Income Tax Return : What is ITR, Types of ITR Forms & Which One You Should File

1. Introduction

Every individual who earns money—whether from salary, business, investments, or any other source—should understand what an Income Tax Return (ITR) is. Filing ITR is not only a legal responsibility but also an important financial habit.

Even if your income is below the taxable limit, filing an ITR helps you with:

• Loan applications (home loan, car loan, personal loan)
• Visa processing
• Claiming tax refunds
• Acting as proof of income
• Maintaining clean financial records

In this beginner-friendly guide, we explain what ITR is, the types of ITR forms, and how to choose the right one.

2. What is an Income Tax Return (ITR)?

An Income Tax Return (ITR) is a form that taxpayers use to report their income, expenses, deductions, and taxes paid to the Government of India.

Purpose of Filing ITR

• To report annual income
• To declare taxes paid
• To claim refunds (if tax paid > tax liability)
• To carry forward losses (e.g., capital losses)
• To provide financial proof for compliance and documentation

Income Included in an ITR

An ITR must include all income earned from:

• Income from Salary
• Income from House Property (rent)
• Capital Gains (stocks, mutual funds, real estate)
• Business/Profession Income
• Other Income (interest, gifts, lottery, etc.)

When is Filing ITR Mandatory?

You must file an ITR if:

• Your income exceeds the basic exemption limit
• You want to claim a tax refund
• You invested in foreign assets
• You had TDS deducted
• You earned capital gains
• You are a company, firm, or LLP

3. Benefits of Filing an ITR

Many avoid filing returns if income is low, but filing ITR has significant advantages:

• Helps in getting home/vehicle loans
• Acts as legal income proof
• Enables quick tax refunds
• Avoids penalties and notices
• Required for visa applications
• Helps in carrying forward capital losses

4. Types of ITR Forms (ITR-1 to ITR-7 Explained Simply)

The Income Tax Department has 7 different forms. Choosing the correct form is essential.

ITR-1 (SAHAJ)

For salaried individuals with income:

• Up to ₹50 lakh
• Income from one house property
• Other income (interest)

Not for: capital gains, business income, or multiple properties.

ITR-2

For individuals and HUFs NOT having business income.
Includes:

• Salary income
• Multiple house properties
• Capital gains (stocks, mutual funds, real estate)
• NRIs

ITR-3

For individuals/HUFs having business or professional income, including:

• Freelancers
• Small businesses
• Intraday traders
• Futures & Options (F&O) traders
• Those with speculative income

ITR-4 (SUGAM)

For taxpayers opting for presumptive taxation, where income is declared at a fixed percentage.

Eligible for:

• Small businesses
• Professionals under presumptive scheme

Not for:

• Capital gains
• F&O traders
• Turnover above limits

ITR-5

For:

• LLPs
• Partnership firms
• AOPs / BOIs
• Investment funds

ITR-6

For companies (except those claiming exemption under charitable provisions).

ITR-7

For:

• Charitable trusts
• NGOs
• Research institutions
• Political parties

5. Comparison Table of All ITR Forms

6. Which ITR Should Traders File? (Critical for Samco Users)

This section is essential for stock market participants:

✔ Investors (Delivery-based Equity / Mutual Funds)

File: ITR–2
Income treated as capital gains.

✔ Intraday Traders

Income treated as speculative business income.
File: ITR–3

✔ Futures & Options (F&O) Traders

Income treated as non-speculative business income.
File: ITR–3

✔ Presumptive Taxation Option

F&O traders may opt for presumptive taxation under Section 44AD.
File: ITR–4 (if eligible)

Tax Audit Conditions for Traders

• If turnover exceeds limits
• OR if losses are declared under certain sections
• OR if the profit declared is less than the presumptive taxation requirement

7. Documents Required for Filing ITR

A simple checklist:

• PAN Card
• Aadhaar Card
• Form 16 (for salaried individuals)
• AIS/TIS report (from Income Tax portal)
• Bank statements
• Demat/Trading statements
• Capital Gains Statement (from broker)
• Interest certificates (FD, savings account)
• Proof of tax-saving investments

8. How to File ITR (Beginner-Friendly Steps)

1. Choose the correct ITR form
2. Collect necessary documents
3. Log in to the Income Tax e-filing portal
4. Pre-fill your personal and income details
5. Add capital gains or business income
6. Compute tax liability
7. Verify deductions and exemptions
8. Submit and complete e-verification

9. Common Mistakes to Avoid While Filing ITR

Avoid these common errors:

• Selecting the wrong ITR form
• Not reporting capital gains from mutual funds or shares
• Incorrect reporting of F&O losses
• Missing 80C/80D deductions
• Filing after the deadline (leads to penalties)
• Not reconciling AIS/TIS data

10. FAQs

11. What is ITR?

ITR is a form used to declare your income, taxes paid, and claim refunds.

2. Which ITR is for salaried individuals?

ITR–1 (if income ≤ ₹50 lakh).
ITR–2 (if capital gains or multiple properties).

3. Can traders file ITR-1?

No. Traders must file ITR-3 or ITR-4.

4. What happens if I miss the ITR deadline?

You may face penalties and lose the ability to carry forward losses.

5. Can I file ITR without Form 16?

Yes. Salary details can be taken from payslips or AIS.

6. Is it compulsory for students to file ITR?

Only if income exceeds exemption limit or TDS is deducted

Conclusion

Understanding what ITR and the types of ITR forms are helps individuals make informed financial decisions and stay tax compliant. Filing ITR is not just a legal requirement—it supports better documentation, smoother financial processes, and healthier financial discipline.

At Samco, we aim to simplify financial literacy by helping users understand essential concepts like Income Tax Returns, so they can manage their money confidently and responsibly.