Filing Income Tax Returns in India - A Guide to IT Forms
“Today it takes more brains and effort to make out the income tax form than it does to make the income.” This quote by Alfred E. Neuman aptly describes the plight of assessee on the recently introduced income tax return forms under the series ITR by the government.
Eight new Income Tax return forms now replace the old Saral forms. Accordingly, the income tax returns by all categories of assessees from the assessment year 2007-08 (Finanical Year 2006-2007) onwards, need to be furnished in the new format as returns in old forms would not be accepted. The new forms can be easily downloaded from the income tax department website at incometaxindia.gov.in.
The new Forms are comprehensively designed so as to do away with all kinds of attachments and facilitate electronic filing.
Herein we will present an indepth analysis of the new forms:
ITR 1: Applicable for individuals having only salary and interest incomes. There are two versions of this form, only difference being that Version 2 is more spacious than Version 1. One actually wonders the need for two versions as it would only complicate things.
This form would be of use for very limited number of assesses as most salaried individuals usually have incomes apart from interest also. Moreover, clubbed incomes (common feature) cannot be mentioned in this form.
ITR 2: To be used by individuals and HUFs having income from any source except business or profession. It is more comprehensive and seeks more detailed information by way of different schedules for salary, income from house property, capital gains and income from other sources. As regards the schedule for income from house property, it allows the taxpayer to fill in the details of upto two house properties. If there are more than two house properties, the details of remaining properties are to be attached on a separate sheet with the form. So these forms are not completely annexureless.
ITR 3: For use by individuals/HUFs being partners in firm and not carrying out business/profession under any proprietorship.
ITR 4: For individuals/HUFs having income from a proprietary business or profession.
ITR 5: To be used by Firms, AOPs and BOIs to file their returns. It also seeks information on Fringe benefit tax.
ITR 6: This is for corporate assesses and replaces old form no.1.
ITR 7: This form is for Charitable Trusts and Political Organizations.
ITR 8: For those who are not required to file the Return of Income but are liable to file Return of Fringe Benefits.
ITR V: This is a verification form to be submitted physically when the above forms (except ITR 7) are e-filed without digital signature.
These forms are not required to be submitted in duplicate. There is an “acknowledgement” which is enough to state that the return is filed. But one should keep a copy of the return filed for the purpose of record and reference.
The new forms are applicable only for the financial year 2006-07. They are liable to be changed next year. This may create inconvenience for the taxpayers as every year a lot of time will be required to comprehend them. Moreover, such a measure also points out instability and unpredictable nature of the tax system.
The new forms do not require preparation of the most controversial Cash Flow Statement. Moreover, no attachments like TDS certificates, advance tax challans, proof of investments made, LIP receipts, etc are to be filed with the return. This may facilitate quick completion of cases in Income Tax department but may delay the refund process.
The forms require information on the high value transactions undertaken by the taxpayer. These transactions are already reported in AIR filed by banks, brokers, mutual funds, RBI, property registrars, etc. This would help the government in cross-tallying the data and would bring in greater transparency and tax compliance. One should be careful in reporting such transactions otherwise it may attract scrutiny of the return.
As regards Form ITR 4 and ITR 5, no audit report from a chartered accountant needs to be attached. Instead they ask for the name, membership no. and PAN of the auditor. It does not even require the signature and stamp of the auditor. This might lead to some unfair auditing practices.
Moreover, the forms have a common format of Profit & Loss A/c, Balance Sheet, depreciation chart which is applicable for everyone. The format including the prescribed heads of income and expenditure may vary for different businesses and professions. It will only bring in confusion and make comparison with the past records difficult. Actually, the government attempts to integrate accounting and income tax through the new forms, but this may not be so easy as both the fields are different in treatment of some expenses, incomes and deductions.
The forms have been announced at the end of the financial year and the assessee may not have kept all the information required.
Instead of making return filing simpler and assessee-friendly, the government has complicated the affair. The new forms will increase dependence on tax-practitioners, chartered accountants and tax return preparers, and goes short in Government’s aim of increasing tax compliance.
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Amit Agarwal is a Google Developer Expert in Google Workspace and Google Apps Script. He holds an engineering degree in Computer Science (I.I.T.) and is the first professional blogger in India.