What Is ITR?

ITR stands for Income Tax Return. It is a return that every assessee has to furnish to the Income Tax Department of India regarding income earned during a particular financial year and taxes paid thereon.

The purpose of filing an ITR is to:

1. File returns of income earned in the form of salary, income from business or profession, income from investments, and other sources.
2. Deduct the total tax liability percent on the income that has been earned.
3. Take advantage of the various depreciations and exemptions of the Income Tax Act/Act of Parliament of Uganda.
4. Submit any extra amount for tax or for claiming a refund if any excess tax has been paid.

There are several types of ITR forms, including:

1. ITR-1 (Sahaj): Individuals with income from salary, pension, and interest.
2. ITR-2: Concerning those who earn income from business or profession,
3. ITR-3: For persons with income from business or profession and income from any other source.
4. ITR-4 (Sugam): In a personal capacity for persons having income from business or profession as well as from other sources.
5. ITR-5: For firms, associations of persons, and bodies of individuals.
6. ITR-6: For companies.
7. ITR-7: In the case of every person required to furnish a return under section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D).

An ITR or Income Tax Return must be filed by an individual or business entity whose income threshold is set by the government, and within the time and date set by the government or else there will be charges of penalty and interest added to the total amount.

Who is eligible to file an ITR?

In India, the following individuals and entities are eligible to file an Income Tax Return (ITR):
Individuals:

1. Those earning over the basic exemption limit regardless of whether they live in the area or not.
2. Any person who has income from salary, business, profession, capital gains income, or which emerges from any other source.
3. Those with earned income from sources outside the country.
4. Those who have invested in the share stock market and other mutual funds or any other investment venture.
   Entities:
5. Organizations (enterprise, national or international).
6. Partnership firms.
7. Miscellaneous Limited Liability Partnerships (LLPs).
8. Self-employed individuals, partners of a firm, Hindu Undivided Families (HUFs).
9. Non-profit organizations, societies, charitable organizations, Trusts, section 25 companies.
10. Investor–company categories include Association of Persons (AOPs) and Body of Individuals (BOIs).
    Income Criteria:
11. For individuals below 60 years: Rs 2,50,000/ å year or higher in a particular fiscal year.
12. For senior citizens (60-80 years): ₹3 lakh or more in a financial year or persons who possess income tax account numbers issued under the existing provisions of the Act and employed from the date of commencement of this Act.
13. For super senior citizens (above 80 years): ₹5 lakh or more in a financial year for purchase of any goods except for those specified, under section 2 of the CGST Act, 2017 which are sold under the brand name of the importer.
    Other Criteria:
14. Those who have claimed a refund.
15. Those people who have invested in tax-saving instruments.
16. The target market of the product includes people who have made foreign remittances.
17. Persons having income from other sources in India.

However, an individual must file an ITR even if his/her income is below the exemption limit, in case he/she has income from foreign land or has invested in tax-saving instruments.

For how many amounts & cases no ITR is mandatory to be filed?

In India, the following individuals are exempt from filing an Income Tax Return (ITR):

1. Senior Citizens (80 years and above): Their total income shall only be from pensions, interest, and other income to which the provisions of this Act shall not apply if such total income does not and will not exceed Rs. 5 lakhs in a year.
2. Individuals with income below the exemption limit: They meet the routing criteria if the total taxable income for the financial year does not exceed ₹ 2, 50,000 for residents below the age of 60 years, ₹ 3, 00,000 for residents aged between 60-80 years, and ₹ 5, 00,000 for super senior residents of 80 years and above.
3. Individuals with only agricultural income: In the case where the income derived from such agriculture is less than ₹ 5000 in a financial year.
4. Individuals who are not required to file ITR under Section 139: This comprises persons who do not have to file ITR because of certain exemptions or exceptions including those with only exempt income or those who are non-residents of India.
5. Non-resident Indians (NRIs) with no income in India: As long as they don’t have any source of income in India they are not bound to file their ITR.
6. Individuals who have only exempt income: If their income comprises only such amount as is exempt from tax, for instance through dividends, interest on tax-free bonds, or capital gains from exempt sources.

But please remember that even if one does not have to file the return under the ITR, he or she has to file a return if there is any tax liability or where a refund has to be claimed. Individuals should always seek advice from a tax consultant or the Income Tax Department to determine exemptions.

Why should you file an ITR?

Filing an Income Tax Return (ITR) is essential for several reasons:
Compliance with Tax Laws

1. Avoid penalties and fines: This comes with penalties for failing to file ITR, fines, and in some cases prosecution.
2. Comply with tax regulations: Preparation and submission of ITR help one to strictly adhere to the laws and regulations of the country’s taxation one.

Benefits and Advantages

1. Claim refunds: Submissions of excess taxes, and filing of ITR assist you in claiming for it.
2. Carry-forward losses: When filing an ITR, one can carry forward the next year thus helping to minimize tax pay.
3. Improve credit score: This shows that filing an Income Tax Return is based on an economic discipline, which if positive affects your credit score.
4. Loan and credit applications: Now getting a loan or credit is conditional on filing an ITR.
5. Government benefits and subsidies: Some sort of government aid and subsidy may require an ITR filing.

Individual and Organizational Advantages

1. Financial record-keeping: When filing an ITR, there is documentation of the transactions that one has made.
2. Tax planning and optimization: Online IT Return lets you plan your tax for the future and take the necessary measures to save taxes in future years.
3. Professional requirements: In what respects is filing ITR mandatory for some professionals like Chartered Accountants and Lawyers?
4. Business and entrepreneurship: ITR filing is mandatory for businesses and employers to stay out of trouble and be eligible for certain benefits.

Other Important Reasons

1. Passport applications: It may be mandatory to file ITR in case of passport applications.
2. Foreign visa applications: due to certain technicalities, tax return filing may be expected while applying for foreign visas.
3. Tax audit and assessment: The basic objective of filing ITR is tax audit & assessment of taxes, which minimizes the chances of litigation.

Consequently, filing an ITR is necessary for legal requirements, challenges and privileges associated with taxation, and documentation of individual and business personnel.

When is it compulsory to file ITR in India

In India, it is mandatory to file an Income Tax Return (ITR) in the following situations:
Individuals

1. Income exceeds ₹2.5 lakh: When the total income of an individual for a financial year is more than ₹ 2,50,000.
2. Income from capital gains: Any person earning from sales of stock, or any other source constituting income from capital gains however small the amount may be.
3. Income from foreign sources: If any person is a resident of India and has income from any source within or outside India then it does not matter how much income that person gets from that source, the entire income would be chargeable to tax under the return.
4. Being a resident and having assets outside India: If a person is an assesses of India and he possesses his property in another country.
5. Being a director of a company: If an individual is a director of a company, he can get £3 per annum, irrespective of the income of the company.

Businesses and Professionals

1. Companies: No company, private, public, or multinational is exempt from filing their ITR.
2. Partnership firms: Partnership firms are also required to file their ITR.
3. Limited Liability Partnerships (LLPs): All LLPs must file ITR.
4. Hindu Undivided Families (HUFs): All HUFs must file ITR.

Other Situations

1. Tax audit: If some person or organization is expected to go through the process of a tax audit.
2. Claiming refund: There are a few conditions under which an individual or business wants to claim a refund.
3. Carrying forward losses: To submit losses to the future years an individual or business has to fulfill the following conditions.
4. Having tax deducted at source (TDS): If an individual or business has TDS deducted from his income.

However, it must be recalled that even if an individual or business is not under obligation to file an ITR, he or she may still file the return if s/he has a tax liability or if s/ he is eligible for an amount of refund.

To whom, ITR is Not Mandatory

The following individuals and entities are exempt from filing an Income Tax Return (ITR) in India:
Individuals

1. Senior Citizens (80 years and above): But there is a proviso that such income is other than profit from business and profession and the total income of the applicant does not exceed ₹ 5 lakhs in a year from where the pension/interest or other income is derived.
2. Individuals with income below ₹2.5 lakh: Where the aggregate income received by them in a financial year does not exceed ₹2.5 lakh.
3. Individuals with only agricultural income: If their agricultural income is less than ₹5,000 in one particular financial year.
4. Non-resident Indians (NRIs) with no income in India: Of course, that is true, especially if they do not have any income in India.

Entities

1. Charitable trusts and institutions: Below section 12A of the Income Tax Act, If they are registered Below.
2. Cooperative societies: If they are registered3 under the Cooperative Societies Act then the words about membership shall be to the effect that such membership is open to members of cooperative societies only.
3. Local authorities: Like Municipal corporations, Panchayetis cantonment boards, etc.
4. Entities exempt under Section 10: For Instance, universities, colleges, and institutions that carry out research work.

Other Exemptions

1. Individuals who are not required to file ITR under Section 139: This is comprised of persons having income not derived from India or having income fully exempted from tax.
2. Individuals who have only exempt income: For example, dividends, interest income from municipal bonds, Interest income received from tax-exempt bonds, and any capital gains from securities that are exempt from taxes for many years.

However, any resident individual or any other entity may be required to file an ITR even if exempted in certain conditions where the entity has a tax liability or where the entity is seeking a refund. As always, it is advisable to seek advice from a tax expert or the Income Tax Department to find out one’s eligibility for some exemption.

Which ITR to file

Filing of Income Tax Return (ITR form) depends on the income source, its quantum, and many other things but generally, this form is filled by a person or an entity. Here’s a brief guide to help you determine which ITR form to file:

ITR Forms for Individuals

1. ITR-1 (Sahaj): For those earning through:
2. Salary/pension
3. Interest
4. Dividends
5. From One Self-Generated House Property (Where loss is carried forward from one previous year)
6. In India, only agricultural income up to ₹5,000 is immune from the grabbing clutches of others.
7. Total income up to ₹50 lakh

ITR-2: For those who derive income from:

1. Salary/pension
2. Interest
3. Dividends
4. Where the income is received from more than one house property
5. Capital gains
6. Foreign Income
7. An important category is agricultural income above ₹ 5,000.

ITR-3: For people with deriving income from:

1. Business or profession
2. Capital gains
3. Foreign Income
4. Agricultural income of more than ₹5000

ITR-4 (Sugam): For persons with income from:

1. Business or profession (presumptive income)
2. Salary/pension
3. Interest
4. Dividends
5. House property income (where the loss on one house property is not carried forward)
6. Only income derived from agricultural land in the form of agriculture income up to ₹5,000 is exempted from tax.

ITR Forms for Businesses and Entities

1. ITR-5: For firms, associations of persons (AOPs), and a body of individuals (BOIs)
2. ITR-6: For companies
3. ITR-7: In the case of individuals necessary to complete returns under section 139(4A) section 139(4B) or section 139(4C) or section 139(4D).

Additional Considerations

1. Resident and non-resident status: For those with a computation of more than Rs. 10 lakh, the ITR form to file also depends on the individual’s resident status in India.
2. Tax audit requirements: In certain cases, if an individual or any entity is asked for a tax audit, then he or she might have to file a different ITR form.
3. Other income sources: If a person has income from different sources, including foreign income, capital gains, income from house property, or income from other sources, he must file a new ITR form.

To determine the appropriate ITR form based on individual circumstances, seeking guidance from a legal expert or the income tax department is essential.