One nation, one ITR form? How will CBDT’s new proposal help taxpayers?

There are currently seven kinds of ITR forms, which are used by different categories of taxpayers. What change has been proposed to the current system?

Employees of a chartered account firm file online Income Tax forms in Lucknow. (Express Photo: Vishal Srivastav, File)

4 min readNew DelhiNov 2, 2022 10:39 AM IST First published on: Nov 2, 2022 at 10:39 AM IST

The Central Board of Direct Taxes (CBDT) has proposed a single income tax return (ITR) form for all taxpayers. A draft form has been released, to which all stakeholders can provide inputs up to December 15.

How many kinds of ITR forms are there now?

There are seven kinds of ITR forms, which are used by different categories of taxpayers. They are as follows:

* ITR Form 1, called ‘Sahaj’, is for small and medium taxpayers. Sahaj forms can be filed by individuals who have an income up to Rs 50 lakh, with earnings from salary, one house property/ other sources (interest etc).

* ITR-2 is filed by people with income from residential property.

* ITR-3 is intended for people who have income as profits from business/ profession

* ITR-4 (Sugam) is, like ITR-1 (Sahaj), a simple forms, and can be filed by individuals, Hindu Undivided Families (HUFs) and firms with total income up to Rs 50 lakh from business and profession.

* ITR-5 and 6 are for limited liability partnerships (LLPs) and businesses respectively.

* ITR-7 is filed by trusts and non-profit organisations.

So what is the change that has been proposed?

According to the proposal, all taxpayers, barring trusts and non-profit organisations (ITR-7), will be able to use a common ITR form, which will include a separate head for disclosure of income from virtual digital assets.

“The proposed draft ITR…proposes to introduce a common ITR by merging all the existing returns of income except ITR-7,” the CBDT said.

Does this mean ITR-1 (Sahaj) and ITR-4 (Sugam), used by most individual taxpayers, will be withdrawn?

No, says CBDT. “The current ITR-1 and ITR-4 will continue. This will give an option to such taxpayers to file the return either in the existing form (ITR-1 or ITR-4), or the proposed common ITR, at their convenience,” it has said.

Sandeep Jhunjhunwala, Partner at Nangia Andersen LLP, said the new ITR form would be available alongside the old forms ITR-1 and ITR-4, but taxpayers filing ITR-2, ITR-3, ITR-5 and ITR-6 would not have the option to file the old forms.

What is the point of doing all this?

“The proposed draft ITR takes a relook at the return filing system in tandem with international best practices, CBDT has said. The draft form aims to make it easier to file returns, and to considerably reduce the time taken for the job by individuals and non-business-type taxpayers, it said.

“The taxpayers will not be required to see the schedules that do not apply to them. It intends the smart design of schedules in a user-friendly manner with a better arrangement, logical flow, and increased scope of pre-filling. It will also facilitate the proper reconciliation of third-party data available with the Income-Tax department vis-à-vis the data to be reported in the ITR to reduce the compliance burden on the taxpayers,” the CBDT said.

The proposed ITR form would be customised for taxpayers with applicable schedules, based on certain questions answered by them. Once the common ITR form is notified, after taking into account the inputs received from stakeholders, the online utility will be released by the Income Tax department. “In such a utility, a customised ITR containing only the applicable questions and schedules will be available to the taxpayer,” it said.