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Selection of Correct ITR Form

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India has been seeing double digit growth in its taxpayers’ base for the past few years. For the financial year 2018-19 number of returns filed was around 6 crores. It is estimated this year it should be upwards of 6.5 crores. Many of them will be filing their returns for the first time. Technology has made newcomers’ and old timers’ life easy in terms of filing the returns. Gone are the days when the taxpayer had to stand in the queue for hours to file returns. With the advent of online Income Tax Platforms filing of income tax returns is much easier. However, one must be careful while filing returns online. For example, as simple as selection of correct ITR Form – however trivial it may sound, is one of the important aspects of filing the returns. This will help you avoid unnecessary notices from the income tax department. Convenience of online filing could be lost in long chain of communications with the department.

The following table depicts the Form to be selected while filing IT Returns in the case of Individuals.

Form ITRWho can use itWho Can’t
ITR -1a. Resident individuals  
b. Having total income up to Rs. 50 lakhs  
c. Having income from salary & one house property.
d. Income from other sources like bank interest, dividend, family pension etc.  
a. Non-Residents. 
b. Having income from more than one house property.  
c. Director in a company.  
d. Investment in unlisted equity shares.
e. Taxable income above Rs. 50 lakhs. 
f. Agricultural income more than Rs. 5,000/-
ITR – 2a. Both Resident and Non-Resident.
b. Total income above Rs. 50 lakhs.
c. Agricultural income more than Rs. 5,000/-.
d. Investment in unlisted equity shares.
e. Director in a company.
f. Having income from more than one house property
a. Having income from business or profession.
b. Partner in a Partnership Firm/Limited Liability Partnership (LLP)
ITR – 3a. Both Resident and Non-Resident.
b. Having income from business or profession.  
c. Partner in a Partnership Firm/Limited Liability Partnership (LLP)
 
ITR – 4a. Residents.  
b. Having total income up to Rs. 50 lakhs. 
c. Having income from business or profession who opt for presumptive taxation (44AD,44ADA).
a. Director in a company.  
b. Investment in unlisted equity shares.    
Selection of correct ITR Form can sometimes be tricky

By selecting the wrong ITR form, your return will be treated as defective return by the income tax department. The department will send a notice asking to rectify the same within 15 days from the date of receipt of the notice. If you do not respond to the notice within the specified time, the filed return will be treated as Invalid, which effectively means that you have not filed your tax returns. And that will open a big can of worms.

Consequences of choosing a wrong ITR can be illustrated as follows:

Ms. Sravani had income from salary of Rs. 40 lakhs and was eligible for a refund of Rs. 2 lakhs. She inadvertently chose ITR-4, while filing, which is applicable to a taxpayer having income from business or profession and who opts to pay taxes under presumptive taxation.

CPC processed the tax return as defective, as no income was declared under the head income from business or profession and gave her an opportunity to rectify the defect within 15 days of receipt of notice.

 In case if she had failed to comply with notice, apart from return being considered as invalid she also would have lost her refund amount of Rs.2 lakhs

If Ms. Sravani had selected ITR-1, which is applicable to her, she would have not received the notice from the department and, she would have received the refund amount early.

Let us see some more illustrations for a better understanding:

Selection of Correct ITR Form – More Illustrations

  • Mr. Raju is a resident taxpayer having an income from salary of Rs. 52 lakhs and income from savings bank interest of Rs. 8,500/-. Which ITR Form he should choose?

Ans:  Form ITR -2. Since his total Income is more than Rs. 50 lakhs, Form ITR-1 cannot be used.   

  • M/s. Ramu Enterprises is a proprietary concern of Mr. Ramu. His turnover during the financial year is Rs. 90 lakhs and he is also a Director in M/s. Ram Solutions Private Limited. He wishes to declare his income under presumptive taxation (44AD- 6%/8% of Turnover). Which form he should choose?

Ans: Form ITR -3. Since he is a director in a company, Form ITR – 4 cannot be used.

  • Dr. Abhishek earned an income of Rs. 26 lakhs from his clinic during the financial year and he does not have any other income during the year and wishes to offer income under normal provisions. Which ITR form he should choose?

Ans: Form ITR -3. As Mr. Abhi is a Doctor and his income from clinic falls under income from specified profession, the applicable Form is ITR 3. Also, he is not offering his income under presumptive taxation.

  • Mr. Mahesh is a salaried employee earned Rs. 12 lakhs during the year.  He is also having rental income from three house properties. Which ITR form he should choose?

Ans: Form ITR-2. Since he is deriving income from more than one house property so Form ITR-1 cannot be used.

  • Ms. Shanti is a partner in S&A Associates. During the year, she is having income from salary of Rs. 40 lakhs and income from two house properties amounting to Rs. 4 lakhs. Which ITR form she should choose?

Ans: Form ITR -3. Since she is a partner in partnership firm, Form ITR- 2 cannot be used.

  • Mr. Anand is a Non-resident having rental income of Rs. 8 lakhs from one house property. Which ITR Form he should choose?

Ans: Form ITR-2. Since he is a Non-Resident, form ITR-1 cannot be used.

The write-up is for general understanding. We suggest the readers to discuss with their CAs before deciding on tax implications.

CA Govinda Reddy. M, ACA

Govind is a Chartered Accountant, presently working as Audit Manager in Venkatesh, Bhaskar & Associates, Chartered Accountants, Bangalore. He is specializing in the field of Direct Taxation and Corporate Laws. He can be contacted at govind@vbaca.co.in

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