A Comprehensive Guide to Choosing the Right ITR Form in 2024

It is crucial not to miss the deadline for filing your tax returns. The Income Tax Department has introduced various ITR forms for different types of taxpayers and income sources. The first step in filing your taxes is determining which ITR form is suitable for you and understanding how to select the right Income Tax Return form.

Choosing the correct income tax return form is crucial for filing your ITR accurately and avoiding any defects. Our guide will help you understand all the aspects of Income Tax Return Forms simply and comprehensively. 

How are ITR Forms Defined?

The ITR form is used to provide the Income Tax Department with information about your income, deductions and taxes paid in a specific financial year. It also enables you to carry forward losses and request a refund from the department. 

There are various categories of taxpayers, including partnership firms, LLPs, companies, HUF and individuals. The tax department has introduced seven different ITR forms - 

1. ITR-1
2. ITR-2
3. ITR-3
4. ITR-4
5. ITR-5
6. ITR-6
7. ITR-7

The selection of forms depends on the taxpayer’s status, nature of income and residential status in India. 

Why is it Important to Choose the Right ITR Form?

Choosing the right ITR form is essential for smoothly filing your income tax return. Listed below are some common reasons as to why it is crucial - 

• Using the wrong ITR form can lead to the rejection of your return by the Income Tax Department, causing delays and inconvenience in rectifying the error and resubmitting
• Different Income Tax Return (ITR) forms have specific sections tailored to report various sources of income and deductions, ensuring accurate reporting. Using the correct form is crucial to accurately report all income sources and deductions
• Choosing the right ITR form based on the income profile simplifies the filing process by ensuring that you are using the appropriate form for your specific circumstances. By eliminating unnecessary complexities, it becomes easier to navigate through the filing requirements. This can save time and effort in preparing and submitting your tax return

Different Categories of ITR Forms and Their Explanation

The Indian Income Tax Department provides multiple ITR forms for different types of taxpayers. There are various categories available to cater to different taxpayer profiles. Here is the breakdown of the most common categories. 

1. ITR-1 (Sahaj): The simplest form is designed for individuals residing in India. It is suitable for those who receive income of up to 50 lakh rupees from sources such as salary, interest on bank deposits, pension and one-house property. However, it does not cover business income, foreign income or capital gains that exceed certain thresholds
2. ITR-2: This form is specifically designed for individuals and Hindu Undivided Families (HUFs) who have income from various sources apart from business or profession. This may encompass income from capital gains, foreign sources, multiple house properties or individuals seeking deductions under specific sections
3. ITR-3: This form applies to individuals and HUFs earning income from various sources like capital gains, pension, salary, profession, business and others
4. ITR-4 (Sugam): This simplified form is specifically designed for individuals HUFs and partnership firms who earn income from a business or profession under the presumptive taxation scheme. It caters to those falling within the provisions of Sections 44ADA, 44AD and 44AE
5. ITR-5: This form is specifically designed for non-individual entities such as partnership firms, limited liability partnerships (LLPs) and companies claiming exemptions under Section 11. Individuals, HUFs and regular companies should not use this form
6. ITR-6: This form is specifically for companies that do not qualify for exemption under Section 11 of the regulations
7. ITR-7: This form is designed for individuals and companies who need to submit revised returns per specific sections. It also applies to those who previously submitted returns electronically with minimal details

ITR E-Filing and Types of Forms

The following table contains the types of forms and their explanation during the e-filing of income tax returns (ITR) - 

Frequently Asked Questions (FAQs)

Q: What is an ITR Form, and why is choosing the right one important?

A: An ITR form is a mandatory document in India for reporting taxable income and claiming deductions/exemptions. Choosing the right form is crucial to avoiding penalties and accurately reporting income

Q: I am a salaried individual. Which ITR form should I choose?

A: If you earn a salary, receive a pension and have bank interest of less than 50 lakh rupees (all combined), then ITR-1 is the best form for you. It is designed to be simple and does not require much documentation

If your income includes capital gains from stock investments, rental income property or income from freelancing or a profession, then you will likely need to use the ITR-2. This form offers more options for reporting diverse income sources claiming deductions, providing a more comprehensive way to report different types of income

Q: Where can I find help with choosing the right ITR form and filing my taxes?

A: The Income Tax Department website offers a helpful tool called “ITR Form Selection”. Which assists taxpayers in selecting the correct form according to their income profile. Moreover, there are plentiful online resources and tutorials available to assist you in navigating the ITR filing process

Q: What happens if I choose the wrong ITR form?

A; While selecting the wrong ITR form is not ideal, it may not lead to disastrous outcomes. However, there could be potential consequences:

• Delayed Processing or Scrutiny: If the ITR form you choose, doesn’t match your income profile, the tax department may take longer to process your return or subject it to scrutiny. This could result in additional paperwork and delays
• Difficulty Reporting Income/Deductions: Using the wrong form can lead to inaccurate reporting of income and missing out on eligible deductions. This can result in missed tax benefits and potential underpayment of taxes
• Penalties for Missed Deadlines or Errors: Incorrect selection of the ITR form can lead to missed deadlines and errors in tax calculations, which can result in penalties from the Income Tax Department. It is crucial to carefully choose the correct ITR form to avoid any potential issues and ensure compliance with tax regulations 

Q: I am a freelancer, which ITR form should I file?

A: Freelancers can choose between ITR-3 for reporting freelance income as business income and claiming business expenses, or ITR-4 if income is below 50 lakh rupees and you opt for presumptive taxation. Consult a tax advisor for guidance

Q: Can I switch ITR forms if I realize I chose the wrong one?

A: Yes, you can rectify your mistake in your filed ITR form by filing a revised return using the appropriate ITR form within specific time limitations. Act promptly and choose the correct form from the start. Use online resources and consult a tax advisor if necessary for accurate filing

Q: What documents do I need to gather before filing my ITR?

A: The documents needed for filing your income tax return will differ based on your income sources and the specific ITR form you use. Here is a basic list to assist you in gathering the necessary documents:

• Form 16
• Investment Proofs
• Property Papers
• Business Records (if applicable)
• Bank Statements
• PAN Card and Aadhaar Card

Q: Are there any deadlines to keep in mind for ITR filing?

A: Yes, meeting the deadlines for ITR filing is significant. The due dates for filing ITR differ based on the taxpayer’s category:

• Salaried Individuals (Below Rs. 5 lakhs): July 31st of the assessment year.
• Salaried Individuals (Above Rs. 5 lakhs) & Other Categories: December 31st of the assessment year.

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• How to Save Income Tax in a New Tax Regime FY2024?
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Author: Abhik Das