ITR-3 vs ITR-4: What’s the Difference and Who Should File?

An Income Tax Return (ITR ) is a form that an individual or an entity submits annually to the Income Tax Department of India. This is done to report their total income, taxes paid, exemptions, and deductions, if any. ITR-3 and ITR-4 are types of Income Tax Return forms. It is especially for individuals and Hindu Undivided Families (HUFs) with income from any profession or business.

ITR-3 is for those with income from a business or profession and who maintain a detailed book of accounts. ITR-4 is for those who opt for the presumptive taxation scheme, and detailed books of accounts are not required. This guide explains the exact difference, eligibility, and which form applies to whom, clearly and in detail.

What is ITR-3?

ITR-3 forms are meant for individuals, Hindu Undivided Families, and entities earning income from business or profession. It applies only when the income is not declared under the presumptive income scheme. This form demands detailed financial disclosures, and therefore, it is used in cases with more complex income structures.

Who Can File ITR-3?

Any individual or Hindu Undivided Family (HUF) should file ITR-3 if they meet any of the following conditions:

• Income is earned from a proprietary business or profession

• Income is received from multiple businesses or professions

• Business or professional income is computed under the regular provisions, with proper books of accounts maintained

• Income includes capital gains, in addition to business or professional income

• Income is earned from more than one house property

• Income is earned from foreign sources, or the taxpayer owns foreign assets

• The taxpayer has invested in unlisted equity shares (mandatory disclosure required)

As ITR-3 filing needs detailed financial documents, ensure that balance sheets, profit and loss account statements, and asset disclosures are maintained accurately.

What is ITR-4?

This form is for resident taxpayers who choose the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE of the Income Tax Act. It enables qualified taxpayers to report income at a predetermined proportion of turnover or receipts, rather than keeping thorough books of accounts. This streamlines the tax filing process. Within certain turnover or receipt restrictions, this form is specifically intended for professionals and small enterprises.

Who Can File ITR-4/ Sugam?

An individual, Hindu Undivided Family (HUF), or partnership firm (other than LLP) can file ITR-4, which is also called Sugam, under the following conditions:

• The taxpayer is a resident individual, HUF, or partnership firm (not an LLP)

• Income is computed under the presumptive taxation scheme

• Business turnover does not exceed ₹2 Crore under Section 44AD (₹3 Crore if 95% or more of total receipts are digital)

• Professional receipts do not exceed ₹50 Lakh under Section 44ADA (₹75 Lakh if receipts are digital)

• Agricultural income up to ₹5,000

• Income includes earnings from:

  • Salary or pension

  • One house property

  • Other sources (excluding lottery, betting, or racehorse income)

ITR-4 simplifies tax filing and does not demand detailed books of accounts like ITR-3.

ITR-3 vs ITR-4: Key Differences

ITR-3 and ITR-4 are commonly used by salaried employees, self-employed professionals and small business owners. Let's look at the key differences between them.

Which ITR Form Should You Choose?

If an individual or an HUF has higher expenses and wishes to report actual profits, then ITR-3 would be the right choice. It gives more deduction options to be claimed and allows turnover reporting without limits. It suits a growing business with structured accounting.

If the income structure is simple and the turnover or receipts fall within the prescribed limits, ITR-4 is an ideal choice. Although the tax deduction options are limited, they eliminate the burden of maintaining detailed records. It is the best option for small professionals and freelancers with a predictable income who meet the eligibility criteria.

One must choose the form that is the right fit for them. Selecting the wrong one may result in defective return notices under section 139(9) of the Income Tax Act, 1961.

Common Mistakes to Avoid When Filing ITR-3 or ITR-4

There are possibilities of making certain mistakes while filing an ITR-3 or ITR-4. Below are some common mistakes to avoid:

• Filing ITR-4 despite having capital gains income

• Opting for the presumptive taxation scheme without meeting the eligibility criteria

• Ignoring or incorrectly evaluating turnover or receipt thresholds while filing

• Overlooking long-term tax implications in favour of short-term convenience

• Choosing ease of filing over compliance, leading to incorrect ITR selection

Evaluate the applicable conditions carefully and file the correct ITR form to avoid penalties and compliance issues.

Also Read: Everything You Need to Know About Income Tax Returns Filing

To Conclude

Your income structure, long-term financial goals, and compliance ability will determine whether you choose ITR-3 or ITR-4. ITR-3 is appropriate for taxpayers who need to record their income in detail. It is for those with income that exceeds the presumed limits or who want greater disclosure and deduction flexibility.

For qualified resident taxpayers seeking a streamlined tax filing under the presumptive taxation structure, ITR-4 is the best option. Making the right ITR form choice guarantees legal compliance and enables you to receive the benefits to which you are legally entitled.

FAQs

Can an individual switch from ITR-4 to ITR-3 for the next financial year?

Yes, an individual can switch between the forms in the next financial year. However, exiting the Section 44AD presumptive scheme bars re-entry for five assessment years. It may require maintaining books and, if applicable, undergoing a tax audit.

Is a tax audit mandatory for those who file ITR-3?

A tax audit is mandatory only if the turnover or gross receipts exceed the limits prescribed under Section 44AB, or if specific conditions under presumptive taxation provisions are triggered. Otherwise, an audit is not compulsory.

Can agricultural income be reported in both forms?

Yes, agricultural income can be reported under either form, depending on the applicable disclosure requirements.

Is it possible for an NRI to file ITR-4?

No, only resident taxpayers are eligible to file ITR-4. However, non-residents may file ITR-3 provided they meet the eligibility conditions. Check the official website of the Income Tax Department of India for more detailed information.

What happens if I file the wrong ITR?

Under Section 139(9), the return may be deemed faulty if the wrong ITR form is submitted. The return may be deemed invalid if the taxpayer does not correct and refile it within the allotted period.