Types of Income Tax Return, Meaning & Which ITR to File

The structure for income tax returns in India is exceedingly complex. Moreover, lack of information and misinformation on the same often discourages taxpayers from filing returns. Therefore, allow us to offer an in-depth understanding of this topic and make it fairly straightforward for you.

Let’s begin!

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The Income Tax Department of India prescribes 7 types of income tax return forms. Moreover, the applicability of an ITR form depends upon the type of taxpayer and his/her amount as well as the nature of income. Individuals can file an income tax return online.

Elaborated below are the different types of ITR in India:

ITR-1 or Sahaj

Let’s start off the types of ITR return with the ITR form 1, also known as Sahaj. This is filed by resident Indians falling under the following categories:

• Regular income is generated through salary or a pension.
• Income comes from a single residential property.
• Individuals earning up to Rs.5,000 of agricultural income.
• Income earned by way of winning lotteries or horse racing, etc.
• The total income of a taxpayer is up to Rs.50,00,000.

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ITR-2

This form is applicable for an individual and a Hindu Undivided Family (HUF) whose total income in a financial year includes the following:

• Income exceeds Rs.50,00,000.
• The source of income is pension or salary.
• Taxpayer’s income comes from residential property.
• Income is earned by winning a lottery or horse races.
• An individual taxpayer is the director of a company.
• An individual’s income from agriculture is more than Rs.5,000.
• Incomes are earned from capital gains.
• Income from foreign assets.

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ITR-3

ITR-3 is for individual taxpayers as well as a Hindu Undivided Family (HUF) who receive income from a profession or a proprietorship business and want to file for income tax returns in India. The following individuals can opt for this form:

• A taxpayer who is a partner in a business firm.
• Turnover of the taxpayer’s business is more than Rs.2 crore.
• An individual who is the director of a company.
• The taxpayer earns income from salary, pension, residential property, or any other source.

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ITR-4 or Sugam

ITR-4 or Sugam applies to HUFs, individuals, and partnership firms who are Indian residents and earn their income from professions or businesses. However, Limited Liability Partnerships or LLPs cannot file ITR-4.

It is applicable for the following:

• Taxpayers with an income of up to Rs.50,00,000 from pension or salary.
• Individuals who have opted for presumptive income schemes according to Section 44AE, Section 44ADA, and Section 44AD of the Income Tax Act 1961.
• Income is generated from house property and does not exceed Rs.50,00,000.
• Income from other sources up to Rs.50,00,000. However, this excludes income earned from horse races or winning lotteries.
• Freelancers with gross receipts of up to Rs.50,00,000.

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ITR-5

This form is filed for income tax returns by a wide range of bodies, namely the following:

• An Artificial Judicial Person (AJP) as per Section 2(31)(vii) of the Income Tax Act
• Business trusts
• Investment funds
• Body of Individuals (BOIs)
• Limited Liability Partnerships (LLPs)
• Association of Persons (AOPs)
• Estate of deceased
• Estate of insolvent
• Cooperative society
• Local authority

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ITR-6

ITR form 6 is for companies that cannot claim exemptions under Section 11, which refers to income from property held for religious or charitable purposes. Moreover, ITR-6 calls for a company to file income tax returns electronically only.

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ITR-7

Companies or individuals opt for ITR-7 if they furnish returns under the following sections:

• Section 139(4F)
• Section 139(4E)
• Section 139(4D)
• Section 139(4C)
• Section 139(4B)
• Section 139(4A)

Furthermore, details of income tax returns filed under these sections are elaborated below:

• Section 139(4F): It includes investment funds present under Section 115UB. Additionally, it is not required to provide a return of income or losses under any provisions of this section.
• Section 139(4E): Business trusts which are not required to provide a return of income or losses can file returns under Section 139(4E).
• Section 139(4D): Colleges, universities, or other institutions that need not furnish return of income or loss must file returns under this section.
• Section 139(4C): The following entities must file returns under Section 139(4C):
  • News agencies
  • Scientific research association
  • Institution or association as per Section 10(23A)
  • An institution referred to in Section 10(23B)
  • Hospitals or other medical institutions
  • Universities or other educational institutions
• Section 139(4B): A political party can file returns under this section if its total income exceeds the maximum amount that is not chargeable to income tax. 
• Section 139(4A): Income tax returns under this section are required to be filed by all individuals who receive income from a property belonging to a trust or other legal obligations wherein this income is used wholly for charitable or religious purposes or in part for such purposes.

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An individual can have multiple sources of income, and knowing how to calculate income tax and then file it correctly is important. Therefore, for hassle-free computation of tax, Section 14 of the Income Tax Act 1961 classifies these sources into the following heads of income:

Income from salary

This head includes any form of remuneration that an individual receives against services provided by him/her as an employee. However, this amount qualifies as income only if the payer and payee of this salary have an employer-employee relationship.

Therefore, if you are a salaried individual, your income falls under this head. Additionally, salary includes various types of income, such as basic wages, pension, gratuity, pension, advance salary, commission, annual bonus as well as perquisites. Once the total income of an individual is calculated, his/her gross salary is taxed under this head.

Income from capital gains

Capital gains refer to the profits earned by an individual on the sale or transfer of a capital asset, which was earlier held as an investment. Here, a capital asset can be bonds, stocks, mutual funds, gold, real estate, etc. Therefore, whenever you earn profit by selling a capital asset, this gain is considered as your income, and the same will be taxable under this head.

To offer further clarity on this subject, we must highlight that rental income from a property is taxable under the heading ‘Income from house property,’ but if you sell this property and earn a profit, the same is taxed under ‘Capital gains.

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Income from house property

Sections 22 and 27 of the Income Tax Act, 1961 are dedicated to computing taxes on the income of an individual from a property or from land owned by him/her. This head, therefore, includes rental income earned from properties.

A point to note here is that tax is derived from a property or land and not the rent earned from them unless the same is let out for commercial use. Therefore, if you rent out a property to a business, the income received against it is taxable under this head.

Income from gains and profits of profession or business

Any form of income earned by commerce, trade, manufacture, or profession is taxable under this head. It deducts expenses from the revenues in order to compute profits, upon which income tax is then applicable. Additionally, this head includes any sort of profit, bonus, or salary earned from a partnership in a business organisation.

Moreover, taxation on income from profits and gains of business or profession lays down the following criteria:

• The taxpayer must be handling the operations of the business or profession. 
• The business or profession must be operational for the majority part of the preceding year.
• In the case of a taxpayer operating any other business or profession, a tax will also be applicable to such an individual.

Income from other sources

As the last head of taxable incomes, this head includes those types of income that are not categorised in the above heads. For instance, income from lottery awards, bank deposits, dividends, interest from government bonds, etc., fall under this head and are chargeable for income tax under Section 56(2) of the Income Tax Act 1961.

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We hope this comprehensive guide on income tax returns in India helps you. Now that you are well versed with the procedure, you can conveniently file returns without a hitch.