Income Tax

Learn Income tax, How to file income tax? Understand types of ITR files in india.

Learn Income tax process-Income Tax in India: Filing ITR-1, ITR-2, ITR-3, and ITR-4

Income Tax in India is governed by the Income Tax Act, 1961, which mandates that individuals, businesses, and other entities file their returns annually to report income, claim deductions, and calculate tax liability.

Let’s explore Income Tax Returns (ITRs) in detail, focusing on ITR-1, ITR-2, ITR-3, and ITR-4.

Master the Income Tax Filing Process in India: A Complete Guide to ITR-1, ITR-2, ITR-3, and ITR-4

Income tax filing in India is governed by the Income Tax Act, 1961, which requires individuals, businesses, and entities to file annual returns. This process helps report income, claim deductions, and calculate tax liabilities. Understanding the different Income Tax Return (ITR) forms – ITR-1, ITR-2, ITR-3, and ITR-4 – can seem daunting, but we’re here to break it down for you step by step.

What You Need to Know About Income Tax Returns

An Income Tax Return (ITR) is a form used by taxpayers to report their income earned during a financial year (April 1 to March 31). The specific form you need to file depends on the type and source of income you earn.

Who Needs to File Income Tax Returns?

  • Individuals earning above the exemption limit:
    • ₹2,50,000 (under 60 years)
    • ₹3,00,000 (60-80 years)
    • ₹5,00,000 (above 80 years)
  • Those with foreign income or assets.
  • Businesses or professionals earning income.
  • Companies and trusts, regardless of income.

Exploring the Different Types of ITR Forms

  1. ITR-1 (Sahaj): For Salaried Individuals Who Should File?

    • Individuals with:
      • Salary or pension income.
      • Income from one house property.
      • Other sources (like interest, dividends).
      • Agricultural income up to ₹5,000.

    Who Should Not File?

    • Those with:
      • Capital gains.
      • Business or professional income.
      • Agricultural income above ₹5,000.
      • Foreign income/assets.

    How to File ITR-1:

    • Visit the Income Tax e-Filing Portal.
    • Select ITR-1 and enter details (PAN, Aadhaar, salary, house property income, etc.).
    • Add deductions under sections like 80C and 80D.
    • Review tax calculation, make payments, and submit.

  2. ITR-2: For Individuals and HUFs with Complex Income Sources Who Should File?

    • Individuals and HUFs with:
      • Capital gains (sale of shares, property).
      • Multiple house properties.
      • Foreign income or assets.
      • Agricultural income exceeding ₹5,000.

    How to File ITR-2:

    • Select ITR-2 on the portal and enter details for all income sources (salary, capital gains, rental income, etc.).
    • Add deductions and verify your return.

  3. ITR-3: For Professionals and Business Income Who Should File?

    • Individuals and HUFs earning:
      • Income from business or profession.
      • Salary, property income, capital gains, or foreign assets.

    How to File ITR-3:

    • Choose ITR-3 and report business income, other income sources, and deductions.
    • Complete the filing process and verify.

  4. ITR-4 (Sugam): For Presumptive Taxation Who Should File?

    • Individuals, HUFs, and firms (excluding LLPs) under the Presumptive Taxation Scheme.
    • Eligible businesses include those with turnover up to ₹2 crores or professionals with gross receipts up to ₹50 lakhs.

    How to File ITR-4:

    • Select ITR-4 for presumptive income.
    • Report income and deductions, and submit your return.

Key Deductions and Exemptions

You can reduce your taxable income by claiming deductions under various sections of the Income Tax Act. Some of the popular ones include:

  • Section 80C: Deductions up to ₹1,50,000 (e.g., LIC, PPF, ELSS).
  • Section 80D: Premiums on medical insurance.
  • Section 80E: Interest on education loans.
  • Section 80G: Donations to charities.
  • Section 80TTA: Savings account interest (up to ₹10,000).

Verification and Rectification

After filing your return, it’s crucial to verify it within 30 days. You can do this by:

  • Aadhaar OTP.
  • Electronic Verification Code (EVC).
  • Sending a signed ITR-V to CPC Bangalore.

Penalties for Late Filing

If you miss the filing deadline, penalties apply:

  • ₹1,000 for income up to ₹5 lakh.
  • ₹5,000 for income above ₹5 lakh (if filed after the deadline but before December 31).
  • Interest under sections 234A, 234B, and 234C for late filing or tax payments.

Detailed Examples for Filing Each ITR Form

ITR-1 (Sahaj): For Salaried Individuals

Scenario: Ravi, a salaried individual, earns ₹6,00,000 annually. He has:

  • ₹50,000 from bank interest.
  • Paid ₹20,000 for medical insurance (eligible under Section 80D).
  • Claiming ₹1,50,000 under Section 80C for PPF and LIC.

Steps to File:

  1. Log in to the Income Tax e-Filing Portal.
  2. Select ITR-1 and fill in your personal details (PAN, Aadhaar, address).
  3. Report salary income, interest income, and deductions.
  4. Review tax calculation and submit.

ITR-2: For Capital Gains or Multiple Properties

Scenario: Neha, with salary income of ₹8,00,000, has:

  • Capital gains of ₹1,00,000.
  • Rental income of ₹1,20,000 from two properties.

Steps to File:

  1. Log in and select ITR-2.
  2. Report salary, rental income, and capital gains.
  3. Add deductions and submit.

ITR-3: For Business or Professional Income

Scenario: Rahul runs a small business with a turnover of ₹30,00,000. His profit is ₹8,00,000.

Steps to File:

  1. Choose ITR-3 and report business income.
  2. Fill in details of income and expenses, and submit.

ITR-4 (Sugam): For Presumptive Taxation

Scenario: Sunil runs a grocery store with ₹20,00,000 turnover. He opts for presumptive taxation at 8%.

Steps to File:

  1. Select ITR-4.
  2. Report income at 8% of turnover and submit.

Important Tips

  • E-Verification: Always verify your return after filing.
  • Form 16 and 26AS: Ensure income and TDS details match.
  • Due Date: File by July 31 for individuals; September 30 for audit cases.

By following this comprehensive guide, you can confidently navigate the income tax filing process in India. Start today, and ensure your returns are filed accurately and on time!

learn income tax

Let’s go step by step with detailed examples for filing ITR-1, ITR-2, ITR-3, and ITR-4. Here’s how you can understand and file each return effectively:

ITR-1 (Sahaj) Example: For Salaried Individuals

Scenario:

Ravi works in a private company and earns ₹6,00,000 annually. He has:

  • ₹50,000 from bank interest.
  • Paid ₹20,000 for medical insurance (eligible under Section 80D).
  • Claimed ₹1,50,000 under Section 80C for PPF and LIC.

Steps to File ITR-1:

  1. Login: Go to the Income Tax e-Filing Portal.
  2. Select ITR-1: Under “File Returns,” choose ITR-1 (Sahaj) for FY 2023-24.
  3. Personal Details: PAN, Aadhaar, and address.
  4. Income Details:
    • Salary Income: ₹6,00,000 (from Form 16).
    • Interest Income: ₹50,000 (from savings account).
  5. Deductions:
    • 80C: ₹1,50,000.
    • 80D: ₹20,000.
  6. Tax Calculation:
    • Total Income: ₹6,00,000 + ₹50,000 = ₹6,50,000.
    • Deductions: ₹1,70,000.
    • Taxable Income: ₹6,50,000 – ₹1,70,000 = ₹4,80,000.
    • Tax Payable: ₹12,500 (after rebates).
  7. Verify: Submit and e-verify using Aadhaar OTP.

ITR-2 Example: For Capital Gains or Multiple Properties

Scenario:

Neha has:

  • Salary income: ₹8,00,000.
  • Sold shares with a capital gain of ₹1,00,000.
  • Two properties: One self-occupied, one rented (rental income ₹1,20,000).
  • Paid ₹50,000 towards Section 80C (EPF).

Steps to File ITR-2:

  1. Choose ITR-2: After logging in, select ITR-2.
  2. Personal Details: Fill in PAN, Aadhaar, and other details.
  3. Income Details:
    • Salary: ₹8,00,000.
    • House Property: Self-occupied: Nil; Rented: ₹1,20,000 (less ₹36,000 standard deduction).
    • Capital Gains: Report gains from the share sale under Schedule CG.
  4. Deductions: Enter Section 80C deductions of ₹50,000.
  5. Tax Calculation:
    • Salary: ₹8,00,000.
    • Rental Income: ₹84,000.
    • Capital Gains: ₹1,00,000.
    • Total Income: ₹9,84,000.
    • Taxable Income: ₹9,34,000 (after deductions).
  6. Submit & Verify: Submit the return and verify.

ITR-3 Example: For Business or Professional Income

Scenario:

Rahul runs a small business with:

  • Annual turnover: ₹30,00,000.
  • Profit: ₹8,00,000.
  • Other Income: ₹50,000 (interest).
  • Eligible deductions: ₹1,00,000 under Section 80C.

Steps to File ITR-3:

  1. Choose ITR-3: Suitable for business income.
  2. Income Details:
    • Business Income: ₹8,00,000.
    • Other Income: ₹50,000.
  3. Profit & Loss Account: Enter details of income and expenses.
  4. Balance Sheet: Provide information on assets and liabilities.
  5. Deductions: Enter ₹1,00,000 under 80C.
  6. Tax Calculation:
    • Total Income: ₹8,50,000.
    • Taxable Income: ₹7,50,000 (after deductions).
    • Tax Payable: Calculated as per slabs.
  7. Submit & Verify: Complete filing and verification.

ITR-4 (Sugam) Example: For Presumptive Taxation

Scenario:

Sunil runs a grocery shop under the presumptive taxation scheme with:

  • Turnover: ₹20,00,000.
  • Opting for presumptive income at 8%: ₹1,60,000.
  • Other Income: ₹40,000 from savings account interest.

Steps to File ITR-4:

  1. Select ITR-4: Choose this for presumptive income.
  2. Income Details:
    • Business Income (presumptive): ₹1,60,000 (8% of turnover).
    • Other Income: ₹40,000.
  3. Deductions: Declare eligible deductions under Chapter VI-A.
  4. Tax Calculation:
    • Total Income: ₹2,00,000.
    • Taxable Income: Below the basic exemption limit, so no tax payable.
  5. Submit & Verify: Submit and complete verification.

Key Points to Remember

  1. E-Verification: After filing, always verify your return to complete the process.
  2. Form 16 and 26AS: Ensure your income and TDS details match the data in these forms.
  3. Avoid Errors: Double-check PAN, bank details, and income figures to prevent rejections.
  4. Due Date:
    • For individuals: July 31 of the assessment year.
    • For audit cases: September 30

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Income Tax in India Quiz

Instructions

  • Multiple-choice questions: Select the correct option.
  • True/False questions: Indicate whether the statement is true or false.
  • Test your understanding of the Indian Income Tax system!

Multiple-Choice Questions

1. What is the financial year period in India for income tax purposes?
a) 1st January to 31st December
b) 1st April to 31st March
c) 1st July to 30th June
d) 1st March to 28th February

2. Which form is primarily used by salaried individuals to file their income tax returns?
a) ITR-1
b) ITR-2
c) ITR-3
d) ITR-4

3. What is the current basic exemption limit for individuals under the old tax regime (as of FY 2023-24)?
a) ₹2,00,000
b) ₹2,50,000
c) ₹3,00,000
d) ₹5,00,000

4. Which section of the Income Tax Act allows deductions for investments made in Public Provident Fund (PPF), ELSS, and NSC?
a) Section 80C
b) Section 80D
c) Section 80E
d) Section 10

5. Under the old tax regime, what is the tax rate for an individual earning between ₹5,00,001 and ₹10,00,000?
a) 5%
b) 10%
c) 20%
d) 30%

6. Which of the following is taxable under the head “Income from Other Sources”?
a) Salary income
b) Interest from fixed deposits
c) Rental income
d) Profit from a business

7. What is the maximum deduction allowed under Section 80D for health insurance premiums paid for a senior citizen (above 60 years)?
a) ₹25,000
b) ₹30,000
c) ₹50,000
d) ₹1,00,000

8. What does TDS stand for in the context of income tax?
a) Tax Deducted at Source
b) Tax Distributed System
c) Tax Declaration Statement
d) Total Deduction Summary

9. Which income is exempt under Section 10 of the Income Tax Act?
a) Salary
b) Long-term capital gains on shares under specific conditions
c) Interest on fixed deposits
d) Professional fees

10. What is the penalty for failing to file an income tax return on time for individuals earning above ₹5,00,000 (as of FY 2023-24)?
a) ₹1,000
b) ₹5,000
c) ₹10,000
d) No penalty

True/False Questions

11. Agricultural income is exempt from income tax in India.
(True / False)

12. The new tax regime introduced in Budget 2020 allows no deductions or exemptions.
(True / False)

13. Employers must issue Form 16 to employees as proof of TDS deducted from salary.
(True / False)

14. Income from house property is taxed even if the property is self-occupied.
(True / False)

15. Gifts received from friends exceeding ₹50,000 in a financial year are fully exempt from income tax.
(True / False)

Answer Key

Multiple-Choice Answers:

  1. b) 1st April to 31st March
  2. a) ITR-1
  3. b) ₹2,50,000
  4. a) Section 80C
  5. c) 20%
  6. b) Interest from fixed deposits
  7. c) ₹50,000
  8. a) Tax Deducted at Source
  9. b) Long-term capital gains on shares under specific conditions
  10. c) ₹10,000

True/False Answers:
11. True
12. True
13. True
14. False
15. False

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