Types of ITR Forms & Categories of Income

Do you want to know which ITR forms are applicable if you are filing income tax return for the first time and what the categories of Income will be? Learn about ITR Filing in this complete guide related to Income Tax Return (ITR) Forms and Categories of Income. At the end of the article, you will also get to learn about the different types of ITR forms and how they correspond to various sources of income, ensuring accuracy and compliance with income tax regulations. 

Compliance Calendar LLP can help you discover essential insights to streamline your tax filing process effectively with a team of Chartered Accountants and Lawyers as we have covered all types of Income Tax Return Forms that are notified by the Income Tax Department for Filing of Income Tax Return.

However, before understanding the Income Tax Return Forms, let us know the Categories of Incomes that have been notified by the Income Tax Department. 

Income Tax Department has notified Five Categories of Income under which Income are taxable that are as follows: 

Income from Salary: 

In the context of the Income Tax Act, 1961 in India, the term "salary" has a specific meaning. Section 17 of the Income Tax Act defines "salary" comprehensively. According to this section, "salary" includes:

• Wages

• Any annuity or pension

• Any gratuity

• Any fees, commissions, perquisites, or profits in lieu of or in addition to any salary or wages

• Any advance of salary

• Leave encashment

• Any portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognized provident fund to the extent it is taxable

• The contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD

• Any other sum chargeable to tax under this head (Salaries)

This definition includes various forms of remuneration or benefits received by an employee from an employer. It covers regular salary, bonuses, allowances, perks, and any other form of compensation received in cash or kind for the services rendered by the employee.

Bonus Tip: It's important to note that certain components of salary may be exempt from tax or eligible for deductions under specific provisions of the Income Tax Act. For example, allowances like house rent allowance (HRA) or conveyance allowance may be exempt from tax up to certain limits if specific conditions are met. Additionally, deductions under various sections of the Income Tax Act may be available for certain investments or expenses incurred by the taxpayer. Read more on the Filing of Income Tax Return for Salaried Person.

Income from House Property i.e. Rental Income 

According to Section 22, the annual value of property (comprising buildings or lands appurtenant thereto, of which the assessee is the owner) is chargeable to income tax under the head "Income from House Property". The income tax is levied on the owner of the property. While income from building or Land appurtenant thereto is taxable as property income under this head, rental income from vacant land or plot is taxable under the head “Income from House Property”.

Computation of Income: Once the annual value of the property is determined, various deductions such as municipal taxes paid and standard deduction are allowed under Sections 24 and 24A respectively to arrive at the net annual value. Further deduction of interest on borrowed capital (if any) is allowed under Section 24(b).

Income from Capital Gains 

Income from sale of Property (whether Movable or Immovable). Any profit or gain arising from the sale or transfer of a capital asset is chargeable to tax under the head “Capital Gain”. It is deemed to be income of the previous year in which the transfer of the Capital asset takes place. 

Types of Capital Gains:

Short-term Capital Gains (STCG): Gains arising from the sale of a capital asset held for a period of up to 36 months (24 months for immovable property such as land or building) before its transfer are considered short-term capital gains. These gains are taxed at applicable slab rates.

Long-term Capital Gains (LTCG): Gains arising from the sale of a capital asset held for more than the specified period (36 months for most assets, 24 months for immovable property and specified securities) before its transfer are considered long-term capital gains. LTCG on listed equity shares and equity-oriented mutual funds are taxed at a concessional rate with indexation benefit. LTCG on other assets are taxed at a flat rate after providing for indexation.

Income from PGBP i.e. Profits and Gains from Business & Profession

In simple words, we are talking about the business income. Income earned from the exercise of any “profession" or “vocation”, which involves the idea of occupation, is taxable under this head. Income derived by a trade, profession or similar association is also taxable under the head of PGBP.. 

Computation of PGBP Income: The computation of PGBP income involves the following steps:

• Gross Receipts: Total receipts from the business or profession, including sales, fees, commissions, etc.

• Less: Allowable Expenses: Deductible expenses incurred wholly and exclusively for the purpose of the business or profession. This includes rent, salaries, wages, repairs, depreciation, interest on capital and loans, insurance, advertisement expenses, etc.

• Net Profit or Loss: The difference between gross receipts and allowable expenses results in the net profit or loss from the business or profession.

Income from Other Sources includes Interest Income and all those in Income which are not covered above categories

Scope of Income from Other Sources: 

This head includes various types of income such as interest income, dividend income, rental income from assets other than house property, income from winnings from lotteries, crossword puzzles, races (including horse races), card games, gambling or betting, gifts received, etc. Interest earned from savings accounts, fixed deposits, recurring deposits, bonds, debentures, loans, etc., is considered income from other sources.Income received in the form of dividends from shares of companies is also categorized under income from other sources.

• Income from other sources is taxed at applicable slab rates as per the Income Tax Act. However, certain specific types of income may have separate provisions for taxation or exemptions.

Bonus Tip: It's important for taxpayers to accurately report all income earned under this head and  comply with the relevant provisions of the Income Tax Act to avoid Notice from the Income Tax Department.

Now, let us discuss the Income Tax Forms

Income Tax Department has notified Seven Income Tax Forms: 

These 7 types of ITR forms are periodically updated by the Income Tax Department, so it's essential to refer to the latest version and choose the appropriate form based on your income sources and residential status. Additionally, the government may introduce new forms or modify existing ones to streamline the tax filing process or accommodate changes in tax laws. 

Therefore, it's crucial to stay updated with the latest announcements from the Income Tax Department or consult a tax professional for guidance.

1. ITR - 1 -  For individuals resident in India and with total income up to Rs 50 lakh. An individual having income from salary, house property and other sources can file ITR-1. An NRI cannot file ITR-1. Salaried taxpayers can use their form 16 to file ITR. 

2. ITR - 2 -  For individuals and HUF for their income other than income from business or profession. Individuals and NRI having income from salary, house property, capital gains and other sources can file ITR-2. Salaried individuals who have gains or losses from buying and selling shares should file ITR-2.

3. ITR - 3 -  For individuals to report their income from a business or a profession. Salaried individuals who have income from intraday trading in shares or income from futures and options should file ITR-3. Individuals can report income from salaries, house property, capital gains, business or profession (including presumptive income) and other sources in ITR-3.

4. ITR - 4 -  For individuals, HUF and partnership firms for their income under presumptive scheme of taxation only.  ITR-4 is for income from a business whose turnover is up to Rs 2 crore and taxed under section 44AD of the Income Tax Act, 1961.  Also, ITR-4 is for income from a profession whose turnover is up to Rs 50 lakh and taxed under section 44ADA. A freelancer carrying out a notified profession can file ITR-4.

5. ITR - 5 - For partnership firms, LLP, AOP and BOI. Business entities such as LLP, partnership firms, AOP and BOI can file ITR-5 for reporting income from business and profession and any other source of income.

6. ITR - 6 -  For the income tax return for companies to file income from business or profession and any other sources of income.

7. ITR - 7 -  For the income tax return for companies, associations and trusts claiming income tax exemption.

Below is the Chart of ITR Forms usage and for different types of Incomes.

Concluding Remarks

Understanding Income Tax Return (ITR) forms and income categories is very important for accurate tax filing. At Compliance Calendar LLP, we can be a lifesaver, helping you stay on top of deadlines and respond promptly to any notices from the tax department with a team of Chartered Accountants and Lawyers. By organizing your tax tasks and deadlines, we will ensure a smoother filing process and reduce the stress of income tax return filing for you. For any assistance, feel free to reach out at 9988424211 or mail us to info@ccoffice.in for a smooth experience now.