ITR-3 vs ITR-4: What’s the Difference and Who Should File?
Different types of Income Tax Return (ITR) forms are used based on how you earn your income, your residential status, and other factors. ITR-3 and ITR-4 are both used by people who earn income from a business or profession. But the key difference is:
- ITR-3 is for people who keep regular books of accounts.
- ITR-4 is for small business owners or professionals who choose the presumptive taxation scheme, where income is declared on an estimated basis.
Let’s understand each one better.
What is ITR-3?
Who can file ITR-3?
- Individuals and Hindu Undivided Families (HUFs) with income from business or profession (not using presumptive taxation).
- People with income from:
- Salary or pension
- More than one house property
- Capital gains (short or long-term)
- Other sources like interest, dividends, or lottery wins
- Income as a partner in a firm (salary or interest from firm)
Who cannot file ITR-3?
- People who don’t have any business or professional income.
- Companies, LLPs, trusts, local bodies, etc.
Due Dates for AY 2025–26:
- Without audit: 31st July 2025
- With audit: 31st October 2025
- Partner in firm that requires audit: 31st October 2025
What is ITR-4 (Sugam)?
Who can file ITR-4?
- Resident individuals, HUFs, and partnership firms
- Total income is up to ₹50 lakh
- Business or professional income under presumptive taxation:
- Section 44AD (small businesses)
- Section 44ADA (professionals)
- Section 44AE (goods transport businesses)
- Other income:
- Salary or pension
- One house property
- Agricultural income up to ₹5,000
- Capital gains under Section 112A up to ₹1.25 lakh
- Interest, dividends, family pension, etc.
Who cannot file ITR-4?
- Non-residents or RNOR (Resident but Not Ordinarily Resident)
- If total income is more than ₹50 lakh
- If you have:
- More than one house property
- Agricultural income over ₹5,000
- Foreign income or foreign assets
- Income from lottery or horse racing
- Dividend income over ₹10 lakh
- Undisclosed income (under Section 115BBE)
- Are a director in a company
- Held unlisted shares during the year
- Deferred tax on ESOPs
- Claiming foreign tax relief (under DTAA or Section 90)
Freelancers like bloggers, writers, digital marketers, etc. can also file ITR-4 (if eligible under the above rules).
Due Date: 31st July 2025
What is Presumptive Taxation?
This scheme allows small taxpayers to pay tax on a fixed percentage of their income without maintaining full books of accounts.
- Section 44AD: For small businesses with turnover up to ₹2 crore (₹3 crore for digital payments).
- Income is assumed to be 8% (or 6% for digital payments).
- No need to keep detailed accounts.
- Section 44ADA: For professionals with receipts up to ₹50 lakh (₹75 lakh from FY 2024–25 if digital payments).
- 50% of total receipts are considered income.
- Eligible professions include:
- Doctors, Engineers, Architects
- Lawyers, Accountants, IT Professionals
- Film artists, Designers, Consultants, etc.
- Section 44AE: For those who run goods transport businesses and own up to 10 trucks.
- A fixed income is assumed per truck per month.
ITR-3 vs ITR-4 – Key Differences:
Examples to Understand Better:
- Ram runs a small cloth shop with turnover under ₹2 crore.
- He can file ITR-4 (presumptive scheme) or ITR-3 (if he prefers normal tax calculation).
- Neha is an interior designer with income under ₹75 lakh (digital receipts).
- She can file ITR-4 using Section 44ADA.
- Deepika’s turnover in 2024–25 was ₹2.20 crore.
- She must file ITR-3 because her income exceeds the presumptive limit.
- Rahul is an insurance agent with ₹18 lakh income.
- He must file ITR-3. Insurance commission agents can’t use ITR-4.
- Shashank is a heart specialist with ₹85 lakh turnover.
- He must file ITR-3 since it exceeds ₹75 lakh.
- Prashant has two businesses—one eligible for presumptive and another with turnover over ₹2 crore.
- He must file ITR-3 for his combined income.
- Ashish owns 13 goods trucks.
- ITR-4 not allowed (limit is 10 trucks). He must file ITR-3.
- Vijay owns 5 trucks but doesn’t want to use the presumptive scheme.
- He can file ITR-3, but must maintain books of accounts.
Final Note:
Choosing the right ITR form is important for correct tax filing. If you’re a small business owner or professional with simple income, ITR-4 is convenient. But if your business is big or you’re not eligible for the presumptive scheme, you should go with ITR-3.
Disclaimer:
This article is meant for educational purposes only. It reflects personal opinions and does not offer financial or tax advice or promote any specific product.
