July 31 may be a few weeks away, but individual taxpayers would do well to start working on their income tax returns for financial year 2023-24 (assessment year 2024-25). These taxpayers have to choose the most relevant form from the pool of ITR-1 (Sahaj), ITR-2, ITR-3 and ITR-4 (Sugam).

By now, employers would have issued Form 16, the document that forms the base for filing income tax returns for salaried individuals. Likewise, banks would have enabled access to tax deduction (TDS) certificates for taxes withheld on interest earned on savings and fixed deposits. So, ensure that you download your Form-16, TDS certificate, and capital gains statements before you start the return-filing process.

ITR-1 and ITR-2: For salaried taxpayers

Step one is to ascertain the form that is applicable to you. Salaried individuals can choose between ITR-1 and ITR-2, depending on their residential status, income level and sources of income.

ITR-1 (Sahaj) is a simple form that resident, salaried taxpayers or pensioners with income of less than Rs 50 lakh can use. Then, there are other conditions; it is relevant to taxpayers with only one house property, agricultural income of up to Rs 5,000  and income from savings or fixed deposits, dividends, and family pension.

The form is pre-filled with personal information, income details, and financial transaction data to enable quick and easy filing. Individuals can verify the ITR data with their Form 16 and bank account statements, besides checking Form 26AS and the Annual Information Statement (AIS), and complete the process online.

ITR-2: For complex financial dealings

If you are a salaried individual or pensioner—that is to say you do not have any income from a business or profession—with income of over Rs 50 lakh, multiple sources of income, financial transactions, and so on, you cannot use ITR-1.

Put simply, you should file ITR-2 if you are not eligible to file returns using ITR-1. For example, if you are non-resident or resident but not ordinarily resident (RNOR) salaried individual or pensioner, you will have to use ITR-2.  This form is also the relevant form if you have made capital gains or losses during financial year (2023-24). Likewise, if you are a director in a company, own unlisted shares or ESOPs, maintain a foreign bank account or any other assets outside India, you will have to use ITR-2 and not ITR-1.

However, you cannot use ITR-2 if you have profits to show from a business or profession.

Also read: Your one-stop guide to filing income tax returns 

ITR-3: For businesspersons

Individuals with profits from business or profession (as also Hindu Undivided Families) will have to file their returns using this form. Your other sources of income could include salary or pension, capital gains, house property and so on. Put simply, as per the I-T rules, individuals who are not eligible to file returns under ITR-1, ITR-2 and ITR-4 can use this form.

ITR-4 (Sugam): For small businesspersons, professionals

Resident individual taxpayers, Hindu Undivided Families (HUF) or firms (but not LLPs) with incomes of up to Rs 50 lakh from business or a profession can use this form.

Filing returns using Sugam is not mandatory—it is an option given primarily to smalltime businesspersons or professionals to ensure simpler returns and fewer documentation hassles. Using this form, you can declare earnings through a business or profession on  a ‘presumptive’ basis under sections 44AD, 44ADA or 44AE.

It is applicable only to individuals with income of up to Rs 50 lakh from a business or profession, computed on a presumptive basis (under section 44AD/44ADA/44AE). Effective financial year 2023-24, section 44AD and section 44ADA turnover and gross receipts thresholds have been raised to Rs 3 crore (up from Rs 2 crore) and Rs 75 lakh (up from 50 lakh), respectively. That is, provided the amount or aggregate of the amounts received during the previous year, in cash, does not exceed 5 percent of the total gross receipts.

The other conditions are similar to those of ITR-1: salary or pension income with one house property, income from family pension, dividend or interest from deposits, and agricultural income of up to Rs 5,000.

As with ITR-1, the ITR-4 form cannot be used by an individual who is a director in a company, has held unlisted equity shares, has any foreign income or assets, including dormant bank accounts, has brought forward any loss, has incurred losses that have to be carried forward, and so on.