Income tax

Tax return: what prevents you from selecting an ITR form?

To file your income tax return (ITR), the first step is to select the appropriate ITR form, which is determined primarily by a taxpayer’s sources of income.

Employees have the advantage of selecting the simpler ITR form – ITR-1 or Sahaj, provided that such an assessee is not disqualified from selecting the form.

Dr. Suresh Surana, Founder, RSM India lists the eligibility requirements for selecting an ITR form and the factors that would prevent you from using it to file your tax return:

ITR-1

Here are the eligibility requirements and disqualifying factors for ITR-1:

Eligibility

Form ITR1 (Sahaj) applies to resident individuals (residents and ordinary residents) with aggregate income of up to Rs 50 lakh from the following sources:

  • Salary / Pension
  • Ownership of a house
  • Income from other sources such as interest, family pension, dividends, etc.
  • Agricultural income up to Rs 5,000

Disqualification

However, regardless of whether an individual meets the above eligibility criteria, ITR-1 cannot be filed by a taxpayer –

  • who is a director in a company,
  • who held unlisted shares at any time during the previous year,
  • who has an asset (including a financial interest in an entity) located outside India,
  • who has signing authority over any account located outside India,
  • who has income from any source outside India,
  • in the case of which tax has been deducted in accordance with Section 194N of the Income Tax Act (“IT Act”) for a withdrawal of excess money,
  • in the event that payment or deduction of tax has been deferred on the ESOP received from the employer being a qualifying startup,
  • who has a loss carried forward or a loss to be carried forward under an income heading,
  • who is “Resident and non-habitually resident” or “Non-resident”,
  • have any other income (other than qualifying income) such as business income, capital gains, income from more than one property of the home, etc.
  • who claims the u/s 57 deduction for income from other sources, other than the family pension deduction,
  • who is claiming a tax credit/relief under Section 90 or Section 91,
  • who claims a tax credit withheld at source from any other person,
  • have “income from other sources” taxable at special rates, for example, lottery winnings,
  • have unexplained taxable income u/s 115BBE,
  • have income to be divided between the spouses as governed by the Portuguese Civil Code in accordance with the provisions of Section 5A.

“An individual taxpayer who is not eligible to file an ITR-1 should check the terms of other ITRs and select their ITR accordingly. Generally, a taxpayer can select ITR-2 when they have neither profits and earnings from a business or profession (“PGBP”) nor any income from a general partnership.In addition, the individual taxpayer must file ITR-3 in all other cases, except when electing to a lump sum taxation with respect to his PGBP income.It is pertinent to note that the RTI filing process is a very crucial step that must be completed with utmost care and in a timely manner,” Dr. Surana said.

If an individual taxpayer cannot file ITR 1 due to disqualification, he should analyze his sources of income and therefore opt for the correct ITR as follows:

ITR-2

Here are the eligibility requirements and disqualifying factors for ITR-2:

Eligibility

ITR-2 can be filed by individuals or HUFs who –

  • are not eligible to file ITR-1 (Sahaj);
  • not have income from business or professional profits and gains in the form of interest, wages, bonuses, commissions or remuneration, under any name whatsoever, called, due to or received by him of a company in partnership;
  • have another person’s income such as spouse, minor child, etc., to contribute with their income – if the income to contribute falls into one of the above categories.

Disqualification

Any Taxpayer who has:

  • Income from profits and gains from a business or profession
  • Income in the form of interest, salary, bonus, commission, or remuneration due to or received from a partnership business.

ITR-3

Here are the eligibility requirements and disqualifying factors for ITR-3:

Eligibility

This return form is to be used by a Hindu individual or undivided family who has an income under the heading of profits or earnings from a business or profession and who is not eligible to complete Form ITR-1 (Sahaj), ITR-2 or ITR-4 (Sugam).

Disqualification

ITR-3 cannot be used by a person who has no income under Profits and Gains from a Business or Profession.

ITR-4 (Sugam)

Here are the eligibility requirements and disqualifying factors for ITR-4:

Eligibility

ITR-4 can be filed by a resident/HUF/corporate individual (other than LLP) who has:

  • Income not exceeding Rs 50 lakh
  • Business and professional income calculated on a presumptive basis according to 44AD, 44ADA or 44AE
  • Salary/pension income, home ownership, farming income (up to Rs 5,000)
  • Salary/pension income, home ownership, farming income (up to Rs 5,000)
  • Income comes from other sources (savings account interest, deposits, income tax refund, any other interest income) excluding lottery winnings and racehorse income.

Disqualification

Any Taxpayer who –

  • is a Resident Ordinary Non-Resident (RNOR) and a Non-Resident Indian
  • has a total income above Rs 50 Lakh;
  • has an agricultural income above Rs 5,000;
  • is a director in a company;
  • has income from more than one property than a house;
  • has income in the form of lottery winnings, business of owning and maintaining racehorses, income taxable at special rates u/s 115BBDA or Section 115BBE;
  • held unlisted shares at any time during the previous year;
  • deferred income tax on the ESOP received from the employer being a qualifying start-up.