ITR-3 vs ITR-4

Filing income tax returns correctly is essential to stay compliant with the Income Tax Department in India. Many taxpayers often get confused between ITR-3 and ITR-4 while filing their returns. Understanding the difference between ITR 3 and 4 or the nuances of ITR-3 vs ITR-4 is crucial for selecting the right form and ensuring accurate tax reporting. This guide explains both forms, eligibility, due dates, and key distinctions in detail.

ITR-3 is an income tax return form primarily designed for individuals and Hindu Undivided Families (HUFs) who earn income from a proprietary business or profession. This form is also applicable to partners in a partnership firm, except those who have income solely from salaries, house property, capital gains, or other sources.

For example, a self-employed consultant earning professional fees exceeding ₹50 lakh, or a small business owner running a shop or firm as a sole proprietor, would need to file ITR-3. The form requires detailed information on profit and loss, balance sheets, and computation of tax liability. It ensures compliance with provisions of the Income Tax Act, enabling accurate reporting of business and professional income.

The following taxpayers are eligible to file ITR-3:

• Individuals or HUFs having income from a proprietary business or profession.
• Partners in a partnership firm (other than LLP) receiving income share from the firm.
• Individuals having income from more than one source, including salary, house property, capital gains, or other sources, along with business or professional income.

Certain taxpayers cannot use ITR-3, including:

• Individuals having only salary or pension income with no business or professional income.
• Those filing under the presumptive taxation scheme using ITR-4.
• Non-residents with only capital gains or other sources of income unrelated to business or profession.

The due dates for filing ITR-3 for AY 2025–26 are as follows:

Timely filing of ITR-3 ensures compliance and helps avoid penalties or interest on late payments.

ITR-4, also called Sugam, is a simplified income tax return form for individuals, HUFs, and firms (other than LLPs) who opt for the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE. The form is designed to reduce compliance burden for small taxpayers by allowing income calculation on a presumptive basis instead of detailed profit and loss reporting.

For example, a freelance consultant earning up to ₹50 lakh annually or a small trader with gross receipts under ₹2 crore can use ITR-4 to declare income in a simplified manner. It is ideal for taxpayers seeking ease and efficiency in filing returns without complex accounting.

Taxpayers eligible to file ITR-4 include:

• Individuals, HUFs, and firms (other than LLPs) with total turnover/gross receipts up to ₹2 crore in business.
• Professionals earning up to ₹50 lakh per year under presumptive taxation (Section 44ADA).
• Small taxpayers opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE.

Taxpayers who cannot use ITR-4 include:

• Individuals or HUFs with income exceeding ₹2 crore from business or profession.
• Those who need to maintain detailed books of accounts under Sections 44AA or are subject to audit.
• Individuals earning income from capital gains, income from more than one business, or income from speculative/business losses.
• Directors of companies or those holding unlisted equity shares.

Presumptive taxation allows small taxpayers to declare income as a percentage of turnover or receipts instead of detailed accounting. Key sections include:

Section 44AD

This section is applicable for small businesses with a turnover of up to ₹2 crore. Under Section 44AD, taxpayers can declare 8% of turnover as taxable income if payments are received digitally, or 6% for cash-based transactions. This approach eliminates the need for detailed bookkeeping and simplifies tax compliance for small traders or shop owners.

Section 44ADA

Professionals such as lawyers, architects, and consultants with gross receipts up to ₹50 lakh can opt for Section 44ADA. Here, 50% of gross receipts are considered taxable income, and no further detailed profit and loss statement is required. This scheme significantly reduces compliance burden for professionals with moderate income levels.

Section 44AE

This section is designed for taxpayers owning goods transport vehicles. It allows vehicle owners to declare a fixed income per vehicle instead of maintaining detailed books. Income is calculated based on the number of vehicles owned and the prescribed rate, providing a simplified taxation mechanism for truck operators or transport service providers.

Understanding ITR-3 vs ITR-4 ensures accurate tax compliance and prevents errors while filing returns. ITR-3 is suited for detailed business and professional income, while ITR-4 simplifies reporting under presumptive taxation for small businesses and professionals. Choosing the correct form saves time, ensures compliance, and avoids unnecessary penalties.