Jun 17, 20226 min read

What Is ITR? Why Should You File It?

ITR is an abbreviation for Income Tax Return. The Income Tax Act of 1961 specifies the ITR forms and processes that must be completed. This blog will teach you everything you need to know about the ITR and its various forms.

What is ITR?

An Income Tax Return (ITR) is basically a form on which people submit information about their earned earnings and taxes to the IRS.

According to the government, notices for 7 distinct kinds have been issued so far, notably ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7.

Each taxpayer is required to file his or her ITR on or before the timeframe. The legality of ITR papers varies depending on the taxpayer's origins of revenue, profits received, and user category (person, HUF, firm, etc.).

Why should one submit an ITR?

If any of the following circumstances apply to you, you must file income tax returns (ITR) in India:

1. When your gross annual income exceeds the basic exclusion amount outlined below,

Particulars Amount Individuals under the age of 60Rs 2.5 Lakh People beyond the age of 60 but under the age of 80Rs 3.0 Lakh People over the age of 80Rs 5.0 Lakh

2. If you want to ask the department for a return.

3. Whether you acquired or traded in overseas investments throughout the fiscal year.

4. You want to seek a visa or perhaps a loan.

5. If the taxpayer is a corporation or a partnership, regardless of profit or loss.

Furthermore, even if your earnings is less than the basic exclusion amount, you must submit an ITR if you fulfill one of the these situations:

have more than Rs.1 crore in one or more current banking accounts;
or spent more than Rs 2 lakh on international travel for oneself or another individual;
or spent more than Rs.1 lakh on energy usage.

Which ITR should you file?

ITR-1 OR SAHAJ

This report type is for a local person having overall earnings for the fiscal year 2021–22, which includes: Wage Earnings; or

Profit from a single residential property (exclusive of previous year's losses); or
Additional Ways of Revenue (excluding Winnings from the Lottery and Income from Race Horses)
Up to Rs.5000 in farm earnings

Who cannot use ITR 1 Form?

More than Rs. 50 lakh in total earnings.
Farm earnings in excess of Rs 5000
If you earn investment income that is taxed,
If you make a living through your company or career,
Receiving revenue from more than one residence...
If you are a firm's CEO,
If you invested in unregistered share capital at any point throughout the fiscal year,
If you are a citizen, you may own property (having economic interests in any organization) outside India, such as signature power in any bank situated within India.
If you are a non-resident as well as a citizen not ordinarily resident (RNOR),
Owning overseas investments or receiving foreign earnings.
If you are assessed in relation to the earnings of some other individual, on which taxes are withheld in another man's hands.

ITR-2

ITR 2 is intended for use by an individual or a Hindu Undivided Family (HUF) whose total income for the fiscal year 2021-22 contains revenue from wages; earnings from residential properties; or cash inflows.

Additional Ways of Revenue

(The aggregate revenue from the preceding activities must be greater than Rs 50 lakhs.)

When you're a firm's single director,
When you invest in unregistered share capital at any point throughout the fiscal year,
Become a non-resident as well as a resident not ordinarily resident (RNOR).
Income from Capital Gains
Overseas holdings and earnings
More than Rs 5,000 in farm revenue
Furthermore, if the earnings of an individual, including a spouse or kid, are to be combined with the assessee's money, this response can be used if such income drops into any of the aforementioned areas.

Who has the legal right to use this return form?

Individuals whose gross earnings for the fiscal years 2021–22 comprise revenue from a trade or activity must not submit this return form. One might have to use ITR-3 or ITR-4 to declare these sources of income.

ITR-3

The new ITR3 Type should be used by a person or a Hindu Undivided Household that earns a living from a company or a vocation. Individuals who earn money from the below areas are entitled to file ITR 3:

Maintaining a company or profession
If you're an independent member of a corporation and have held unregistered equity interests at any point throughout the fiscal year,
Returns may comprise money from real estate, wages, as well as other resources.
A person's earnings as a business partnership

ITR-4 or Sugam

The current ITR 4 applies to individuals and HUFs, Partnership Firms (other than LLPs), which are residents and whose total income include:

Business income according to the presumptive income scheme under section 44AD or 44AE.

Professional income according to presumptive income scheme under section 44 ADA

Business income according to the presumptive income scheme under section 44AD or 44AE
Professional income according to presumptive income scheme under section 44ADA
Income from salary or pension up to Rs.50 lakh
Income from one house property, not more than Rs.50 lakh (excluding the amount of brought forward loss or loss to be carried forward)
Income from other sources having income not more than Rs.50 Lakh (excluding income from lottery and race-horses )

Please note that any individual earning income from the above-mentioned sources as a freelancer can also opt for a presumptive scheme if their gross receipts are not more than Rs.50 lakhs.

Presumptive income scheme under sections 44AD, 44AE and 44ADA is when an individual or an entity opts to derive its income on a presumptive basis, i.e. when the income is presumed at a minimum rate based on a percentage of gross receipts / gross turnover or based on ownership of commercial vehicles. However, if the business turnover exceeds Rs 2 crore, the taxpayer will have to file ITR-3.

Who cannot use ITR 4 Form?

If your total income exceeds Rs 50 lakh
Having income from more than one house property
If you have any brought forward loss or loss to be carried forward under any head of income
Owning any foreign asset
If you have signing authority in any account located outside India
Having income from any source outside India
If you are a Director in a company
If you have had investments in unlisted equity shares at any time during the financial year
Being a resident not ordinarily resident (RNOR) and non-resident
Having foreign assets or foreign income
If you are assessable in respect of the income of another person in respect of which tax is deducted in the hands of the other person.

ITR-5

Firms,

LLPs (Limited Liability Partnerships),
AOPs (Association of Persons),
BOIs (Body of Individuals),
Artificial Juridical Person (AJP),
Estate of Deceased,
Estate of Insolvent, Business Trust, and
Investment Fund are all covered by ITR 5.

ITR-6

This report must only be submitted online for businesses that are not exempt under Section 11. (earnings through assets kept for charity or religious reasons).

ITR-7

Individuals and corporations required to file reports under Sections

139(4A),

139(4B),

139(4C),

139(4D),

139(4E), or

139(4F) .

Every person who receives money from assets held in trust or who performs any lawful duty wholly or partially for charitable or religious purposes is required to make a return under Section 139. (4A).
A political party must file a return under section 139(4B) if its total income before applying the provisions of section 139A exceeds the non-taxable income limit.
Each of the following entities must file a return in accordance with Section 139 (4C): technological research organizations and media outlets. Section 10 (23A) refers to an organization or body. Section 10 (23B) mentions an organization. whatever foundation, organization, school, and perhaps other academic organizations, as well as any clinic or other health facility.
Each university, school, and other entity that is not required to provide a report of revenue or losses under any provision of this section is required to file a return within the time frame specified in section 139. (4D).
Each corporate partnership that is not required to deliver an earnings or losses report in accordance with any specific requirement of this section may submit a report within the timeframe specified in section 139. (4E).
Section 139 requires any financial vehicle mentioned in section 115UB to file a report (4F). It would not be required to provide income tax returns or losses under either of the provisions of this section.

Conclusion-

So that was everything about ITRs and their various forms. You now know whether or not you can file an ITR. Stay connected to 5 Circles for more excellent blogs like this.

%

%