BASICS OF INCOME TAX

Financial year- It is the year in which a person earns income.

Section 2(34) r.w.s. Section 3 defines Previous year. ― The financial year
immediately preceding the Assessment year.‖ So you earn your income in a
previous year 1st April to 31st March and pay your taxes in the next 1st April
to 31st March(Assessment year)

Assessment year- It is the year following the Financial year in which the income is
evaluated.
Section 2(9) defines Assessment year. ―The period of 12 Months starting
from 1st April every year.‖ So 1st April to 31st March every year is the
assessment year. The year in which tax is paid.

Person- Normally a ‘Person’ refers to an ‘Individual’, however under Income Tax, the person
has broader meaning and coverage.
The Income Tax Act of 1961 is an important legislation that governs the taxation of
individuals and entities in India. Section 2(31) of the Act defines the term ‘person’, which is
crucial to understanding the various provisions of the Act. In this article, we will explore the
definition of a person under the Income Tax Act, the different types of persons recognized by
the Act, and how taxation works for each type of person.

As per Section 2(31) of Income Tax Act, 1961, unless the context otherwise requires, the term
“person” includes:
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
A public corporation established under special Act of legislature and a body having juristic
personality of its own are known to be Artificial Juridical Persons. Universities are an
important example of this category.
5 HEADS OF INCOME TAX
Income from salary.
Income from house property.
Income from profits and gains from business or profession.
Income from capital gains.
Income from other sources.

For Old Regime, a tax rebate up to Rs.12,500 is applicable if the total income does not exceed
Rs 5,00,000 (not applicable for NRIs)

NOTE:

 Income tax exemption limit is

 up to Rs 2,50,000 for Individuals, HUF below 60 years aged and NRIs.

 up to Rs 3,00,000 for senior citizens aged above 60 years but less than
80 years.

 up to Rs 5,00,000 for super senior citizens aged above 80 years.

 Surcharge and cess will be applicable over and above the tax rates
However, under the new tax regime rebate is up to Rs.25000 is applicable if the total income
does not exceed Rs 7,00,000. (not applicable for NRIs)

* Tax rebate equivalent to an amount, tax payable is when the total income exceeds Rs
7,00,000. (not applicable for NRIs)

NOTE:

 Income tax exemption limit is up to Rs 3,00,000 for Individuals, HUF opting for the
new regime.

 Surcharge and cess will be applicable over and above the tax rates

Cess & Surcharge for Individuals (All Age Group):

Health and Education Cess - 4% of Income Tax

Surcharge - As per table;

TAXABLE INCOME PERCENTAGE OF SURCHARGE

Above 50 Lakhs 10% of Income Tax

Above 1 Crore 15% of Income tax

Forms Of ITR
ITR-1 OR SAHAJ
ITR-2
ITR-3
ITR 4 or Sugam
ITR-5
ITR-6
ITR-7

When is it mandatory to file income tax

returns (ITR) in India?
 If your gross total income is more than the basic exemption limit-

Age Group Basic Exemption Limit

For individuals below 60 years Rs 2.5 lakh

For individuals above 60 years but below 80 years Rs 3.0 lakh

For individuals above 80 years Rs 5.0 lakh

 If your income is below the basic exemption limit, you will still be required to file
your tax return if you meet any of these conditions:

 Deposited more than Rs 1 crore in 'current' bank account: You have to

mandatorily file a tax return if you have deposited a total of Rs. 1 crore or more in
 one or more current accounts with a bank. However, no such requirement has been
specified for deposits made in the post office current account; or

 Deposited more than Rs 50 lakh in 'savings' bank account: You have to

mandatorily file a tax return if you have deposited a total amount of Rs 50 lakh or
more in one or more of your savings bank accounts.

 Spent more than Rs 2 lakh on foreign travel: You have to mandatorily file a tax
return if you have incurred a total expenditure of more than Rs 2 lakh on foreign
travel whether for yourself or any other person; or

 Electricity expenditure is more than Rs 1 lakh: You have to mandatorily file a tax
return if you have incurred more than Rs.1 lakh towards electricity consumption
during the previous year; or

 TDS or TCS is more than Rs 25,000: If the tax deducted at source (TDS)/ tax
collected at source (TCS) exceeds Rs 25,000 in the previous year. In the case of a
senior citizen (above 60 years), this limit is Rs 50,000.

 Business turnover is more than Rs 60 lakh: In case you are a businessman and
your total sales, turnover, or gross receipt is more than Rs 60 lakh during the
previous year, then you have to mandatorily file a tax return

 Professional income is more than Rs 10 lakh: You have to mandatorily file a tax
return if you are engaged in a profession and your gross receipts are more than Rs
10 lakh during the previous year.
ITR-1 OR SAHAJ
This Return Form is for a resident individual whose total income for the AY 2024-25 includes:

 Income from Salary/ Pension; or

 Income from One House Property (excluding cases where loss is brought forward
from previous years); or

 Income from Other Sources (excluding Winning from Lottery and Income from Race
Horses)

 Agricultural income up to Rs 5000.

Who cannot use ITR-1 Form?

 Total income exceeding Rs 50 lakh

 Agricultural income exceeding Rs 5000

 If you have taxable capital gains

 If you have income from business or profession

 Having income from more than one house property

 If you are a Director in a company

 If you have had investments in unlisted equity shares at any time during the
financial year

 Owning assets (including financial interest in any entity) outside India, including
signing authority in any account located outside India

 If you are a resident not ordinarily resident (RNOR) and non-resident

 Having any foreign income

 If tax has been deducted under Section 194N

  If in case payment or deduction of tax has been deferred on ESOP

 If you have any brought forward loss or loss needs to be carried forward under any
income head

ITR-2
ITR-2 is for the use of an individual or a Hindu Undivided Family (HUF) whose total income for
the AY 2024-25 includes:

 Income from Salary/Pension

 Income from House Property

 Income from Other Sources (including Winnings from Lottery and Income from
Race Horses)

 If you are an Individual Director in a company

 If you have had investments in unlisted equity shares at any time during the
financial year

 Being a resident not ordinarily resident (RNOR) and non-resident

 Income from Capital Gains

 Having any foreign income

 Agricultural income more than Rs 5,000

 Owning assets (including financial interest in any entity) outside India, including
signing authority in any account located outside India

 If tax has been deducted under Section 194N

 If in case payment or deduction of tax has been deferred on ESOP

 If you have any brought forward loss or loss needs to be carried forward under any
income head
Further, in a case where the income of another person like one’s spouse, child etc. is to be
clubbed with the income of the assessee, this Return Form can be used where such income
falls in any of the above categories.

The total income can be more than Rs 50 Lakhs.

Who cannot use ITR-2?

This Return Form should not be used by an individual whose total income for the AY 2024-25
includes Income from Business or Profession. For declaring these types of Income, you may
have to use ITR-3 or ITR-4.

ITR-3
The current ITR-3 Form is to be used by an individual or a Hindu Undivided Family who have
income from a proprietary business or is carrying on a profession. The persons having income
from the following sources are eligible to file ITR-3:

 Carrying on a business or profession who is required to maintain the books of

accounts and/or required to get them audited.

 If you are an Individual Director in a company

 If you have had investments in unlisted equity shares at any time during the
financial year

 The return may include income from House property, Salary/Pension and Income
from other sources

 Income of a person as a partner in the firm

In short, individuals or HUFs who are not eligible to file ITR-1, ITR-2, and ITR-4, should
file ITR-3

ITR 4 or Sugam
The current ITR-4 applies to individuals and HUFs, Partnership firms (other than LLPs), which
are residents and whose total income includes:

 Business income according to the presumptive income scheme under section 44AD
or 44AE

 Professional income according to presumptive income scheme under section

44ADA

 Income from salary or pension up to Rs 50 lakh

 Income from one house property, not more than Rs 50 lakh (excluding the amount
of brought forward loss or loss to be carried forward)

 Income from other sources having income not more than Rs 50 Lakh (excluding
income from lottery and race-horses )

Please note that any individual earning income from the above-mentioned sources as a
freelancer can also opt for a presumptive scheme if their gross receipts are not more than Rs
50 lakhs.

A presumptive income scheme under sections 44AD, 44AE and 44ADA is when an individual
or an entity opts to derive its income on a presumptive basis, i.e. when the income is
presumed at a minimum rate based on a percentage of gross receipts / gross turnover or
based on ownership of commercial vehicles. However, if the business turnover exceeds Rs 2
crore, the taxpayer will have to file ITR-3.
Who cannot use ITR-4 Form?

 If your total income exceeds Rs 50 lakh

 Having income from more than one house property

 Owning any foreign asset

 If you have signing authority in any account located outside India

 Having income from any source outside India

 If you are a Director in a company

 If you have had investments in unlisted equity shares at any time during the
financial year

 Being a resident not ordinarily resident (RNOR) and non-resident

 Having foreign income

 If you are assessable in respect of the income of another person in respect of which
tax is deducted in the hands of the other person.

 If in case payment or deduction of tax has been deferred on ESOP

 If you have any brought forward loss or loss needs to be carried forward under any
income head

ITR-5
ITR-5 is for firms, LLPs (Limited Liability Partnership), AOPs (Association of Persons), BOIs
(Body of Individuals), Artificial Juridical Person (AJP), Estate of deceased, Estate of insolvent,
Business trust and investment fund.

ITR-6
For Companies other than companies claiming exemption under section 11 (Income from
property held for charitable or religious purposes), this return has to be filed electronically only.

ITR-7
For persons including companies required to furnish returns under section 139(4A) or section
139(4B) or section 139(4C) or section 139(4D) or section 139(4E) or section 139(4F).

 Return under section 139(4A) is required to be filed by every person in receipt of

income derived from property held under trust or other legal obligation wholly for
charitable or religious purposes or in part only for such purposes.

 Return under section 139(4B) is required to be filed by a political party if the total
income without giving effect to the provisions of section 139A exceeds the
maximum amount, not chargeable to income-tax.

 Return under section 139(4C) is required to be filed by every –

 Scientific research association;

 News agency;

 Association or institution referred to in section 10(23A);

 Institution referred to in section 10(23B);

 Fund or institution or university or other educational institution or any

hospital or other medical institution.

 Return under section 139(4D) is required to be filed by every university, college or

other institution, which is not required to furnish a return of income or loss under
any other provision of this section.

 Return under section 139(4E) must be filed by every business trust which is not
required to furnish a return of income or loss under any other provisions of this
section.
  Return under section 139(4F) must be filed by any investment fund referred to in
section 115UB. It is not required to furnish a return of income or loss under any
other provisions of this section.

Carr
IT Hous Capi Othe Lott Foreign
Busines y
R Applic Sala e tal r Exempt ery Assets/Fo
s Forw
For able to ry Prop Gai Sour Income Inco reign
Income ard
m erty ns ces me Income
Loss

Yes
Individ Yes( (Agricul
ITR
ual, One tural
-1 /
HUF Yes House No No Yes Income No No No
Sah
(Reside Prope less than
aj
nts) rty) Rs
5,000)

Individ
ITR
ual, Yes Yes No Yes Yes Yes Yes Yes Yes
-2
HUF

Individ
ual or
ITR
HUF, Yes Yes Yes Yes Yes Yes Yes Yes Yes
-3
partner
in a
 Firm

Yes
Yes( Presum (Agricul
Individ
One ptive tural
ITR ual,
Yes House Busines No Yes Income No No No
-4 HUF,
Prope s less than
Firm
rty) Income Rs
5,000)

Partner
ITR ship
No Yes Yes Yes Yes Yes Yes Yes Yes
-5 Firm/
LLP

ITR Compa
No Yes Yes Yes Yes Yes Yes Yes Yes
-6 ny

ITR
Trust No Yes Yes Yes Yes Yes Yes Yes Yes
-7