While the website does provide guidance to some extent, mistakes in filing can happen. Submitting the wrong form can result in the IT department treating it as invalid and rejecting it. In such a case, you can always submit a revised return with the correct details by 31 December to avoid income tax notice or penalty.
Missing the 31 July deadline, however, can lead to significant consequences.
Failure to submit the ITR form on or before the deadline can incur a late payment penalty of ₹5,000, said Prakash Hegde, chartered accountant. The penalty could be ₹1,000 if total income is less than ₹5 lakh.
If there is a pending tax liability, an interest of 1% per month would be applied for late filing, in addition to 1% a month for late payment until it is paid. Additionally, losses, other than that from house property, will not be allowed to be carried forward.
Besides, taxpayers will not be allowed to opt for the old tax regime. If the ITR is still not filed by 31 December, the filer might be liable for a much higher tax liability when he files an updated ITR.
Choosing the correct ITR form is a crucial step in tax filing. Here’s a guide, using fictional characters for illustrative purposes, on which ITR form to file. Note that this should not be treated as a substitute for getting a chartered accountant to handle your ITR filing needs.
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A software engineer who earns 7 lakh per annum
Suppose an engineer who started working last year has to file his ITR. Considering it’s his first job, let’s say he spent all his income on buying gadgets and investing some in mutual funds. Which ITR form should he be filing, considering he hasn’t sold the mutual fund units?
He should ideally file an ITR-1 given that he’s an Indian resident and his annual income is less than ₹50 lakh. Simply put, ITR-1 can only be filed if the taxpayer’s income is less than ₹50 lakh and if he does not have more than 1 house property.
“He may have income from other sources like interest, dividends, etc. (but not income chargeable at special rates like online games, lottery, and racehorses or losses),” said Hegde. Non-residents cannot file ITR-1.
There are certain exceptions to this. “Even if the taxpayer’s income is less than Rs.50 lakh, they cannot file ITR-1 if they made any profits with virtual digital assets such as cryptocurrency as it will be reported as capital gains,” Nitesh Buddhadev, a CA and founder of Nimit Consultancy, said. “They also cannot file ITR 1 if he has unlisted shares or has any assets/income overseas,” he added.
A salaried teacher who booked capital gains from MFs
Let’s say a teacher whose income is ₹10 lakh per year. She sold some of her mutual funds as she wanted to decorate her house and booked a capital gain of ₹3 lakh from her mutual fund investments. Which ITR form should she file?
Considering that she doesn’t have any business income and/or side gigs, she should file ITR-2. In ITR-1, one cannot report capital gains income, and hence, this teacher is not eligible for it. In contrast,trading in F&O might be considered business income and falls under ITR-3.
Even when long-term capital gains from equity MFs are below the taxable limit of ₹1 lakh, they still need to be reported in ITR-2. So, in the above case, if the salaried teacher made capital gains below ₹1 lakh and has no other income, she would still be required to file ITR-2.
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A loss-making F&O trader
The IT Act categorizes F&O income under business activities and hence, a person dabbling in this segment needs to file the more complicated ITR-3 or ITR-4, catering to business and professional income.
ITR-4 is to be filed by those with incomes from business or profession who declare taxes under the presumptive income scheme.
In FY22, the market regulator said nine out of 10 traders lost money in options trading. Does that mean that your friend who’s also making losses in F&O trade does not need to report them in their ITR? The answer is ‘No’.
A homemaker who gets rental income
If the total rent that the homemaker has received in FY24 is over ₹2.5 lakh, which is the income tax filing exemption limit, she has to file ITR-1. This is when she has rental income from only one property, whereas if the rent is earned from two or more properties, she has to file ITR-2.
Take note that the tax filing exemption limit under the new tax regime is ₹3 lakh.
A lawyer who earns from clients
Now let’s consider the case of a lawyer or other professionals, such as a CA, doctor, or architect, who wants to file an ITR. Since they don’t earn a fixed salary, they cannot file ITR-1 or ITR-2.
If their income is less than ₹50 lakh, they can file ITR-3 or ITR-4. Their income falls under the ‘income from business or profession’ category. If they choose presumptive taxation for their income, they have to file ITR-4. Firms with a total income of less than ₹50 lakh can also file ITR 4.
An NRI who has a property in India
Many NRIs own house properties in India as they hope to return to their motherland. What happens to the rental income when they’re not around? Do they need to file returns for that?
The answer is ‘Yes’ if the annual rental income is more than ₹3 lakh under the new tax regime and more than ₹2.5 lakh in the old regime.
NRIs can file ITR-2 and report this under income from house property. In many cases, the IT department had sent notices to NRIs for not declaring interest earned in NRE accounts even when it was tax-exempt.
Hegde said the authorities might not have had enough data to make out that it was exempt income. So it is always preferable to file an ITR.
A freelance content creator
If you’re a salaried person by day and a content creator by night, you have to choose ITR-3 as you earn freelance income that qualifies as business income.
Experts say income from content creation would fall under income from business or profession. If you opt for presumptive taxation, you should file ITR-4.
Conclusion
While filing the ITR within the due date is crucial, filing it in the correct form is equally important.Declaring assets and liabilities in the AL Schedule for taxpayers with income exceeding ₹50 lakh and reporting foreign assets for taxpayers holding them is also a very critical aspect.
Failure to report even small holdings in foreign stocks can attract scrutiny under the Black Money Act. Professional assistance can ensure compliance and help avoid penalties. Don’t wait until the last day to file your returns—act now to secure your financial peace of mind.
