Income Tax E-Filing
Types of ITR forms and its Applicability
Income Tax New Tax Regime
The new tax regime under Section 115BAC was introduced in the Union Budget 2020 and became applicable from the financial year 2020-21 (assessment year 2021-22). It provided an optional framework where taxpayers could opt for lower tax rates without availing most deductions and exemptions. This regime aimed to simplify tax calculations and reduce compliance burdens.
Initially, under this new regime, individuals and Hindu Undivided Families (HUFs) could choose between the existing tax regime, which allowed various deductions like HRA, 80C, 80D, etc., or the new concessional tax regime, which offered lower tax rates but disallowed exemptions. The choice had to be made every year for salaried taxpayers, while business income taxpayers had a one-time switch with restrictions.
Significant changes were made in the Union Budget 2023, making the new tax regime the default option from FY 2023-24 (AY 2024-25), though taxpayers could still opt for the old regime. The basic exemption limit was increased from ₹2.5 lakh to ₹3 lakh, and the rebate under Section 87A was extended to individuals with income up to ₹7 lakh, effectively making income up to ₹7 lakh tax-free. Standard deduction of ₹50,000 was also introduced under the new regime for salaried individuals and pensioners, which was earlier available only under the old regime.
Additionally, the highest surcharge rate was reduced from 37% to 25% for individuals earning above ₹5 crore, lowering the peak effective tax rate. This move aimed to make the new regime more attractive to taxpayers. Over time, the government has promoted the new regime as a simplified tax system by reducing exemptions and deductions, signaling a gradual shift away from the old structure.
Click here for more details:- https://www.mnprofessions.com/new-tax-regime.
HEADS OF INCOME
3.Business / Professionsl Income
Who is Liable to File Income Tax Returns in India?
Filing income tax returns (ITR) is mandatory for certain individuals, businesses, and entities based on their income, legal status, and financial transactions. The following categories of taxpayers are liable to file income tax returns in India:
Individuals
An individual must file an ITR under the following circumstances:
1.1 Income Exceeds Basic Exemption Limit
Under the Old Tax Regime:
Below 60 years – Income above ₹2.5 lakh
Senior citizens (60-79 years) – Income above ₹3 lakh
Super senior citizens (80+ years) – Income above ₹5 lakh
Under the New Tax Regime: The exemption limit is ₹3 lakh for all individuals.
1.2 Tax Deducted at Source (TDS) & Claiming Refund
If TDS has been deducted from salary, interest, rent, or any other income, the individual must file an ITR to claim a refund.
1.3 Carry Forward of Losses
Individuals must file an ITR to carry forward capital losses, business losses, or other eligible losses to offset future income.
1.4 Foreign Income or Assets
If an individual has:
Foreign assets (bank accounts, stocks, properties, etc.)
Foreign income
Signing authority in a foreign bank account
they must file an ITR, regardless of total income.
1.5 High-Value Transactions
Even if the total income is below the exemption limit, individuals must file ITR if they:
Deposited ₹1 crore or more in a current bank account.
Spent over ₹2 lakh on foreign travel.
Paid more than ₹50 lakh in electricity bills.
1.6 Presumptive Taxation (44AD & 44ADA)
If an individual has business or professional income and is covered under the presumptive taxation scheme, they must file ITR if taxable income exceeds ₹2.5 lakh.
Hindu Undivided Families (HUFs)
1.1. Income Exceeds Basic Exemption Limit
If the total taxable income of the HUF exceeds ₹2.5 lakh in a financial year, it must file an income tax return. The exemption limit is the same as for individuals below 60 years under the old regime.
1.2. Tax Deducted at Source (TDS) & Claiming Refund
Even if the income of the HUF is below the exemption limit, it should file an ITR if TDS has been deducted on any income, such as interest or rent, and the HUF wants to claim a refund.
1.3. Carry Forward of Losses
If an HUF has incurred business loss, capital loss, or any other loss, it must file an ITR to carry forward the losses to future years as per the Income Tax Act. Losses can only be set off if the return is filed before the due date.
1.4. Income from Business or Profession
If an HUF is engaged in a business or profession and its total turnover exceeds ₹2 crore, it must comply with tax audit requirements and file an ITR. Under the presumptive taxation scheme (Section 44AD & 44ADA), an HUF with turnover below ₹2 crore may still have to file ITR based on taxable income computation.
1.5. Ownership of Foreign Assets or Income
If the HUF owns any foreign assets, foreign bank accounts, or earns income from foreign sources, it must file an ITR irrespective of income levels. Non-disclosure can attract severe penalties under the Black Money (Undisclosed Foreign Income and Assets) Act.
1.6. High-Value Transactions
Even if an HUF’s total income is below the exemption limit, it must file an ITR if it has engaged in high-value transactions such as:
Depositing ₹1 crore or more in a current account.
Spending over ₹2 lakh on foreign travel.
Paying more than ₹50 lakh in electricity bills.
1.7. Receipt of Income Exceeding Threshold Limits
If an HUF receives income from house property, capital gains, bank interest, dividends, rental income, or agricultural income mixed with non-agricultural income, it may be required to file an ITR depending on taxability.
1.8. Tax Audit Requirement under Section 44AB
If the business turnover of an HUF exceeds ₹10 crore (with at least 95% digital transactions), it is liable for a tax audit and must file an ITR along with an audit report.
Partnership Firms & LLPs (Limited Liability Partnerships)
All partnership firms and LLPs must file an ITR, irrespective of profit or loss.
If turnover exceeds ₹2 crore, it may need a tax audit under Section 44AB.
LLPs with turnover above ₹40 lakh or capital contribution above ₹25 lakh must file annual returns with MCA in addition to ITR.
If the firm wants to carry forward losses, it must file an ITR on time.
Companies (Private & Public Limited Companies)
Every company (domestic or foreign) must file an ITR, regardless of profit or loss.
If annual turnover exceeds ₹10 crore, tax audit requirements apply.
Startups availing tax benefits under Section 80-IAC must file an ITR.
If a company wants to carry forward business losses, it must file an ITR before the due date.
Companies must comply with transfer pricing regulations if they have international transactions with related entities.
Association of Persons (AOP) & Body of Individuals (BOI)
If the total income exceeds ₹2.5 lakh, it must file an ITR.
If TDS has been deducted on income, even if below the threshold, an ITR must be filed to claim a refund.
If engaged in business, investments, or property ownership, an ITR is required.
Trusts & Charitable Organizations
All registered trusts (under Section 12A & 80G) must file an ITR to continue availing tax exemptions.
If total income before exemption exceeds ₹2.5 lakh, the trust must file an ITR.
If a trust generates income from investments, business activities, or donations, it must report them in the return.
NRIs (Non-Resident Indians)
When is an NRI Liable to File an ITR?
If an NRI earns more than ₹2.5 lakh from India (salary, rent, interest, capital gains, etc.), they must file an ITR.
If an NRI has TDS deducted and wants to claim a refund.
If they own foreign assets/income, reporting is mandatory.
If an NRI conducts high-value transactions, like buying property in India, filing may be necessary.
When is a Foreign Company Liable to File an ITR?
If the company has any income sourced from India, it must file an ITR.
If it has a Permanent Establishment (PE) in India, it must comply with Indian tax laws.
If engaged in business transactions under Transfer Pricing rules, filing is mandatory.
Summary Table of ITR Forms and Their Applicability
The Income Tax Return (ITR) Forms are used to file tax returns for individuals and entities. These forms are prescribed by the Income Tax Department and are based on the type of taxpayer, income, and specific requirements of the taxpayer for a given financial year.
ITR 1
Applicability:
For individuals who have income from salaries, one house property, other sources (interest, etc.), and income from agriculture up to ₹5,000.
Who Can Use ITR-1:
Individuals with a total income up to ₹50 lakh.
Salary income or pension.
Income from one house property.
Income from other sources (e.g., interest income).
Agricultural income up to ₹5,000.
Not Applicable for:
Individuals who are directors in a company.
Those who have more than one house property.
Those who have business/professional income.
ITR 2
Applicability:
For individuals and Hindu Undivided Families (HUFs) who do not have income from business or profession.
Who Can Use ITR-2:
Individuals or HUFs with income from salary/pension, house property, capital gains, and other sources.
Individuals with more than one house property.
Individuals who are not eligible for ITR-1 due to income from capital gains or foreign assets.
Those with income from agriculture exceeding ₹5,000.
Not Applicable for:
Individuals who have income from business or profession (these should file ITR-3).
ITR 3
Applicability:
For individuals and Hindu Undivided Families (HUFs) who have income from business or profession.
Who Can Use ITR-3:
Individuals or HUFs earning income from business or profession (self-employed).
Individuals with income from salary, house property, capital gains, and other sources in addition to business income.
Not Applicable for:
Individuals earning only income from salary/pension and capital gains.
ITR 4
Applicability:
For individuals, HUFs, and firms (other than LLP) who are under the presumptive taxation scheme (Section 44AD, 44ADA, 44AE).
Who Can Use ITR-4:
Small businesses (under presumptive taxation scheme).
Individuals, HUFs, and firms having business income (presumptive income under Section 44AD or 44AE).
Individuals having income from profession (presumptive income under Section 44ADA).
Not Applicable for:
Companies or LLPs.
Taxpayers whose income exceeds the presumptive income limit under Sections 44AD/44ADA/44AE.
ITR 5
Applicability:
For firms, Limited Liability Partnerships (LLPs), Association of Persons (AOPs), and Bodies of Individuals (BOIs).
Who Can Use ITR-5:
Firms, LLPs, AOPs, BOIs, and co-operative societies.
This form is used by entities that are not companies but need to file a return.
Not Applicable for:
Individuals and HUFs.
Companies.
ITR 6
Applicability:
For companies (other than companies claiming exemption under Section 11).
Who Can Use ITR-6:
Companies (including domestic and foreign companies).
Companies claiming exemption under Section 11 (income of charitable or religious trust) cannot use this form.
Not Applicable for:
Other entities (individuals, HUFs, firms, etc.).
ITR 7
Applicability:
For persons including companies who are required to file a return under Sections 139(4A) (for trust, charitable, etc.), 139(4B) (for political parties), 139(4C), and 139(4D).
Who Can Use ITR-7:
Trusts, charitable organizations, and other entities claiming exemption under Sections 11, 12A, etc.
Political parties (filing under Section 139(4B)).
Entities claiming tax exemption or those engaged in charitable, religious, or political activities.
Required Documents for Income Tax Filing and Claiming Deductions
Filing an Income Tax Return (ITR) and claiming deductions requires individuals, businesses, and other entities to submit specific documents as per the Income Tax Act, 1961. Proper documentation ensures compliance, allows for tax benefits, and helps in avoiding penalties.
Six Important Benefits of Filing Income Tax Return
1. Easy Loan Approval
Filing the ITR will help individuals, when they have to apply fora vehicle loan (2-wheeler or 4-wheeler), House Loan etc. All major banks can ask for a copy of tax returns
2. Claim Tax Refund
If you have a refund due from the Income Tax Department, you will have to file an Income Tax Return to claim the refund.
3. Income & Address Proof
Income Tax Return can be used as a proof of your Income and Address.
4. Quick Visa Processing
Most embassies & consulates require you to furnish copies of your tax returns for the past couple of years at the time of the visa application.
5. Carry Forward Your Losses
If you file return within due date, you will be able to carry forward losses to subsequent years, which can be used to set off against income of subsequent years.
6. Avoid Penalty
Late Filing Fee: If the ITR is filed after the due date, a late filing fee may be imposed under Section 234F:
₹5,000 if filed after the due date but on or before December 31 of the assessment year.
₹10,000 if filed after December 31.
For income up to ₹5 lakh, the penalty is limited to ₹1,000.
Interest on Tax Payable: You may also be liable for interest on late payment of taxes under Section 234A, 234B, and 234C.
No Carry Forward of Losses: If you miss the deadline, you may not be able to carry forward certain types of losses (like capital losses) to offset against future income.
Ineligibility for Refund: If you are entitled to a refund, filing after the deadline may delay the refund process.