Income tax is a direct levy imposed by the Central Government on the yearly earnings of individuals and businesses, aimed at financing public services and government functions. The tax amount is determined by the total taxable income, which encompasses income from salaries, business profits, capital gains, and various other sources.
This term refers to any person or entity (such as individuals, Hindu Undivided Families (HUF), firms, or companies) that earns above a specified exemption threshold and is thus obligated to pay income tax.
Numerous countries, including India and the United States, employ a progressive tax framework. In this system, tax rates increase alongside income levels, ensuring that those with higher earnings contribute a larger percentage of their income in taxes.
In India, the income tax framework is governed by the Income-tax Act of 1961 and is overseen by theCentral Board of Direct Taxes (CBDT), which operates under the Ministry of Finance. -
Heads of Income: For the purpose of calculations, income is categorized into five primary groups:
Salaries
Income from House Property
Profits and Gains of Business or Profession
Capital Gains (from the sale of assets like property or shares)
Income from Other Sources (including interest, dividends, and lottery winnings)
Deductions and Exemptions: Taxpayers can lower their tax obligations by claiming various deductions and exemptions for qualifying expenses and investments. This includes items like life insurance premiums or interest on home loans. –
Filing Returns
It is mandatory for taxpayers to report their income and tax payments to the Income Tax Department each year by submitting an Income Tax Return (ITR) form. This process can conveniently be completed online through the official Income Tax e-filing portal.
ITR form applicable depends on the type and amount of income of the taxpayer as follows:
The types of Income Tax Return forms in India are as follows:
ITR 1: Salaried individuals with income up to Rs. 50 lakh
ITR 2: Individuals with capital gains
ITR 3: Income from business or profession
ITR 4: Income From Business and Profession < Rs. 50 lakh
ITR 5: Firms, LLPs, AOPs, and BOIs
ITR 6: Companies
ITR 7: Charitable trusts
ITR-1 (Sahaj) – For Salaried Individuals
Sahaj ITR form is for residents without a total income of more than ₹50 lakh. It is the most straightforward difficulty-wise form of them all
Who Can File ITR-1?
Who Cannot File ITR-1?
Resident people with total income up to ₹50 lakh
Non-Resident Indians and Hindu Undivided Families
Salary or pension income
Individuals earning more than ₹50 lakh annually
Income from one house property (excluding brought forward losses)
Individuals with capital gains from stocks, real estate, or funds
Interest income from savings accounts, fixed deposits, etc. (excluding lottery and horse race earnings)
Business owners or professionals with self-employment income
Individuals with foreign assets or foreign income
ITR-2 – For High Income Individuals & HUFs
If you have an income greater than ₹50 lakh or possess multiple sources of income, then ITR 2 is the form you need to file. It is not restricted to individuals; even HUFs can file them.
Who Can File ITR-2?
Who Cannot File ITR-2?
Salaried individuals earning more than ₹50 lakh
Individuals earning business or professional income (they must file ITR-3)
Individuals with multiple house properties
Individuals earning capital gains from stocks, real estate, or funds
Those with foreign assets and foreign income
Agricultural income above ₹5,000
Company directors or investors in unlisted shares
ITR-3 – For Business Owners & Professionals
If you own a business or earn money through self-employment, ITR-3 is the right form for you.
Who Can File ITR-3?
Who Cannot File ITR-3?
Business owners and self-employed professionals (doctors, lawyers, freelancers, etc.)
Salaried individuals with only one source of income (they should file ITR-1 or ITR-2)
Individuals earning from salary, pension, or rental income
Individuals earning from capital gains, lottery winnings, or other income sources
Company directors
Business owners with a turnover exceeding ₹2 crore
ITR-4 (Sugam) – For Small Business Owners & Freelancers
ITR-4 is for resident individuals, HUFs and firms who have opted for presumptive taxation under sections 44AD, 44ADA, or 44AE. This is the form that freelancers and small business owners whose turnover is greater than 25 lakhs but lower than 2 crore should use.
Who Can File ITR-4?
Who Cannot File ITR-4?
Small business owners, shopkeepers, and traders
Individuals earning more than ₹50 lakh
Freelancers, consultants, doctors, and lawyers earning up to ₹50 lakh
Non-Resident Indians (NRIs)
Individuals and firms opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE
Company directors
Individuals with foreign assets or foreign income
ITR-5 – For Partnership Firms & LLPs
ITR-5 is designed for Partnership firms (excluding those required to file ITR-7) and many more. Check below table to find out who can file and who can't file this form:
Who Can File ITR-5?
Who Cannot File ITR-5?
Partnership firms (excluding those required to file ITR-7)
Individuals (they should file ITR-1, ITR-2, ITR-3, or ITR-4)
HUFs and companies (they should file ITR-6)
Limited Liability Partnerships (LLPs)
Associations of Persons (AOPs)
Body of Individuals (BOIs)
Business trusts and investment funds
ITR-6 – For Companies
Companies (excluding those claiming exemptions under Section 11) must file ITR-6 electronically.
Who Can File ITR-6?
Who Cannot File ITR-6?
Private Limited Companies
Companies claiming exemption under Section 11 (charitable or religious organizations should file ITR-7)
Public Limited Companies
One Person Companies (OPCs)
ITR-7 – For Trusts & NGOs
This form is for entities that file under Sections 139(4A) to 139(4F).
Who Can File ITR-7?
Who Cannot File ITR-7?
Charitable trusts and religious institutions
Companies (they should file ITR-6), Individuals, HUFs, and firms
