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The Complete Guide to ITR-2 Form

TeamAckoOct 23, 2023

Navigating the maze of income tax returns can be daunting. This article aims to demystify the ITR-2 Form, a critical document for certain categories of taxpayers in India.

Contents

Who Should File ITR-2?
- Eligibility Criteria
- Types of Income Covered by ITR-2 Form
How to File ITR-2 Online and Offline
Additional Income Types and Their Treatment
- Tax Credits and Deductions
- Treatment of Losses
Sections and Components of ITR-2
Common Mistakes to Avoid
Acknowledgment and Verification
Wrapping up!
Frequently Asked Questions (FAQs)

Who Should File ITR-2?

Eligibility Criteria

Not every taxpayer needs the ITR form 2. It's designed for individuals and HUFs who have incomes other than income from business and profession. This includes income from salary, multiple house properties and other sources such as capital gains.

Types of Income Covered by ITR-2 Form

The form accommodates various types of income:

Income from Salary: For the salaried individual.
Income from House Property: Includes rent and property loss.
Income from Capital Gains: Covers both short-term and long-term capital gains.
Other Sources: Includes dividend income, interest income, and even lottery winnings.

How to File ITR-2 Online and Offline

Modes of Filing

There are two ways to file ITR-2: online and offline. Online filing is mandatory if the total income exceeds ₹5 lakhs. Offline filing is permitted only for those with income less than ₹5 lakhs and who are above 80 years old.

Steps for Online Filing of ITR-2 Form

Login to the Portal: The first step is to log in to the income tax e-filing portal. New users need to register.
Select the Form: Choose ITR-2 from the list of ITR Forms available.
Complete the Form: Fill in all the relevant details, including details of income, deductions under Chapter VI-A, and tax credits.
Submit the Form: After verifying all the information, submit the form. It can be verified using a digital signature or an electronic verification code.

Steps for Offline Filing

Download the Form: The form can be downloaded from the income tax portal.
Complete the Form: Fill in all the required information.
Submit the Form: The completed form can be submitted at the nearest income tax department office.

Filing ITR-2 is a straightforward process if one understands the form well. This guide aims to provide that understanding, making the task of filing ITR-2 less daunting for taxpayers.

Additional Income Types and Their Treatment

Agricultural Income

Agricultural income is exempt from income tax but must be declared as it is used for rate purposes in the calculation of tax liability. This income is reported under the section for exempt income.

Dividend Income

Dividend income from mutual funds and shares should be reported. The tax treatment varies depending on the source and the duration for which the investment was held.

Income from Retirement Benefits

Retirement benefits like provident fund and pension funds are usually exempt but must be reported. They fall under the category of income from salary for the purpose of ITR-2.

Tax Credits and Deductions

Statement of Deductions

Deductions under Chapter VI-A, such as those for insurance premiums and educational loans, are listed in Schedule VI-A. These reduce the total taxable income.

Details of Tax Credits

Tax credits for TDS and advance tax payments are to be filled in the 'Tax Details' section. This helps in the computation of tax credit available against the tax liability.

Treatment of Losses

Statement of Losses

Losses under various heads of income, including current year capital losses and unabsorbed losses, are to be reported. This is crucial for the computation of total taxable income.

Carry Forward of Losses

ITR-2 allows for the carry forward of certain types of losses, like house property loss and capital loss, to subsequent years. These are to be reported in the relevant schedules.

Sections and Components of ITR-2

Overview of Schedules

The ITR-2 Form is divided into various schedules that help in organising different types of income, deductions, and details. These schedules include:

Schedule S: Details of income from salary.
Schedule HP: Income from house property.
Schedule CG: Income from capital gains.
Schedule FA: Details of foreign assets and income.
Schedule VI-A: Deduction details under Chapter VI-A.

Each schedule is designed to capture specific types of income or deductions, making it easier for the taxpayer to provide accurate information.

Key Components

Personal and Contact Information: Includes complete address, email address, and Zip code.
Income Details: Comprehensive list of all sources of income, including salary income, income from house property, and capital gains.
Deductions: Details of deductions claimed under Chapter VI-A.
Tax Details: Information about tax liability, Advance Tax and Self-Assessment Tax paid.
Summary of Income: Aggregate of incomes from all sources, leading to the computation of total taxable income.
Computation of Tax Liability: Final figure of tax payable, including any relief from taxation.

Understanding these components is crucial for accurate and efficient filing of the ITR-2 Form.

Common Mistakes to Avoid

Incorrect Information

One of the most common mistakes is providing incorrect or incomplete information. This includes errors in the details of income, deductions, or tax credits. Such mistakes can lead to a mismatch with the records of the income tax department.

Ignoring Additional Income

Taxpayers often forget to declare additional sources of income such as interest from savings accounts, income from mutual funds, or income from rent. Ignoring these can result in penalties.

Not Verifying the Form

Before submitting, the form must be verified. This can be done using a digital signature or an electronic verification code. Failure to verify the form can lead to its rejection by the income tax department.

By being cautious and avoiding these common pitfalls, taxpayers can ensure a smooth and error-free filing process.

Acknowledgment and Verification

Receipt of Acknowledgment

Once the ITR-2 Form is successfully submitted and verified, the income tax department sends an acknowledgment. This acknowledgment serves as proof that the tax return has been filed.

Verification Methods

Verification can be done in two ways:

Digital Signature: A digital signature certificate can be used to verify the form.
Electronic Verification Code (EVC): An EVC can be generated through the income tax e-filing portal and used for verification.

It's crucial to keep the acknowledgment safe as it may be required for future reference.

Wrapping up!

Filing the ITR-2 Form is a straightforward process when done with a clear understanding of its various components and schedules. From detailing multiple income sources to claiming deductions and tax relief, the form serves as a comprehensive document for taxpayers who do not have income from business or profession.

Crucial Points to Remember:

Eligibility: Designed for individuals and HUFs with diverse income types.
Components: Includes schedules for various income sources, deductions, and foreign income.
Common Mistakes: Providing incorrect information and not verifying the form are pitfalls to avoid.
Verification: Digital signature and EVC are the two modes for verifying the form.

By following this guide, taxpayers can navigate the complexities of the ITR-2 Form and complete their tax filing with confidence.

Frequently Asked Questions (FAQs)

Below are some of the frequently asked questions on The Complete Guide to ITR-2 Form

What is Schedule 5A?

Schedule 5A is used for apportionment of income between spouses governed by Portuguese Civil Code, also known as the community of property.

What is the role of Schedule FSI?

Schedule FSI is used for detailing the relief sought from double taxation on foreign income.

How to handle capital gains?

Capital gains, both long-term and short-term, are detailed in Schedule CG. Information like the cost of acquisition and sale considerations are included here.

What is Schedule FA?

Schedule FA is for declaring foreign assets and income, including details of bank accounts and properties owned outside India.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet, and is subject to changes.