Income tax return: 10 reasons when a taxpayer can’t use ITR-1 form

Income tax return: ITR-1 is a simple tax return form that can be filed by a resident taxpayer having total income of not more than ₹50 lakhs and has income reported from sources like salary, income from other sources and only one house property

Income tax return: The due date for income tax return (ITR) filing for FY22 and AY23 is 31st July 2022. Hence, earning individuals must be busy scanning their income and expenditures for above mentioned financial year and assessment year. However, the taxpayer must know that there are various ITR forms applicable for various kinds of earning individuals. Out of various ITR formed issued by income tax department, most simple form is ITR-1. Many times, ITR-1 is filed by taxpayers as standard ITR form without understanding exact eligibility to file correct ITR form. So, it is important for a taxpayer to know under what circumstances a taxpayer can’t fill ITR-1 form.

Speaking on who can use ITR-1 form for ITR filing, Aarti Raote, Partner at Deloitte India said, “The ITR-1 is a simple tax return that can be filed by a resident tax payer having total income of not more than ₹50 lakhs and has income reported from sources like salary, income from other sources and only one house property. One needs to note that the return cannot be used by a director of a company or has tax deferral for ESOP of startups or an individual having agricultural income more than ₹5000 or has capital gains income.”

Here we list out 10 reasons when an earning individual can’t use ITR-1 form while filing ITR for FY22 or AY23:

1] More than ₹50 lakh annual income: “If the earning individual is salaried with no other income but total annual income is exceeding ₹50 Lakh, ITR-2 is the correct form for such taxpayer,” said Sujit Bangar, Founder at taxbuddy.com.

2] Income from more than one house property: “If one has one house property, correct ITR form is ITR -1. But if there are more than one house properties, one cannot file ITR-1,” Sujit Bangar said.

3] Income from agriculture: We all know that income form agriculture is not taxable. While filing income tax return, one need to report income from agriculture exceeding ₹5000. Although agriculture income is not taxable, it is required just for determining slab rate for taxation. And in such cases, ITR-1 cannot be filed.

4] Equity investment in unlisted company: “If a salaried taxpayer owns equity of an unlisted company, then in such case, the earning individual is not allowed to file its ITR using ITR-1 form,” said Amit Gupta, MD at SAG Infotech — a SEBI registered income tax solution provider company.

5] Director of a company: “If the taxpayer is a director in a company, then in such case, he or she can’t use ITR-1 form,” said Amit Gupta of SAG Infotech.

6] TDS payment: “If TDS has been deducted on withdrawal of money in any bank/post office account in excess of the limit of ₹1 crore prescribed under section 194N,, then an earning individual can’t use ITR-1 form,” said Amit Gupta.

7] Stock, mutual fund investor: “If the taxpayer is a salaried person and investing in shares or mutual funds, one can file ITR-1. But once these shares are sold or mutual funds are redeemed, one cannot file ITR-1. For such income correct form is ITR-2 or ITR-3,” said Sujit Bangar or taxbuddy.com.

8] HUF family member: If a taxpayer belongs to a Hindu Undivided Family (HUF), then he or she can’t use ITR-1 form for ITR filing.

9] Asset outside India: If an earning individual fulfills all criteria for ITR-1, but it is having an asset outside India, then the taxpayer cannot file ITR-1.

10] Income from freelancing: Many software professionals do some or other work as freelancer over weekends or over free time. The income from freelancing is income from business or profession. In such scenario, one cannot file ITR-1. One needs to file ITR-4 or ITR-3, as the case may be.

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