The person or HUF (Hindu United Family) engaged in business or profession in a partnership firm can file the income tax return on ITR-3 form. The form is not valid for those engaged in business or profession under any proprietorship.
One has to be careful in choosing the right tax return form. Only those who fall under this category would be able to file in this form and this would be a crucial factor that would be considered in the process.
The forms ITR -1 and ITR -2 are for people with salaried income along with other types of income.
A person with income from business or profession would not be able to use these two forms even if he had salary income. Once business income is included in the total income, he would have to use some other form.
If the person earning income from business or profession is carrying this on through a partnership firm then he will be able to use ITR-3 because it is designed to get information related to such a structure.
The basic details and flow of information to be mentioned like name, address, permanent account number (PAN), category of employer, type of return, residential status and other personal information is in the same manner as other forms.
Even the details about income — salaries, income from house property, capital gains and income from other sources — are exactly the same as in Form ITR –2. The details have to be mentioned in the schedule provided.
If there are losses then they have to be adjusted against the income figures, including the losses that have been carried forward. The tax to be paid is then determined and the taxes already paid are adjusted against this.
Income from business or profession
This is a slightly long process because some additional bit of the information will have to be mentioned to arrive at the final income under this head. First of all the individual has to give details of the number of firms in which they are partners. For each of the firm, the name of the firm, permanent account number of the firm, amount of share in the profit and the capital balance on the last day of the financial year has to be mentioned.
The next detail to be mentioned is the income from the firm in which a person is a partner in the form of salary, bonus, commission or remuneration received from the firm. There will also be interest that is received from the firm. The total and the net income from this will be mentioned and then this will be taken to the summary where the final figure will be taxed as income.
This kind of working is necessary because there is a specific tax treatment given to the income from this source.
Any profit received as a share of the partnership profit is tax-free in the hands of the partner. However any salary or interest or other receipt would be taxed. The form enables a person to add up all the taxable items and then this is added to the head of income from business or profession.