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Filing Tax Returns

Picking the right ITR form is critical for filing hassle-free income tax returns

Filing Tax Returns

Illustration by Raj Verma

With the deadline for filing income tax returns (ITR) approaching, we a look at the significant changes in the process this year. We tell you how to zero in on the right form for filing your ITR this year, among other things.

Important Changes

The deadline for filing ITR for Assessment Year (AY) 2020/21 by individual taxpayers has been extended to November 30, 2020. The last date for filing revised or late ITR for AY 2019/20 has also been extended to November 30. You can now claim new deductions under Section 80EEA for interest paid on loan for affordable housing and under Section 80EEB for interest paid on loan for an electric vehicle according to the Finance (No. 2) Act, 2019.

In fact, you can now file ITR even without PAN. "The taxpayer can quote 'Aadhaar' number instead of 'PAN' where PAN has not been allotted in various places in the ITR. The amendment is in accordance with the inter-changeability of PAN and Aadhaar introduced in the Finance Act (No. 2) Act, 2019," says Archit Gupta, Founder and CEO, ClearTax.

Salaried employees will have to specify the nature of their jobs as there are changes in the list of employer's category - Central government, state government, public sector undertaking, pensioners and others.

There are now certain expenses that have made ITR filing mandatory. "A person, who is otherwise not required to file ITR as his income does not exceed the exemption limit, shall file the return of income if, during the previous year, he has deposited more than Rs 1 crore in one or more current accounts maintained with a bank or a co-operative bank; or incurred an expense of more than Rs 2 lakh on himself or any other person for travel to a foreign country; or incurred more than Rs 1 lakh expense towards payment of electricity bill," says Naveen Wadhwa, DGM, Taxmann.

If you have received capital gain from sale of shares, you will have to give more details this year. "In case of long-term capital gains from sale of listed equity and equity-oriented units, the taxpayer must provide details scrip-wise in case of investments up to January 31, 2018, which are subject to grandfathering," says Gupta of ClearTax. "The scrip-wise details are not necessary for long-term investments bought from February 1, 2018, and for short-term capital gains and business income from trading in shares."

Due to the lockdown in the second half of March, which was also the last month of 2019/20, the government extended the deadline to make tax-saving investments and expenses till July 31, 2020. If you have made such investments or expenses during the extended period, you will have to give specific details.

"A new 'Schedule DI' for the purpose of providing the details of investments and payments made during the extended period - April 1, 2020 to July 31, 2020 - has been granted for 2019/20. Due to Covid-19 and the consequent lockdown, the government has extended the period for making tax-saving investments under Chapter VI-A, including medical insurance, donations and other deductions. Similarly, the period for making investments to claim capital gains exemption was also extended till September 30, 2020," says Gupta of ClearTax.

For many people, especially those who have sold a property and were planning to buy another one to save capital gains tax, there has also been an extension in the deadline. "The date for making investment/construction/purchase for claiming roll-over deduction with respect to capital gains under Section 54 to 54GB was extended to September 30, 2020. This means if the assessee had capital gain income during 2019/20 and wanted to invest that under Section 54 to 54GB to save tax, he could have invested or constructed/purchased the capital asset till September 30, 2020," says Kapil Rana, Founder & Chairman, HostBooks Ltd.

The extension, however, does not apply to everyone. "The benefit of extension for capital gains exemption was only for those whose last date for making investments fell between March 20, 2020, and September 29, 2020," says Gupta of ClearTax.

The Right Form

ITR-1 can be only be filed by an individual who is ordinary resident of India and has a total income of up to Rs 50 lakh. The source of income should be from salary/pension, family pension, income or loss from one house property and income from other sources, and should not include income taxed at special rates, including winnings from lottery and race horses or losses under this head. For a person filing ITR-1, agricultural income should not be more than Rs 5,000.

If you have income from presumptive business or profession covered under section 44AD, 44ADA and 44AE (for person residing in India) you can file ITR-4. This form can be filed only by an individual or Hindu Undivided Family (HUF) who is ordinary resident of India and by a firm (other than LLP) resident of India. Now, you can file ITR-1 or ITR-4 even as a joint owner of a house property.

Presumptive Taxation

At times it is difficult for people to maintain accounts of all transactions and expenses. In such cases, one can go for presumptive taxation to make ITR filing easier. "Professionally qualified persons, engaged in professions mentioned in Section 44AA(1), can file their returns through ITR-4 if they opt for presumptive taxation scheme under Section 44ADA. Such an option is available if their gross receipts do not exceed Rs 50 lakh," says Wadhwa of Taxmann. However, this facility is limited to specific businesses or professions. "Any individual professional being a medical, legal or accountancy professional, film artist, engineer, technical consultant, architecture, interior decorator, company secretary, etc. would be eligible for presumptive taxation under Section 44ADA provided gross receipts do not exceed Rs 50 lakh. Such presumptive income needs to be declared at the rate of 50 per cent," says Suresh Surana, Founder, RSM India.

Professionals And Freelancers

In the new economy, there are individuals doing professional work or are freelance service providers such as website developers, digital marketers, content writers, video editors. Their income does not fall under the salary category. So which is the ITR form for them?

"Individual freelance service providers would be required to fill ITR-3. In case they fall into the eligible category for presumptive taxation, they would be required to file ITR-4. A person, whether or not opting for presumptive taxation, would be required to file ITR by July 31 every year unless he is subjected to tax audit. However, for financial year 2019/20, the period for filing returns has been extended up to November 30, 2020," says Surana of RSM India. "A professionally qualified person may also file ITR 4 if the nature of service falls within the purview of presumptive taxation. Otherwise, he can file ITR-3."

But what should you do if you have capital gains?

There is a category of large number of individual taxpayers whose primary source of income is salary, but they also invest in shares and mutual funds. So, which is the right form for them? "An individual with income from salary and capital gain (except future and options and intra-day trading) is required to file ITR-2 if capital gain is not the primary source of income," says Rana of HostBooks.

If you have income above Rs 50 lakh or income from more than one house property or foreign income, or if you hold foreign assets, you will need to file ITR-2 form. "ITR-2 should not be used by an individual whose total income during the previous year includes income under the head 'Profits or Gains of Business or Profession', or whose primary source of income is capital gain (in case trading is the main business of the assessee," adds Rana.

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