Income Tax

ITR-3 vs ITR-4: Difference and Who Can File?

As the tax season approaches, individuals and businesses in India gear up to file their income tax returns. The process can be a bit more intricate for taxpayers with business income or professional earnings. The Income Tax Department offers specific Income Tax Return (ITR) forms tailored to various income sources to ensure accurate reporting and compliance. Among these, ITR 3 and ITR 4 are commonly used by individuals with business and professional income. This blog will explore the differences between ITR-3 and ITR-4 to help you choose the right form for a hassle-free tax filing experience.

ITR-3: Who should File?

ITR is designed for individuals or Hindu Undivided Families (HUFs) with income from a business or profession. This form applies to taxpayers whose income falls under the following categories:-

1. Income from a proprietary business or profession
2. Income as a partner in a Partnership firm, excluding LLPs
3. Salary/pension income
4. Income from house property
5. Income from capital gains
6. Income from other sources

Due Date for Filing ITR-3

Category of Taxpayer	Due date of ITR
If a tax audit is not applicable	31st July, 2023
If a tax audit appliesPartner of a firm, in the case where the firm has to get its books of accounts audited	31 October, 2023

ITR-4: Who Should File?

ITR-4, also known as “Sugam”, is specifically meant for individuals, HUFs and firms (other than LLPs) who have chosen a presumptive taxation scheme under section 44AD, Section 44ADA or Section 44AE of the Income Tax Act. Taxpayers eligible for ITR-4 include:-

1. Resident individuals with business income computed under the presumptive taxation scheme (Section 44AD) with a total turnover of up to INR 2 crore.
2. Professionals like doctors, lawyers, architects, etc., with income computed under the presumptive taxation scheme (section 44ADA).
3. Taxpayers involved in plying, hiring, or leasing goods carriages and opting for presumptive income calculation under Section 44AE.

Who cannot file ITR-4?

• Non-residents or Residents but not ordinarily resident (RNOR)
• No income from the lottery or from owning and maintaining racehorses
• Director of a company
• The person holding unlisted equity shares at any time during the year
• Income exceeding INR 50 lakhs
• A person having an agricultural income of more than INR 5,000
• The person having income from greater than one House Property
• Income taxable under Section 115BBDA or Section 115BBE
• Taxpayers whose income tax is deferred on ESOPs

Note: Freelancers like bloggers, content writers, digital marketers, etc., can also file ITR-4. The due date for filing ITR-4 for Assessment Year 2023-24 is 31^st July 2023.

Section 44AD

Small business owners having a turnover not exceeding INR 2 crore can opt to pay tax under the presumptive scheme. Under section 44AD¹, taxpayers can declare 6% or 8% of the turnover as income and are not required to maintain books of accounts.

Section 44ADA

Professionals having yearly receipts of up to INR 50 lakhs are eligible to declare 50% of such receipts as income. Tax will be computed on such declared income. Professionals who have availed of the presumptive scheme under section 44ADA are:-

• Architecture
• Accounting
• Engineering
• Legal
• Medical
• Interior decoration
• Technical consultancy
• Film artists, including actors, directors, producers, singers, lyricists, cameramen, costume designers, storywriters, dialogue writers, editors, etc.
• Authorised Representative – It excludes a person engaged in the profession of accountancy or legal or is an employee of the person represented.
• Company Secretary
• Information Technology

Section 44AE

A taxpayer involved in the business of plying, hiring or leasing goods carriages can prefer to pay tax under Section 44AE if he doesn’t own more than 10 goods carriages at any time during the year.  

Differences between ITR-3 and ITR-4

Parameters	ITR-3	ITR-4
Applicability	ITR-3 applies to individuals and HUFs earning income from business or profession, irrespective of their turnover.	ITR-4 applies to those who choose a presumptive taxation scheme with specific turnover limits.
Presumptive Taxation Scheme	ITR-3 does not consider presumptive taxation, and taxpayers must calculate their actual business income and expenses.	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.
Turnover Limit	There is no turnover limit specified in ITR-3.	A taxpayer must have a total turnover or gross receipts of INR 2 crores.
Audit Requirements	Taxpayers filing ITR 3 are required to undergo a tax audit under certain conditions, depending on their business turnover.	Individuals and businesses filing ITR-4 under the presumptive taxation scheme are not required to undergo a tax audit, irrespective of the turnover.
Number of House Properties	Income from any number of house properties	Income from one house property only
Due Date of Filing	The due date for filing ITR-3 for non-audit taxpayers is 31st July, whereas, for audit cases, the due date is 31st October.	The due date for filing ITR-4 is 31st July since an audit is not applicable to presumptive taxation schemes.

Conclusion

Selecting the correct Income Tax Return is crucial for accurate tax filing and reporting. If you have income from a 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 a 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 save you time and effort and help you avoid potential tax penalties and discrepancies in your tax return.

FAQs

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