An Income tax return (ITR) is a form used to file information about your income and tax to the Income Tax Department. The tax liability of a taxpayer is calculated based on his or her income. In case the return shows that excess tax has been paid during a year, then the individual will be eligible to receive a income tax refund from the Income Tax Department.
Income Tax Return (ITR) is a form in which the taxpayers file information about his income earned and tax applicable to the income tax department. The department has notified 7 various forms i.e. ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 & ITR 7 till date. Every taxpayer should file his ITR on or before the specified due date. The applicability of ITR forms varies depending on the sources of income of the taxpayer, the amount of the income earned and the category the taxpayer belongs to like individuals, HUF, company, etc.
Why you should file tax returns every year??
There are several reasons why you should file your income tax returns. We take a look at some of the reasons why is it important to indulge on this exercise without fail.
- You can claim tax deductions
The Income Tax Act allows a taxpayer to claim multiple deductions under several sections to reduce one’s tax outgo. However, to claim these deductions under various sections of the Income Tax Act, it is important to file your Income Tax returns every year by the due date.
- You can claim tax refunds
In many cases, when Tax Deducted at Source (TDS), gets subtracted on your income, you are eligible for refund from the Income Tax department if the total taxes you are eligible to pay is less than the tax amount deducted. You can claim refunds only if you file income tax returns by the due date. “Filing your income tax returns helps you get back refunds on your excess tax payments,” confirmed Dasari.
- Helps adjusting your capital gains and losses
If you invest in equities, you will most likely incur capital gains and losses. According to the Income Tax laws, capital losses can be adjusted against capital gains. But for that, filing income tax returns is mandatory. Also, if you have any capital loss, you can carry it forward for the next 8 consecutive financial years, if you file your Income Tax returns regularly.
- Avail a loan or opt for a credit card
When you apply for a loan or a credit card, banks will check how you fare when it comes to your finances. If you have filed your Income Tax returns regularly, it stands as proof that you have a regular income and have paid appropriate taxes on it. Financial institutions would ask to see your IT returns for the last few years before approving your home loan, a car loan or a credit card. Insurance companies may also ask for IT receipts when you are buying term insurance of a higher amount.
Different Types of ITR Forms :
ITR-1 OR SAHAJ
For Assessment year 2020-21 Return in Form ITR-1 can be filed by an resident individual having an total income up to 50 lakh. Total income for this purpose includes;
- Income from salary or pension,
- Income from one house property,
- Income from other sources such as interest from bank account (excluding winning from lottery and income from race horses, income taxable under section 115BBDA or Income of the nature referred to in section 115BBE) or
- Agricultural income is up-to 5,000.
ITR-2
For Assessment year 2020-21 return in Form ITR-2 can be filed by an Individuals and HUFs having a total income of more than 50 lakh. The income should not be from profits and gains of business or profession can file ITR-2. An individual having income from salaries, more than one house property, capital gains and income from other sources, having income from sources outside India and holding assets outside India may file ITR-2. Also having Income from
- Agricultural income more than Rs 5,000
- If you have had investments in unlisted Equity shares at any time during the financial year
- Income from Capital Gains; or
- Foreign Assets/Foreign income.
ITR-3
For Assessment year 2020-21 return in Form ITR-3 can be filed by an Individual and HUF having income from business or profession, or an individual holding partnership in a firm may file ITR-3.
- Carrying on any business or profession
- If you are a Director in a company
- Income of a person as a partner in the firm.
- If you have had investments in unlisted equity shares at any time during the financial year
- Income from Salary/Pension, House property, and Income from other sources.
ITR-4 or Sugam
For Assessment year 2020-21 return in Form ITR-4 can be filed by an Individuals, HUFs and Firms (other than LLP) being a resident having total income up-to Rs50 lakh and having income from business and profession which is computed under sections 44AD, 44ADA or 44AE. A person who is a director in a company or has invested in the unlisted equity shares or has any brought forward/ carry forward loss under house property income cannot file the ITR 4.
ITR-5
For Assessment year 2020-21 return in Form ITR-5 can be filed by LLPs (Limited Liability Partnership) , Firms , Investment funds, Business trusts, Estate of insolvent, Estate of deceased, Artificial Juridical Person (AJP), Body of Individuals (BOIs), Associations of Persons (AOPs), must opt for ITR-5 form.
ITR-6
For Assessment year 2020-21 return in Form ITR-6 can be filed by companies that are not claiming exemptions under Section 11, this form must be chosen. Companies that are filing returns under this section can only do it electronically.
ITR-7
For Assessment Year 2020-21 Return in Form ITR-7 can be filed by by registered charitable and religious trust, companies that have to furnish returns under Section 139(4A), Section 139(4B), Section 139(4C), Section 139(4D), Section 139(4E), or Section 139(4F) must opt for this form. Given below are the details of the returns that must be filed under each section:
Section 139(4A): The returns must be filed by individuals who receive an income from a property that belongs to a trust or other legal obligations and the income that is generated is solely used for religious or charitable purposes.
Section 139(4B): Returns must be filed under this section by a political party if the total income that has been generated is more than the maximum amount.
Section 139(4C): Returns must be filed under this section by the below-mentioned entities:
- Scientific Research association
- Institutions or association that come under Section 10(23A)
- Medical institutions, hospitals, universities, funds, and other educational institutions.
- News agencies
- Institutions that come under Section 10(23B)
Section 139(4D): Any college, university, or other institutions that are not required to furnish any income or loss must file returns under this section.
Section 139(4E): Business trusts that are not required to furnish their income or loss must file their returns under this section.
Section 139(4F): Investment funds that are present under Section 115UB and are not required to furnish any income or losses must file returns under this section. For persons including companies required to furnish return under section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D) or section 139(4E) or section 139(4F).