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Business News/ Money / Personal Finance/  Income tax return: Who can use ITR 1, who cannot?
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Income tax return: Who can use ITR 1, who cannot?

Since only individuals can use ITR 1 by implications it is clear that an HUFs cannot use ITR 1 even if it otherwise satisfies all other conditions

In case you have brought forward losses or losses during the current year under House property head of other sources head and which you wish to carry forward also cannot also use ITR 1 (Mint)Premium
In case you have brought forward losses or losses during the current year under House property head of other sources head and which you wish to carry forward also cannot also use ITR 1 (Mint)

Form ITR 1 which is popularly known as Sahaj is to be used by significant majority of tax payers. But who can use and who cannot use ITR 1 is not so easy (Sahaj) to understand so I decided to write this article to help people understand who can and who cannot use ITR 1.

Who can submit ITR 1

First let us discuss as to who can use this ITR form and then elaborate on who cannot use ITR 1 even if he is otherwise eligible to use it. ITR 1 can only be used by an individual taxpayer who is a resident of India for tax purpose. So all the non-resident and not ordinary resident Individuals under tax laws cannot use this form. Likewise, any person whose taxable income does not exceed fifty lakhs can use ITR 1 provided he does not have any income under the head “Capital gains" and “Profits and gains of business or profession". So as long as you have income from any of these three sources i.e. “Salaries", “Income From House Property" and “Income From other sources" you can use ITR 1. However, you cannot use ITR 1 in the following circumstances even if your income comprises of these three sources:

Firstly all those of you who have salary income cannot use ITR 1 if your tax deduction on perquisite value of Employee Stock Option Plan (ESOP) has been deferred due to your employer being a start up as per the income tax law. Secondly for those who have income under the head “Income from House Property" can use ITR 1 only and only if they own only one house property. The single property need not necessarily be self-occupied and it may even be let out in case you are staying in a rented house or in employer provided house. And thirdly for person having income under the head “Income from other Sources" can not use ITR 1 if your source of income under this head includes income of maintaining race horse or prize money or income which is taxed at flat rate like unexplained investments or unexplained expenditure which is taxed at 60%.

You cannot use ITR 1 even if your income does not include income of the above nature buy you are claiming any expenditure against such income. So if you are earning some income by moonlighting, you can use this income only if you do not intend to claim any expenditure against your moonlighting income. An exception is made in respect of those who receive family pensions where a standard deduction is available against family pension upto 1/3 of pension received maximum of upto Rs. 15,000/- and such persons can use ITR 1.

In case income of some other person is required to be clubbed in your income, you can use this form only if the nature of the income to be clubbed falls under any of the three heads of income enumerated above and does not have fall under any of the exceptions discussed above.

Who cannot use ITR 1

Since only individuals can use ITR 1 by implications it is clear that an HUFs cannot use ITR 1 even if it otherwise satisfies all other conditions. All the individuals who hold directorship in any company or have investments in shares of any unlisted company are not eligible to use ITR 1 irrespective of composition of their income. Likewise, all those who either have any asset outside India or have any signing authority in respect of any account outside India cannot use this form. Value of the asset or balance in the bank account is of no relevant for this purpose. So all those who have invested in foreign companies or foreign mutual funds under Liberalised Remittance Scheme (LRS) are not eligible to use ITR 1. Please note this restriction does not apply to all those who have invested in Indian mutual fund schemes who invest in foreign companies and scheme of foreign mutual funds. You can not use ITR 1 if you have any income from outside India. In case you have an agricultural income over Rs. 5,000/- you are ineligible to use this form.

In case you have brought forward losses or losses during the current year under House property head of other sources head and which you wish to carry forward also cannot also use ITR 1. All those individuals where tax has been deducted by banks or post office for cash withdrawals beyond certain specified limit are also barred from using ITR 1.

I have come across cases where retired people who are retained as consultant have used ITR 1 which in my opinion is wrong because the consultancy charges received cannot be taxed under the head “Income From Other Sources". This is because the activity of rendering consultancy is not one of a transaction and rendering of consultancy is an activity carried out in systematic manner and is in the nature of professional income and therefore has to be offered for tax under the head “Profits and Gains of Business or Profession" and for which you can either use ITR 3 or ITR 4 if you are eligible to avail the benefit of presumptive taxation. This will be the situation even if you do not claim any expenditure against your consultancy income.

I am sure the above discussion will help you in deciding whether you can use ITR 1 or not and help you avoiding the mistake of using wrong form.

Balwant Jain is is a tax and investments expert. He can be reached on jainbalwant@gmail.com and @jainbalwant his Twitter handle

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Published: 21 Aug 2021, 11:09 AM IST
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