What precautions are required while filling an ITR form?

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Prepping up to file your Income Tax Return for the last financial year? This year’s ITR filings may have been postponed a bit, but it has not reduced the complexity of it. However, if you know your way around the key factors, you may have a good time filing your returns.

Here is a list of five key factors for you to tread cautiously about while filing your income tax returns this year:

Know Your ITR Form

First thing is to start with the correct ITR form applicable to you. Following ITR forms apply to individual taxpayers under different circumstances:

1. ITR-1 or Sahaj

ITR-1 is the most commonly used ITR form, and here’s when you should use this form:

• Your total income for the financial year (Previous Year or PY) is less than Rs. 50 lakhs
• Your agricultural income is less than Rs. 5000 for the PY
• Your income sources include only the following:
• Salary or pension income
• Income from one house property
• Income from other sources such as interest and gifts but not from lottery or horse race winnings
• If you have income from more than these sources, including taxable capital gains, you will need to use other forms
• You are a resident Indian for the PY. If you are not ordinarily resident in the PY you will need to use another form

2. ITR-2 Form

You need to use ITR-2 form in case you do not fall under the category of ITR-1, but you also do not have an income from business and profession. So, in short as an individual or HUF taxpayer, use ITR-2 form if you meet any of the following criteria:

• Your PY income exceeds Rs. 50 lakhs
• You have more than one house property income
• You have capital gain income
• You are a not ordinarily resident or non-resident for the PY
• In the PY, your agricultural income is more than Rs. 5000
• Your income sources include any of the following:
• Taxable capital gains
• Gains or dividends from unlisted equity shares
• Income from foreign assets and investments
• Lottery or horse race winnings

You should also use this form in case you have an income of another person being taxed in your hands; i.e. clubbed income. In case you have income from business and profession in the PY you will need to use a different form.

3. ITR-3 Form

We have seen that the previous two forms have not included the income from business and profession. ITR-3 form is for the individual and HUF taxpayers who have income from business and profession.

In this case, the total income should be more than Rs. 50 lakhs in the PY or the turnover of business should be more than Rs. 2 crores. You should use this form if you also meet any of the following conditions:

• You are a director of a company
• You have invested in unlisted equity shares in the PY
• If you are a partner in a firm

4. ITR-4 or Sugam

You need to use ITR-4 if your income includes income from business and profession and meet the following criteria:

• You are a resident Indian for the PY
• Your total income is less than Rs. 50 lakhs
• If you have opted for presumptive income scheme under sections 44AD, 44ADA and 44AE of the Income Tax Act

As an individual or HUF taxpayer, these are the dedicated ITR forms for you. If you need to file returns as an LLP of any other taxpayer entity, you need to use other ITR forms.

Have you included all the incomes?

So, you have seen how different types of incomes will affect your choice of the ITR form. Thus, it is extremely important for you to know which all types of incomes you had earned in the previous year.

Here are the five heads of incomes as per the Income Tax Act and examples of such incomes:

• Salary Income
• Wages/Salaries from corporations including commission income
• Pension and retirement benefits
• Leave encashment
• Income from House Property
• Rental income
• Income from the sale of a property is not counted under this head

Capital Gains will include the following gains from:

• Sale of equity shares, mutual fund units
• Sale of house property
• Sale of bonds and debentures
• Any other asset like gold, painting, vintage cars, etc.

Sale and purchase of these assets should not be your business. In that case, we move to the next income head:

• Profits & Gains from Business & Profession
• Profit or loss from a business activity
• Dividend or interest from unlisted equity shares of a company
• Income from a firm as a partner

Income from Other Sources:

• Interest on a savings account, fixed deposits, small savings schemes like NSC, KVP etc.
• Dividend income from listed equity shares
• Lottery winnings
• Gifts received in cash or property

If you have multiple bank accounts, you will need to check the interest income from all and add in your ITR.

Keep the Documents for Future Reference

While we enjoy filling up the deductions for the FY to reduce our tax liability, we should also take care of the records. You should keep all the documents for your tax-saving investments in the previous year at one place. These documents will include:

• Receipts of premium payment for life and health insurance plans
• Statements of investment into tax-exempt mutual fund units
• Contribution to pension plans other than EPF
• Rent receipts
• Repayment of home loan principal amount in the PY
• Receipts of children’s tuition fee payments
• All the Form-16s from the PY (if you change your job, you will have more than one form 16 in a year)
• Copies of certificate of deposit into tax-saving schemes like NSC and Senior Citizen Savings Scheme.

Check Form 26AS

You can download and view on TRACES portal of income tax filing website of the Government of India. This form gives you a summary of total TDS deduction by your employers, banks, mutual funds and other investment or business clients.

You can also ask for a TDS certificate from every source of income which deducts TDS on your income. This will help you tally the details on form 26AS and add any missing TDS details.

TDS credit available on the Form 26AS will automatically apply to your tax liability calculated in the end.

Do it Before the Due Date.

Remember that it’s not enough to file your ITR on time. You also need to ensure that 90% of your tax liability for the previous year has been deposited to the IT department within the financial year.

This can be done in four installments throughout the financial year. However, if you end up missing the deadlines you may have to pay interest on the remaining tax liability for the previous year.

How to Avoid Mistakes?

There is more than one way of avoiding all the mistakes on your ITR. If your income includes more than three sources of income, you can easily handle filing ITR for the following three heads of income:

• Salary income
• Interest or Gift income (Income from Other Sources)
• Income from House Property

If you have taxable incomes from other heads, it’s better to get assistance from professionals. If you are using ITR form other than ITR-1 you will need to calculate your income tax offline. Thus, you will be better off using professional services to navigate the complex tax calculations.