filing ITR Form 4:

1. Income details:

• Form 16 (if you are salaried).
• Profit & Loss Account and Balance Sheet (if you are self-employed, though not required for presumptive taxation).

1. Bank Statements: To report interest income or other sources.
2. Capital Gains Documents: If you have capital gains to report.
3. Proof of Deduction: For deductions under sections like 80C, 80D, etc.
4. Transport Business Documents: If you are opting for presumptive taxation under Section 44AE, you need to provide details about your vehicles.

Who Should Not Use ITR Form 4?

• Individuals with income from salary: They should use ITR Form 1 or ITR Form 2.
• Self-employed individuals or professionals not opting for presumptive taxation: They should use ITR Form 3 if they have income from business or profession.
• Companies, LLPs, and firms: They should file ITR Form 6 or ITR Form 5, respectively.

Advantages of Filing ITR Form 4:

• Simplified Process: The presumptive taxation scheme allows small businesses and professionals to avoid complex accounting requirements.
• No Need for Audit: You do not need to get your accounts audited under the presumptive taxation scheme, making the process easier.
• Reduced Compliance: Since the income is calculated as a percentage of turnover, the form requires minimal documentation.
• Eligibility for Tax Benefits: You can still claim deductions under Chapter VI-A and pay taxes on the presumptive income.

ITR Form 5

ITR Form 5 is used for entities that are not individuals or Hindu Undivided Families (HUFs), but are required to file income tax returns. It is specifically meant for partnership firms, limited liability partnerships (LLPs), Association of Persons (AOPs), Body of Individuals (BOIs), cooperative societies, and other similar entities.

Who Should Use ITR Form 5?

ITR Form 5 should be used by the following entities:

1. Partnership Firms (including limited liability partnerships).
2. Association of Persons (AOPs).
3. Body of Individuals (BOIs).
4. Cooperative Societies.
5. Other entities that are required to file returns but are not individuals, HUFs, or companies (such as trusts, estates, etc.).

Documents Required for Filing ITR Form 5:

1. Partnership Deed: For partnership firms and LLPs, the partnership deed provides details about the profit-sharing arrangement.
2. Income and Expense Details: Financial statements, including Profit and Loss Account and Balance Sheet, to report the income and expenses.
3. Form 26AS: This is a summary of tax deducted at source (TDS) for the entity.
4. Capital Gains Documents: If the entity has earned income from the sale of assets, you will need to provide details of those transactions.
5. Tax Deducted at Source (TDS): Evidence of TDS deducted on income, including business income, rental income, etc.
6. Deduction Claims: Documents supporting deductions under Chapter VI-A, such as insurance receipts, donation receipts, etc.

Who Should Not Use ITR Form 5?

• Individuals and HUFs: They should file ITR Form 1, ITR Form 2, or ITR Form 3, depending on the nature of their income.
• Companies: Companies need to file ITR Form 6.
• Trusts and other entities that file under different provisions: Trusts may file a specific ITR, such as ITR Form 7, based on the nature of their income and status.

ITR Form 6

ITR Form 6 is used by companies (other than those claiming exemption under section 11) to file their income tax returns. Companies registered under the Companies Act, 2013, or any other related acts are required to use this form for reporting their income, deductions, and tax liabilities. The form is applicable for both domestic and foreign companies that are liable to pay taxes in India.

Who Should Use ITR Form 6?

ITR Form 6 is for the following entities:

• Companies (other than those claiming exemption under Section 11):
• Domestic Companies: Indian companies that are incorporated in India under the Companies Act, 2013.
• Foreign Companies: Companies that are incorporated outside India but have income that is taxable in India.

Documents Required for Filing ITR Form 6:

1. Balance Sheet and Profit & Loss Account: Audited financial statements of the company.
2. Form 3CEB: Transfer pricing report (if applicable).
3. Tax Audit Report (Form 3CA/3CB): If the company’s accounts are audited.
4. Form 26AS: TDS statement to verify taxes deducted at source.
5. Details of any capital gains: Documents related to the sale of capital assets.
6. Proof of Deduction: For claiming deductions under sections like 80G, 80JJAA, etc.
7. Foreign Assets/Income Details: For foreign companies or Indian companies with foreign income/assets.

Who Should Not Use ITR Form 6?

• Individuals and HUFs: They must use ITR Form 1, ITR Form 2, or ITR Form 3, depending on their income.
• LLPs, Partnership Firms, AOPs, or BOIs: These entities must use ITR Form 5.
• Trusts and NGOs: These entities need to file ITR Form 7.

ITR Form 7

ITR Form 7 is used by trusts, charitable organizations, and other entities that are required to file returns under specific provisions of the Income Tax Act, particularly those claiming exemptions under Section 11 (for income from property held for charitable or religious purposes) or other similar sections. It is primarily for organizations that are not involved in business but need to report income and claim exemptions.

Who Should Use ITR Form 7?

ITR Form 7 is meant for the following entities:

1. Trusts and Charitable Institutions:

• Charitable Trusts or Religious Trusts claiming exemptions under Section 11 of the Income Tax Act.
• Non-profit organizations that provide services for charitable or religious purposes.

1. Political Parties:

• Political parties that are required to file their income tax returns.

1. Other Entities:

• Other organizations, such as cooperative societies or any other entity, that are claiming exemption under any specific section (such as Section 12A or Section 10).

Documents Required for Filing ITR Form 7:

1. Registration Certificate: Proof of registration of the trust or charitable organization under relevant provisions (e.g., Section 12A or Section 80G).
2. Audited Financial Statements: Balance Sheet and Profit & Loss Account of the trust or organization.
3. Form 3CB/3CD: If a tax audit is required, the Tax Audit Report must be attached.
4. Form 26AS: This statement provides details of TDS deducted at source and taxes already paid.
5. Income and Donation Details: Proof of donations and details of income received, including any capital gains.
6. Income from Foreign Sources: If applicable, details of income from foreign assets or international operations.
7. Details of Exemptions: Documentation supporting the exemption claims under Section 11, Section 12A, and other sections.

Who Should Not Use ITR Form 7?

• Individuals, HUFs, and Companies: These taxpayers should use ITR Form 1, ITR Form 2, ITR Form 3, or ITR Form 6, depending on their income and tax status.
• Partnership Firms and LLPs: These entities must file ITR Form 5.

Conclusion

Choosing the right ITR form is essential for accurate tax filing and avoiding penalties. Carefully assess your income sources, exemptions, and category to determine the appropriate form. Proper tax compliance ensures a smooth financial record and helps you maximize tax benefits.

If you require assistance with Income Tax compliance, Manthan Experts can be your trusted advisor. Contact them at info@manthanexperts.com.to discuss your specific needs and explore how their expertise can benefit your business.

Related Income Tax Articles

• Who is Required to File Income Tax Returns (ITR) in India?
• Benefits of Filing Income Tax Return
• Income Tax Penalty for Late Filing & Non-Compliance