Time to get in "Form"!

Hey there, did you collect all the documents I asked you to gather last time? If you missed the list, here’s a handy reckoner. Now, it’s time to file those taxes! But do you know which ITR form applies to you? There are 7 types, and you need one, or a maximum of two, to complete the ITR filing process or the whole season! (Looking at you, Bridgerton!)

I ask you to MAKE HASTE because it is my business to care about you! File your taxes early and carefully, so that towards July end, you do not end up in a state similar to Colin Bridgerton’s-“I have not been able to sleep, not be able to eat. I can barely speak these days. My entire thoughts are consumed by TAXESSSS”.

Violet Bridgerton had eight kids named alphabetically, the IT department has seven, ordered numerically. So, dearest gentle taxpayer, welcome to the ton as we approach the business end, the last month of the tax filing season. But here’s some good news, you only need to know about four. The remaining forms are for businesses, trusts, LLPs, and such entities.

First off, we have ITR-1, also known as Sahaj. This is the form for us working class and salaried individuals, whose total income is not more than Rs 50 lakh in a year. This is the form Theo Sharpe (remember him?) would have filed.

So, if you have had some kind of agricultural income (but not more than Rs 5,000), or have some earnings from interest on your FDs or savings accounts, you’ll have to use this form. The good news is that this form is pre-filled, meaning that all you have to do is verify the given information using your Form-16 and Annual Information Statement (AIS). Here’s what it looks like:

But what if you have dabbled in the stock market during the year, bought or sold any shares or mutual fund units? Or were you involved in the sale and purchase of a property? In that case, Sahaj is not for you. You’ll have to file ITR-2.

Think of Form 2 as Penelope Bridgerton (nee Featherington). Just as Lady Whistledown adds a layer of complexity to her character, ITR-2 helps you navigate the slightly confusing capital gains tax.

When you buy or sell securities in the stock market, you incur something called long-term or short-term capital gains. Similarly, if you buy or sell a car, or some property, these gains are incurred. And as always, you cannot escape taxes on this. This is what ITR-2 looks like, for assessing capital gains on securities.

Let's assume you purchased some equity mutual fund units worth Rs 5,00,000 on April 1, 2023. You sell all of them in December of the same year because you’re planning a grand, solo world tour. On sale or redemption, you get Rs 8,00,000. Since you held these securities for less than 12 months, you will have to pay short-term capital gains tax. So, you’ll only have Rs 7,55,000 to plan your travels, since Rs 45,000 will be your tax liability. The STCG tax is applicable at 15% for equity mutual funds.

But let's say you defer this world tour by 3 years. You sell these units 2 years later and get Rs 12 lakh. Since you sold these units after 12 months, you’ll have to pay long-term capital gains tax, which will amount to Rs 60,000, leaving you with Rs 11,40,000 to travel the world. LTCG tax is applicable at 10% for equity mutual funds.

You see, the better you plan and the longer you stay invested, the better your returns and, comparatively, the lesser your tax. So ladies, start planning and, more importantly, investing in your grand world tour right away!

If you’re a freelancer or a small-time entrepreneur (we stan women bosses! ), ITR-1 or ITR-2 won’t cut it for you. ITR-3 is where your search will end. Since you are not a regular salaried individual, your income comes from your business or profession. If you opt to be taxed under the presumptive taxation scheme, ITR-4, or Sugam is for you. But we’ll venture down that rabbit hole next time!

What happens if you don’t file/find the right one?

No, you’re not jailed, or fined heavily. You can always file a revised return if you make a mistake. The deadline for the same is December 31, 2024, this time around. In case you miss filing your ITR on time, you’ll have to pay Rs 5,000 as a penalty. Also, you’ll be charged interest on your outstanding tax liability, if there is any.

But beware; if you try to intentionally misrepresent your income, the IT department can charge you a penalty that can be anywhere between 100-300% of the amount that is due, but has not been paid.

So, avoid all this fuss, and file your taxes on time. Next time around, I’ll help you decode all the drama around the old and new tax regimes and what works in your favor! Till then, feel free to holler at me, because I am a financial foofi. And I burn for you.