Difference between ITR -3 & ITR -4 Returns

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The ITR-3 applies to individuals and Hindu Undivided Families (HUFs) who earn income from profits and gains derived from business or profession. On the other hand, the ITR-4 is designed for taxpayers who choose the presumptive income scheme under Section 44AD, Section 44ADA, and Section 44AE of the Income Tax Act.

Nevertheless, if the turnover of the business mentioned above surpasses Rs. 2 crore, the taxpayer will be required to file ITR-3 instead of ITR-4.

Therefore, it is important for you to understand the difference between ITR-3 & ITR-4 so that you can correctly do ITR Filing and save your time, money and efforts.

Who should do ITR-3 Return Filing?

The ITR-3 form is specifically meant for individuals and Hindu Undivided Families (HUFs) who have income under the head “profits or gains of business or profession” and are not eligible to file Form ITR-1 (Sahaj), ITR-2, or ITR-4 (Sugam).

Who should do ITR-4 Return Filing?

You should do ITR-4 Return Filing as Individuals/HUF/partnership firms and following presumptive taxation scheme if:

  • Income from profession calculated under section 44ADA
  • Salary/pension up to Rs 50 lakh
  • Income from one house property up to Rs 50 lakh (excluding brought forward losses)
  • Income from other sources up to Rs 50 lakh (excluding winnings from lottery and horse races)

What is a Presumptive Taxation Scheme?

The presumptive taxation scheme is a simplified tax system for small businesses and self-employed individuals.

Under this scheme, businesses are taxed on a presumed level of income rather than on their actual profits.

This method of taxation is based on the assumption that businesses in certain sectors have a minimum level of income, which can be used as a basis for calculating taxes.

The main features of the presumptive taxation scheme are:

  • No need to maintain books of accounts
  • Net income is estimated to be 8% of gross cash receipts, or 6% if payments are received via digital mode
  • No deductions for business expenses
  • 100% of advance tax must be paid by March 15th

The presumptive taxation scheme can be a valuable option for small businesses that do not have the resources to maintain complex accounting systems or track all of their business expenses.

It can also help to reduce the compliance burden for these businesses.

Ways to file ITR-3 and ITR-4 Form:

There are three methods to file the Income Tax Return ITR-3 form:

  • Electronically filing with a digital signature certificate.
  • You can submit the form electronically and verify it using an EVC, which you can generate using your Aadhaar OTP, net banking, or bank account number.
  • You can fill out the form offline and submit a physical copy at the designated Income Tax office.

Also Read: Benefits of Filing Income Tax Return on Time

Who is ineligible for using ITR-3?

Form ITR-3 is exclusive to individuals or Hindu Undivided Families (HUFs). Moreover, those individuals or HUFs who do not possess income from business or profession cannot utilize ITR-3.

Who cannot file ITR-4?

The following individuals / HUFs / Firms (excluding LLPs) are not eligible for filing ITR-4:

  • Residents who qualify as Not Ordinarily Residents (RNOR) and non-Resident Indians (NRIs).
  • Those with total income exceeding ₹50 Lakh.
  • Those with agricultural income surpassing ₹5,000/-
  • Directors of a Company.
  • Individuals with income from more than one House Property.
  • Those earning income from sources such as lottery winnings, owning and maintaining race horses, income taxable at special rates under section 115BBDA or Section 115BBE.
  • Individuals who held unlisted equity shares at any time during the previous year.
  • Those with deferred income tax on Employee Stock Ownership Plan (ESOP) received from an employer who is an eligible start-up.
  • Individuals who do not meet the eligibility criteria for ITR-4.

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Conclusion – Difference between ITR-3 and ITR-4

In conclusion, you can keep the following table handy to understand the difference between

Form ITR-3 ITR-4
Applicable to Other than presumptive taxation for individuals and HUFs Those opting for presumptive taxation for individuals and HUFs
Total Income Limit Total income reported can exceed Rs 50 lakhs Total income shall not exceed Rs 50 lakhs
Eligibility for Directors Can be filed by a director of a company Cannot be filed by a director of a company

How to correct income tax return after original ITR filing?

Moreover, If you want any other guidance relating to Difference between ITR -3 & ITR -4 Returns, please feel free to talk to our business advisors at 8881-069-069.

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