First time filing ITR? Here’s how to choose the right ITR form based on your income

For the first-time filing of your Income Tax Return (ITR), the process can become overwhelming because there are many forms, like ITR-1 to ITR-7, and you need to be eligible for those forms. The selection of the wrong form can result in delays in processing or even the rejection of your ITR application. According to tax consultants, the main thing is to know about your income type and sources before selecting the correct ITR form.

Why choosing the right ITR form matters?

Different tax return forms are used by the Income Tax Department depending on the type and complexity of the income of the individual. Whether an individual earns through salary, business, companies, trusts, or partnerships, each requires a specific tax return form. Filing the wrong form can make the return defective and may require refiling.

How do I know which ITR I need to file?

Here are the types of ITR forms based on your income type:

ITR-1 (Sahaj): For small and simple income cases

ITR-1 is designed for individual residents who have a fairly simple pattern of income.

It may be filed if:

• Total income does not exceed Rs 50 lakh
• Income from salary or pension
• Income from one house property
• Income from other sources like interest on savings, bank deposits, or refund of income tax
• Income from agriculture up to Rs 5,000
• Capital gain under Section 112A not exceeding Rs 1.25 lakh

But IT-1 cannot be filed by NRIs, individuals having high incomes, more than one house property, business income, or capital gains.

ITR-2: For Individuals with capital gains or multiple assets

ITR-2 can be used by individuals and Hindu Undivided Families (HUF) that:

• Do not earn any income through business or profession
• Earn income through salary, house property, capital gains, or any other source
• Club the income of spouse or minor child in some cases

The form cannot be used by people having income from their business or partnership firms.

ITR-3: For business and professional income

ITR-3 is applicable for people and HUFs whose income is derived from:

• Business or Profession
• Salary, Pension, Income from House Property, Capital Gains or other sources

ITR-3 is applicable for those taxpayers who are not eligible for ITR-1, ITR-2, and ITR-4 on account of their business or professional income.

ITR-4 (Sugam): For presumptive income cases

ITR-4 forms can be filed by resident individuals, HUFs, and companies (except LLPs), having:

• Total income not exceeding Rs 50 lakhs
• Business/professional income taxed on presumptive basis as per Sections 44AD/44ADA/44AE
• Other income of a smaller amount like salary, single house property, or interest

ITR-4 cannot be filed where there is substantial income from capital gains, more than one property, or the person is a non-resident.

ITR-5: For firms and other entities

ITR-5 is used by:

• Partnership firms, LLPs, AOPs (Association of Persons), and BOIs (Body of Individuals)
• Cooperative societies, trusts (except those that need to file ITR-7), and similar bodies

But it is not for companies and charitable organisations needed to file under ITR-7.

ITR-6: For companies

ITR-6 is applicable to all companies under the Income Tax Act, excluding those who are exempted under Section 11 (charitable/religious trusts).

This includes:

• Domestic companies
• Foreign companies
• Any incorporated or declared body corporate treated as a company

ITR-7: For exempt institutions

ITR-7 is required for entities claiming exemption under the Income Tax Act, such as:

• Charitable and religious trusts
• Political parties
• Educational institutions, universities, and scientific research bodies
• Other entities filing under Sections 139(4A), 139(4B), 139(4C), or 139(4D)

What taxpayers should check before filing ITR?

Some important steps that the Income Tax department recommends the taxpayer should take, especially the taxpayer who is filing the return for the first time, to avoid making mistakes include:

• Choosing the correct tax regime on the basis of income and deductions eligibility.
• Downloading and verifying AIS (Annual Information Statement) and Form 26AS for checking TDS, TCS, and taxes paid.
• Checking the correctness of tax information with your respective employer, bank, or tax deductor.
• Preparation of all required documents for submission, like Form 16, bank statements, interest certificates, investments, and deduction certificates.
• Ensuring that your pre-filled information like PAN, address, contact, and bank account numbers are correct.
• Selection of the right ITR form (ITR-1 to ITR-7) depending upon your income and eligibility.
• Make sure you report your total income, deductions, and tax payments accurately in the return.
• Remember that there is no requirement of attaching any document with ITR-1 during the process.
• Submit your return by the last date to save yourself from late filing penalties and loss of benefits such as loss carry forward.
• Perform e-verification post-filing through the online process or by sending ITR-V to CPC Bengaluru.

Key takeaways for new taxpayers

The toughest part for new taxpayers is not filling out the tax return form, but choosing the right one among many. According to the experts, identifying the income sources is the first step in the process, while the second step involves checking the financial documents.

Now that everything has gone digital, filing ITR has become easier, but the accuracy of filing the ITR holds the key to avoiding delays and notices.