Tax season is here, and for salaried employees in India, navigating the different Income Tax Returns (ITR) forms can feel overwhelming. But worry not! This guide will you understand the concepts behind income tax returns for salaried employees. We’ll understand the factors that determine the right form and clarify the differences between ITR-1 and ITR-2.
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What does the term salary mean?
Salary is one of the numerous heads under the Income Tax Return Act. The Act’s section 17 defines “salary” as “wages, gratuity, pension, leave encashments, provident fund up to the chargeable amount, and advance payment of salary,” among other subheads.
The sums received under these headings are used to compute income tax. Salaried workers can use the ITR-1 to file an online income tax return if their total income is up to INR 50 lakh.
On the other hand, people who earn less than INR 2.5 lakh a year are not required to pay taxes. For salaried persons making more than INR 50 lakh a year, Income Tax Returns-2 is applicable. For salaried personnel, income is the criterion that determines whether ITR-1 or ITR-2 is applicable.
What is the applicable form of Income Tax Returns for salaried employees?
In India, filing the income tax returns for salaried employees depends on their income sources:
- ITR-1 (Sahaj): Income Tax Return-1 is the simplest form and ideal for salaried individuals whose total income for the financial year doesn’t exceed INR 50 lakh. It applies if your income comes from:
- Salary/Pension.
- One house property (excluding cases with brought-forward losses).
- Other sources (excluding lottery winnings and racehorse income).
- Agricultural income up to INR 5,000.
- ITR-2: This form is more complex than ITR-1 and is used by individuals or Hindu Undivided Families (HUFs) with income exceeding the INR 50 lakh limit or having income from various sources. It applies to salaried individuals if they also have:
- Income from house property (besides the restrictions mentioned in ITR-1).
- Income from other sources (including lottery winnings and racehorse income).
- Are a director in a company.
- Have investments in unlisted equity shares during the year.
- Are a Resident Not Ordinarily Resident (RNOR) or non-resident.
- Have capital gains.
- Have foreign income.
- Agricultural income exceeding INR 5,000.
How to file Income Tax Returns for salaried employees?
You must have access to a computer to download the ITR-1 to file an ITR for professional income or as a salaried individual.
- Open the Income Tax Department’s official website.
- With your Permanent Account Number (PAN) card, password, and captcha code, you can access your account.
- Select the “Income Tax Return” option from the “e-File” menu.
- Once you select the “Income Tax Return” link, your PAN value will be displayed. Select the assessment year, ITR form number, and “Original/Revised Return” filing type at this point.
- Complete the ITR form and select the “Prepare and Submit Online” option.
- After deciding on a verification technique, press the “Preview and Submit Button.”
Now you can see the uploaded file.
Why salaried individuals should file ITR?
- Legal Requirement:
- Filing income tax returns is mandatory for all individuals, including salaried employees, as per the Income Tax Act 1961.
- Penalties and Consequences:
- Failure to file returns can lead to penalties and charges of up to INR 5,000, as per the Income Tax Act 1961.
- Managing Capital Gains or Losses:
- Filing returns allows individuals to manage capital gains or losses and carry forward losses to the next assessment year, which can be beneficial for those with losses from house property.
- Proof of Income:
- Income tax returns serve as proof of income, essential for various purposes like applying for loans, or credit cards, or when planning to travel abroad.
- Claiming Deductions and Exemptions:
- By filing returns, individuals can claim deductions, exemptions, and rebates, ultimately reducing the tax burden and ensuring compliance with tax laws.
- Contributing to National Development:
- Taxes paid by individuals through filing returns contribute to building infrastructure and improving facilities in the country, making it a civic duty to file income tax returns
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In conclusion, choosing the right ITR form can seem confusing, but understanding your income sources simplifies the process. In India, ITR-1 is the perfect fit for Income Tax Returns for salaried employees. However, if your income picture gets more complex with additional income streams or specific situations, ITR-2 might be necessary.
When in doubt, remember, that consulting 24efiling can ensure you file using the correct form and maximize any potential benefits. So, take some time to understand your income sources, and choose the ITR form that best reflects your financial situation for a smooth tax filing experience.
FAQs
1. What form is used to file Income Tax Returns for salaried employees?
For most salaried individuals, the ITR-1 form is the simplest and most suitable option. It’s designed for those with income solely from salary/pension, one house property (with limitations), and other basic sources.
2. When should I use ITR-2 instead?
If your financial picture gets more complex, you might need ITR-2.
a) Multiple house properties (beyond ITR-1 limitations)
b) Business or profession
c) Capital gains
d) Foreign income
e) Are a director in a company
f) Have income exceeding INR 50 lakh
3. Can I just use ITR-2 for everything?
While ITR-2 can handle most situations, it is more complex. If your income falls neatly under ITR-1 categories, using the simpler form saves time and avoids unnecessary complications.
4. What documents do I need to choose the right ITR form?
Understanding your income sources is key. Gather your salary slips, house property rent receipts, and any investment income statements to see where your income falls.
