Income Tax Return: What disqualifies you from selecting an ITR Form?

Salaried individuals have the benefits of selecting the simplest ITR Form – ITR-1 or Sahaj, provided such an assessee is not disqualified from selecting the Form.

Income Tax Return: What disqualifies you from selecting an ITR Form?
To file your Income Tax Return (ITR), the first step is to select the appropriate ITR Form, which is determined mainly by the sources of income of a taxpayer.

To file your Income Tax Return (ITR), the first step is to select the appropriate ITR Form, which is determined mainly by the sources of income of a taxpayer.

Salaried individuals have the benefits of selecting the simplest ITR Form – ITR-1 or Sahaj, provided such an assessee is not disqualified from selecting the Form.

Dr. Suresh Surana, Founder, RSM India lists the eligibility conditions for selecting an ITR Form and the factors that would disqualify you from using it to file your return of income:

ITR-1

Here are the eligibility conditions and disqualification factors of ITR-1:

Eligibility

ITR1 Form (Sahaj) is applicable for individuals being residents (Residents and Ordinarily residents) having total income up to Rs 50 lakh from the following sources:

  • Salary / Pension
  • One House Property
  • Income from Other sources such as Interest, Family Pension, Dividend etc.
  • Agricultural Income up to Rs 5,000

Disqualification

However, irrespective of the fact that an individual satisfies the aforementioned eligibility criteria, ITR-1 cannot be filed by a taxpayer –

  • who is a Director in a company,
  • who has held any unlisted equity shares at any time during the previous year,
  • who has any asset (including financial interest in any entity) located outside India,
  • who has signing authority in any account located outside India,
  • who has income from any source outside India,
  • in whose case tax has been deducted u/s 194N of the Income Tax Act (“IT Act”) for excess cash withdrawal,
  • in whose case payment or deduction of tax has been deferred on ESOP received from employer being an eligible startup,
  • who has any brought forward loss or loss to be carried forward under any head of income,
  • who is “Resident and not ordinarily resident” or “Non-resident”,
  • having any other income (other than eligible income) such as Business income, capital gains, income from more than one House property, etc.
  • who is claiming deduction u/s 57 for Income from Other sources, other than deduction pertaining to Family Pension,
  • who is claiming tax credit / relief under section 90 or section 91,
  • who is claiming credit of tax deducted at source in the hands of any other person,
  • having ‘Income from Other Sources’ taxable at special rates for instance, Lottery Winnings,
  • having unexplained income taxable u/s 115BBE,
  • having any income to be apportioned between spouses as governed by Portuguese Civil Code in accordance with provisions of section 5A.

“An individual taxpayer who is not eligible to file ITR-1 needs to check conditions of other ITRs and select his ITR accordingly. Generally, a taxpayer can select ITR-2 where he neither has any Profits and Gains from Business or Profession (“PGBP”) income nor any income from partnership firm. Also, the individual taxpayer shall file ITR-3 in all other cases except when he opts for presumptive taxation in respect of his PGBP income. It is pertinent to note that the ITR filing process is a very crucial step which must be completed with utmost care and in a timely manner,” said Dr. Surana.

If an individual taxpayer cannot file ITR 1 on account of any disqualification, he needs to analyse his income sources and accordingly, opt for the correct ITR as follow:

ITR-2

Here are the eligibility conditions and disqualification factors of ITR-2:

Eligibility

ITR-2 can be filed by Individuals or HUFs who –

  • are not eligible to file ITR-1 (Sahaj);
  • do not have income from profit and gains of business or profession in the nature of interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by him from a partnership firm;
  • have the income of another person like spouse, minor child, etc., to be clubbed with their income – if income to be clubbed falls in any of the above categories.

Disqualification

Any Taxpayer who has:

  • Income from profit and gains from business or profession
  • Income in the nature of interest, salary, bonus, commission or remuneration due to or received by him from a partnership firm.

ITR-3

Here are the eligibility conditions and disqualification factors of ITR-3:

Eligibility

This Return Form is to be used by an individual or a Hindu Undivided Family who is having income under the head profits or gains of business or profession and who is not eligible to file Form ITR-1 (Sahaj), ITR-2 or ITR-4 (Sugam).

Disqualification

ITR-3 cannot be used by a person who does not have Income under the head Profits and Gains of Business or Profession.

ITR-4 (Sugam)

Here are the eligibility conditions and disqualification factors of ITR-4:

Eligibility

ITR-4 can be filed by a Resident Individual / HUF / Firm (other than LLP) who has:

  • Income not exceeding Rs 50 lakh
  • Income from Business and Profession computed on a presumptive basis u/s 44AD, 44ADA or 44AE
  • Income from Salary / Pension, One House Property, Agricultural Income (up to Rs 5,000)
  • Income from Salary / Pension, One House Property, Agricultural Income (up to Rs 5,000)
  • Income is from other sources (interest from savings account, deposits, income tax refund, any other interest income) excluding winning from Lottery and Income from Race Horses.

Disqualification

Any Taxpayer who –

  • is a Residents Not Ordinarily Resident (RNOR), and Non-Resident Indian
  • has total income exceeding Rs 50 Lakh;
  • has agricultural income in excess of Rs 5,000;
  • is a Director in a Company;
  • has income from more than One House Property;
  • has income in nature of winnings from lottery, activity of owning and maintaining race horses, income taxable at special rates u/s 115BBDA or Section 115BBE;
  • has held any unlisted equity shares at any time during the previous year;
  • has deferred income tax on ESOP received from the employer being an eligible start-up.

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