Choice of wrong ITR form can lead to a notice from Income Tax Dept

Take into account the amount and nature of your income, and residency status when choosing form

With the December 31 deadline for filing Income-Tax Returns (ITR) for financial year 2020-21 and assessment year 2021-22 just two weeks away, taxpayers who have not begun the process yet should do so without further delay. The first step here is to choose the correct ITR form.

Nikhil Varma, managing partner, Miglani Varma & Co-Advocates, Solicitors and Consultants says, “The ITR form to be used depends on the amount and nature of the income earned by an assessee.” The tax department has notified all the ITR forms (one to seven) for AY 2021-22 with minimal changes. Of the seven, four are relevant to individual tax filers: ITR-1 to ITR-4.

ITR-1

If you are a salaried individual or receive a pension, are ordinarily resident in India, and your total income for the financial year 2020-21 was up to Rs 50 lakh, then ITR-1 is the right form for you. You can also use ITR-1 if you earn income from other sources, such as interest from bank deposits and income from one house property. Those who have agricultural income of up to Rs 5,000 may also use ITR-1.

ITR-2

An assessee whose salary income exceeds Rs 50 lakh must use ITR-2 or 3. Hindu Undivided Family (HUF) taxpayers must also use this form.

Moiz Rafique, managing partner, Privy Legal Service LLP says, “Those who earn international income must file their returns in ITR-2.”

Those who have earned capital gains or losses from more than one house property must use ITR-2 or 3. Those who have carried forward losses from house property must also use ITR-2 or 3.

Those who held unlisted equity shares at any time during the previous financial year must use ITR-2 or 3. An individual who was a director in a company must also use ITR-2 or 3.

Use this form if you have agricultural income exceeding Rs 5,000 and if you are a Hindu Undivided Family (HUF) who is not eligible to file Form ITR‐1 (Sahaj), and who does not have any income under the head “Profits or gains from business or profession”.

Aditya Chopra, managing partner, Victoriam Legalis-Advocates & Solicitors says, “Income from spouse and children can be clubbed if it falls under the above-mentioned income categories.”

ITR-3

Not ordinarily resident and non-resident persons who have income from presumptive business or profession covered under Section 44AD, 44ADA and 44AE (for not ordinarily resident and non-resident person) must use ITR-3.

If you are a partner at a firm, and receive salary, bonus, commission or share of profit, you must use ITR-3. All the income heads eligible for ITR-2 are valid for this form as well.  

ITR-4

This form is primarily for residents in India who have presumptive income from business or profession which is computed under Sections 44AD, 44ADA or 44AE. HUFs can also use ITR-4.

Avail opportunity to rectify error

If a taxpayer uses the wrong form, the income-tax officer may consider his return as defective under Section 139(9) of the I-T Act. The taxpayer is given the option to rectify his mistake by filing a revised return within a prescribed time limit. If he doesn’t rectify the mistake within that period, his ITR may be treated as invalid and he may have to face punitive consequences, as though he did not file the return at all.

If an assessee misses the December 31 deadline, he can file a belated tax return by paying a late filing fee. Varma says, “This must be done within three months from the original filing date. However, if there is any unpaid tax liability, then penal interest may be levied on it if an assessee files a belated return.”

What is Presumptive Taxation Scheme?

• Opting for Presumptive Taxation Scheme (PTS) means you are not required to maintain books of accounts

•  PTS is for businesses with turnover of less than Rs 2 crore

•  Eligible professionals with gross receipts of less than Rs 50 lakh during the previous financial year can also use it

• Under the PTS scheme, businesses can estimate their net income at the rate of 6 per cent of turnover for digital transactions and 8 per cent on cash receipts, and pay tax on it

•  Professionals such as doctors, lawyers, etc. who opt for PTS can declare 50 per cent of their total receipts as taxable income and pay tax on it at slab rate