As citizens, we have to pay tax to the government based on our income or profit, and Income Tax is the most important source of revenue for the government. In India, the Income Tax Act was passed in 1961, but has since then been amended several times to take care of inflation and other socio-economic situations.
As per the Income Tax Act, there are 2 types of taxes in India - Direct Taxes and Indirect Taxes. In the first, the tax is borne and paid directly by the individual, on whom it is imposed, to the government. In the second, the tax is passed on by the taxpayer to another person, like sales tax, Value Added Tax, etc. The tax is paid indirectly to the Income Tax department.
INCOME TAX RETURN
Where Income Tax Return is concerned, it is the form by which a person files information about his or her income and tax thereon to the Income Tax Department. The Income Tax Act, 1961, and the Income Tax Rules, 1962, obligates citizens to file returns with the Income Tax Department at the end of every financial year. Income Tax Return forms vary depending on the criteria of the source of income of the Assessee and the category of the Assessee, so it is imperative to know which particular form is appropriate.
TYPES OF FORMS:
There are seven forms and they are classified as ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7.
The ITR-1 form is for individuals who have earned their Income for a Financial Year only through salary or pension, one house property, and other sources apart from lottery, racehorses, legal gambling, etc. Other sources include FD interest, spousal pension, etc.
The ITR-2 form is for individuals earning an income only through salary or pension, house property, capital gains (Short Term and Long Term), other sources like lottery winnings, bets on racehorses, and other legal methods of gambling.
The ITR-3 form particularly applies to those individuals and Hindu Undivided Families who are registered as partners in a firm. It is only applicable to individuals and Hindu Undivided Families who are partners in a firm, gain income through profit or gain of business or profession, and gain income by means of interest, salary, bonus, commission, remuneration, as a partner.
The ITR-4 form is applicable to Hindu Undivided Families and individuals who are professionals or proprietors.
The ITR-5 form is applicable to LLPs, Firms, BOIs, AOPs, artificial judiciary persons and local authorities.
The ITR-6 form is applicable to companies that claim no exemptions as per section 11 of the Income Tax Act.