As the tax season approaches, individuals and businesses in India gear up to file their income tax returns. For taxpayers with business income or professional earnings, the process can be a bit more intricate. To ensure accurate reporting and compliance, the Income Tax Department offers specific Income Tax Return (ITR) forms tailored to various income sources. Among these, ITR 3 and ITR 4 are commonly used by individuals with business and professional income. In this blog, we will explore the key differences between ITR 3 and ITR 4, helping you choose the right form for a hassle-free tax filing experience.
ITR 3 is primarily designed for individuals or Hindu Undivided Families (HUFs) who have income from a business or profession. This form is applicable to taxpayers whose income falls under the following categories:
Income from a proprietary business or profession
Income as a partner in a partnership firm (not LLP)
Income from house property
Income from capital gains
Income from other sources
ITR 4, also known as "Sugam," is specifically meant for individuals, HUFs, and firms (other than LLPs) who have opted for the presumptive taxation scheme under Section 44AD, Section 44ADA, or Section 44AE of the Income Tax Act. Taxpayers eligible for ITR 4 include:
Resident individuals with business income computed under the presumptive taxation scheme (Section 44AD) with total turnover up to ₹2 crores.
Professionals like doctors, lawyers, architects, etc., with income computed under the presumptive taxation scheme (Section 44ADA).
Taxpayers engaged in the business of plying, hiring, or leasing goods carriages and opting for presumptive income calculation under Section 44AE.
ITR 3 is applicable to individuals and HUFs having income from business or profession, irrespective of their turnover. ITR 4, on the other hand, is applicable to those opting for the presumptive taxation scheme with specific turnover limits.
ITR 3 does not consider presumptive taxation, and taxpayers must calculate their actual business income and expenses. In contrast, ITR 4 is designed for taxpayers availing the presumptive taxation scheme, where income is assumed to be a percentage of the total turnover, simplifying the calculation process.
For filing ITR 4, taxpayers must have a total turnover or gross receipts up to ₹2 crores (for businesses covered under Section 44AD). There is no turnover limit specified for ITR 3.
Taxpayers filing ITR 3 may be required to undergo a tax audit under certain conditions, depending on their business turnover. However, individuals and businesses filing ITR 4 under the presumptive taxation scheme are not required to undergo a tax audit, regardless of their turnover.
Selecting the correct Income Tax Return form is crucial for accurate tax reporting and a hassle-free filing process. If you have income from business or profession but do not fall under the presumptive taxation scheme, ITR 3 is the appropriate form. On the other hand, if you have opted for the presumptive taxation scheme and meet the prescribed turnover limits, ITR 4 is the form you should use. As tax laws and rules are subject to change, it is advisable to consult a qualified tax professional or refer to the Income Tax Department's latest guidelines to ensure compliance with the most up-to-date regulations. Filing the correct ITR form will not only save you time and effort but also help you avoid potential tax penalties and discrepancies in your tax return.