Filing Your Returns? Know Your ITR Forms

The due date for filing of Income Tax Returns for salaried and non-audit taxpayers is 31^st July (extended to August 31, 2019). It is necessary to file your Income Tax Returns on time. Filing it after the prescribed due date requires specified penalty amount to be paid while filing the belated Income Tax Return. Act right away to prepare your ITR in the limited time available.

Just like the last year, Income Tax Dept. has issued seven different forms, ITR-1 to ITR-7 for AY 2019-20, out of which only 4, ITR-1 to ITR-4, are applicable for individual taxpayers. These forms have different reporting requirements as may apply to taxpayers with different income sources. Taxpayers must take due care to file the correct return form so that individual reporting requirements can be duly complied with. This article aims to help you in identifying the ITR form, which must be filed by you.

Who can file ITR-1?

ITR-1 applies to you if you are an individual having

• Income from Salaries,
• one house property,
• income from other sources (Interest from fixed deposits etc.), and
• agricultural income up to Rs. 5,000

This form cannot be used by an individual having any of the following incomes during the previous year:

• Profits and gains from business and professions;
• Capital gains;
• Income from more than one house property;
• Following income under the head other sources:- (i) winnings from lottery; (ii) activity of owning and maintaining race horses; income taxable at special rates under section 115BBDA or section 115BBE; and
• income to be apportioned in accordance with provisions of section 5A.

This is the simplest and the shortest of all the forms and applies to most of the taxpayers having a due date of 31st July. This form aims to make the ITR filing process simpler and convenient for the taxpayers and has the least reporting requirements. To maintain and sustain the simplicity, this form has been specifically restricted to be used by

• a non-resident and a resident not ordinarily resident in India,
• a person with a total income of Rs. 50 lakh or more,
• a person holding directorship in Companies,
• a person holding shares of an unlisted company,
• a person holding any foreign asset or having any foreign income or a signing authority for a foreign bank account

as there are additional reporting requirements for such taxpayers. We will discuss these reporting requirements in later paragraphs.

Just like last year, the ITR form seeks to collect information regarding breakup of salary income amongst salaries, perquisites, and profit in lieu of salary. Further, the details of different allowances claimed as exempt under Section 10 are also required to be provided in the ITR form itself. In line with the introduction of Standard Deduction towards salaried income from this year, a suitable field has been added to enable the taxpayers to claim Standard Deduction of Rs. 40,000.

However, in case you find yourself not eligible for ITR-1, read on further for the remaining forms.

Who can file ITR-2?

ITR-2 encompasses all individual taxpayers, who do not have any income from business or profession but are not eligible to file ITR-1. This form includes the reporting requirements for directorships held, investment in shares of unlisted companies, and period of stay in India for non-residents. Further, this form covers the following three additional income sources other than those covered in ITR-1 :

• Income from more than 1 house property
• Income from Capital Gains
• Income from winning lotteries and from owning and maintaining race horses.

Who can file ITR-4?

You might be wondering why ITR-4 has succeeded ITR-2, even while ITR-3 would have been the obvious choice. However, this change in the chronological order has been intentional to make it easier for you to grab the applicability of ITR forms.

ITR-4 can be seen as the twin brother of ITR-1 in terms of brevity and reporting requirements, but for such taxpayers who have income from any business or profession. However, only such taxpayers can file ITR-4, who are reporting their income under the provisions of presumptive income as allowed under Section 44AD (for businesses – 6%  of digital turnover and 8% of the balance turnover as minimum profit) or Section 44ADA (for professionals – 50% of gross receipts as minimum profit). Further, the similar restrictions of the specific taxpayer categories, as applicable to ITR-1, are applicable, such as company directors, investors in unlisted companies, and non-residents.

Who can file ITR-3?

This is the residuary ITR form for individual taxpayers, and can be used for filing the Income Tax Return for the taxpayers who are not eligible to file Form ITR-1 (Sahaj), ITR-2 or ITR-4 (Sugam).

Manner of filing the Income Tax Returns

Only super senior citizens (i.e. an individual of the age of 80 years or above at any time during the previous year) have been allowed to file ITR in paper mode.All other categories of taxpayers must file the ITR with the Income Tax Department electronically on the e-filing web portal of Income-tax Department. Such ITR must be verified in any one of the following manners:

• digitally signing the verification part, or
• authenticating by way of electronic verification code (EVC), or
• by sending duly signed paper Form ITR-V (Acknowledgment) by post to CPC at the following address – Post Bag No. 1, Electronic City Office, Bengaluru— 560500, Karnataka, within 120 days of filing the ITR.

Further, in a case where accounts are required to be audited u/s 44AB, it is mandatory to verify the return electronically under digital signature.

Additional Disclosure Requirements in Income Tax Return Forms for AY 2019-20

Just like every financial year, Income Tax Returns bring new disclosure requirements, to capture specific information from the taxpayers. The following major changes have been made in this year’s ITR forms:

1. Details of Directorships held – The taxpayers need to disclose the information in their ITR, if they are holding any directorships in a domestic or foreign company. While this information might be easily available with the Income Tax Department for domestic companies, the main information they want to extract through this disclosure is for foreign companies, as there is no centralized database currently. The following information is required for this disclosure in ITR 2, 3:

• Name and Permanent Account Number (PAN) of the company
• Type of Company, i.e., domestic or foreign
• Whether shares of the company are listed or unlisted
• Director Identification Number

2. Disclosure for Investment in Unlisted Companies – This is the new disclosure requirement for giving the details of investment in unlisted companies. As such, most of the ESOP holders in various startups will now get covered under this disclosure requirement. However, this disclosure seems to have been inserted in haste, since it tends to ignore specific practical issues in disclosing the details. Further, the information required in the form does not address the treatment for shares getting listed during the year and also for the shares getting delisted during the year. Further, the requirement of PAN makes it more difficult for the taxpayers to make the complete disclosure, as the PAN of the Company is not available in the demat statements and needs to be sourced from the companies themselves. The linking could have better been done through ISIN instead. Following information is required for this disclosure in ITR 2, 3:

• Name and Permanent Account Number (PAN) of the company
• Type of Company, i.e., domestic or foreign
• Opening Balances – No. of shares and cost of acquisition
• Shares acquired and transferred during the year, including the cost/ sale price
• Face value of each share
• Closing Balance – No. of shares and cost of acquisition

3. Enhanced reporting in case of transfer of immovable Property – In case of transfer of immovable property, the seller must disclose the capital gain in the relevant sections of the ITR form. Additional disclosure requirements must also be complied with by the seller which include name and PAN of the buyer, address of the property and in case of more than one buyer, percentage share and amount of each buyer.

4. Break-up of interest income – The interest income is now required to be reported separately for savings accounts, term deposits, income tax refund and other interest income. The need for such disclosure seems to have arisen in terms of having better control of tax deductions under Section 80TTA (deduction upto Rs. 80TTA for interest on savings accounts for taxpayers other than senior citizens and super senior citizens) and 80TTB (deductionup to Rs. 50,000 for interest from savings accounts and term deposits for senior citizens and super senior citizens).

5. Break-up of monetary donations made in cash and other mode – The ITR also requires you to provide the breakup of donations eligible for deduction under section 80G of the Income Tax Laws to be bifurcated between donation made in cash or any other mode (like cheque or electronic mode). This must be because cash donations are only allowed up to Rs. 2,000.

6. Enhanced reporting about foreign assets located outside India – ITR forms also call for detailed disclosures in respect of foreign assets located outside India and foreign incomes in a specific section in ITR. Such foreign assets include Foreign Depository accounts, Foreign Custodial accounts, Foreign Equity, and Debt interest and foreign insurance policies. The reporting requirements include details of country name and code, name and address of the institution, account number, date of opening the account, peak balance during the tax year, closing balance, amount of income including the schedule where such income has been reported, etc.

7. Enhanced reporting for Agricultural Income – If the net agricultural income disclosed by the taxpayer exceeds Rs. Five lakhs, the taxpayer must disclose the details of agricultural land, including the address and the measurement for each agricultural land. Further, the taxpayer must also disclose whether the land is owned or leased and whether it is irrigated or rain-fed.

With many changes in the ITR forms, make sure you take your ITR filing seriously and compile all the required information in time. Do remember, there is a late filing penalty applicable for filing ITR beyond the due date. Choose the correct ITR form based on the information mentioned above.