An ITR stands both as a proof of income and as a means by which tax refunds paid in excess can be claimed, losses can be carried forward, etc. Instances where an ITR is needed include demonstrating an income for the purpose of applying for loans, processing visas, or entering government tenders. In general, there are various income tax return forms (ITR-1 to ITR-7), and each is suitable for a particular class of taxpayers depending upon their sources of income, the amount of income, and their residential status. For example, ITR-1 is for salaried persons; ITR-4 is for taxpayers opting for the presumptive income scheme under the Income Tax Act. Thanks to online filing utilities and pre-filing of returns, filing an ITR is a streamlined and computerised process that has considerably reduced the compliance burden. The due filing of ITR, early and error-free, will ensure compliance with tax laws by an individual, saving him from penalties while augmenting the revenue base of the country.
What is Business Income?
As per the Income Tax Act, 1961, business income means the profits and gains arising to any person, firm, company, or any other entity from trade, commerce, manufacturing, or any other similar commercial activities. These incomes are chargeable to tax under the head ‘Profits and Gains of Business or Profession’ as per Section 28 of the Act. Business income includes any and all income arising to a person from the sale of goods or services, any trade profits, compensation for the termination of contracts, and other incidental benefits or perks.
Gross receipts can include advertising expenses, rent, salaries, depreciation, interest on loans, and all other expenses incurred in running the business, which are subtracted to arrive at net taxable income. Business operators are required to keep proper accounting records and may undergo tax audits if their gross turnover exceeds some prescribed limits. Correctly reporting business income for tax is tantamount to legally complying with the law and shall save one from penalties.
Which ITR Form is Filed For Business Income?
There are different ITR forms meant for business income depending on the nature and dimension of the organisation. ITR-3 and ITR-4 are two commonly filed ITRs for business income. An individual or HUF earning income from a sole proprietorship or a profession and not opting for the presumptive taxation scheme under sections 44AD or 44ADA should file an ITR-3. This form is used if taxpayers maintain regular books of account, and income includes earnings from business or professions, house property, capital gains, or other sources. On the other hand, individuals, HUFs, and firms (other than LLPs) opting for the presumptive taxation scheme under sections 44AD, 44ADA, or 44AE shall file the ITR-4 (Sugam). This form is suitable for small businesses and professions with a small income (up to Rs. 2 or 3 crore, depending on digital transactions) and gives relief while filing with fewer documentation requirements. The use of the correct ITR form acts as a control feature for the checking of offenses.
ITR-3 – Who Files It?
Individuals and Hindu Undivided Families having income from proprietary business or profession and who do not wish to adopt the presumptive scheme under Sections 44AD, 44ADA, or 44AE should furnish Form ITR-3. This form is meant for individuals who maintain regular books of accounts and must furnish detailed financial statements, including profit and loss account and balance sheet. Among others, this category of taxpayers includes doctors, lawyers, chartered accountants, consultants, freelancers, shopkeepers, and traders who carry on businesses or render professional services on their own. Other than income from business or profession, this form would also permit a declaration of income from house property, salary, capital gains, and other sources such as interest or dividends. ITR-3 filing requires disclosure of complete financial information, including assets and liabilities. This may attract a tax audit in case the turnover exceeds the prescribed limits. This is important for high-income professionals and business owners who need to calculate their taxes correctly and comply with laws.
Who Cannot File ITR-3?
One may not file an ITR-3 if one does not have income by way of any proprietary business or profession. Taxpayers who file on presumptive taxation grounds under Sections 44AD, 44ADA, or 44AE are precluded from filing ITR-3 and must, therefore, file ITR-4 (Sugam). Further, businesses, LLPs, and partnership firms (other than sole proprietorship) cannot use ITR-3 and must opt for some other form such as ITR-5 or ITR-6. Individuals who get income by way of salary, house property, capital gains, or other sources and do not get any business or professional income shall file either ITR-1 or ITR-2, depending on the nature of income. Filing ITR-3 when not entitled to do so may lead to a possible delay in processing or rejection by the Income Tax Department.
Fees and Due Date of ITR-3
ITR-3 should be filed before July 31 of the assessment year. If a business/profession carries out tax audit under Section 44AB (for example, turnover exceeding prescribed limits), then the due date shall be October 31 of the assessment year.
The time-limit fine exists to file income tax returns between deadlines. If filed within the due date: no late fee shall be charged. Otherwise, Rs.5,000 if total income exceeds Rs. 5 lakh and Rs.1,000 if total income is up to Rs. 5 lakh shall be imposed under Section 234F.
In case the filing is delayed beyond the due date, the taxpayer shall suffer a loss of the right to certain deductions and will have to pay interest on outstanding tax. Inability to carry forward losses is another undesirable consequence.
Contents of Form ITR-3
ITR Form 3 is the comprehensive income tax return form applicable for individuals and Hindu Undivided Families deriving incomes from proprietary trades or professions, including a plethora of schedules used for the full disclosure of financial information. ITR-3 is suitable for taxpayers requiring a detailed financial report, and it is especially important that professionals, consultants, and persons engaged in business and not under the presumptive scheme complete and submit it. The form comprises:
- Part A: General Information – Here, you specify your PAN, name, address, date of birth/incorporation, nature of filing (original/revised), Aadhaar number, residential status, and nature of company/profession.
- Part A-BS (Balance Sheet) – These details include assets and liabilities as of March 31st of the fiscal year, such as current fixed assets, loans, investments, creditors, and capital.
- Part A-P&L (Profit and Loss Account) – Description of income and expenses of the business/profession could be through reporting of net profit or by filling in the entire profit and loss statement.
- Part A-OI (Other Information) – This section presents the computation of various ratios, such as net profit to capital account, and identification of payments above specified limits.
- Part A-QD (Quantitative Details) – Quantities of traded or manufactured goods are considered here, and it may be optionally filled in wherever applicable.
- Schedule S (Income from Salary) – This Schedule covers salary,
- Schedule HP (House Property Income) –Rental income is considered, along with allowable deductions.
- Schedule BP (Business or Profession Income) – Income from business or profession, after providing for depreciation and for losses carried forward, if any.
- Schedule CG (Capital Gains) – All types of short-term and long-term capital gains are made on different assets.
- Schedule OS (Other Sources) – Interest, dividends, and gifts are income.
- Schedule CYLA, BFLA, CFL, and AMT/AMTC – Set-off and carry-forward of current and previous losses, including calculation of the Alternate Minimum Tax, if at all applicable.
- Schedule TDS and TCS – This schedule contains particulars of tax deducted or collected at source along with Form Nos. 16A, 16C and 27D.
- Schedule IT – Advance tax and self-assessment tax paid.
- Schedule FA (Foreign Assets) – This schedule is compulsory for residents having foreign assets or accounts.
- Schedule AL (Assets and Liabilities) – Persons having income exceeding Rs. 50 lakh shall declare their movable and immovable assets and liabilities.
- Verification and Declaration – The information so furnished will be verified by way of signing, along with a declaration regarding the designation.
How to File ITR-3?
There are various steps to take when filing ITR 3, as it is meant for an individual or a Hindu Undivided Family (HUF) with income derived from a proprietary business or profession.
1. Gather documents. You need the following for filing:
- PAN and Aadhaar card
- Form 16, Form 26AS, and AIS (Annual Information Statement)
- Bank Account Details
- Financial statements (Balance Sheet, Profit & Loss Account) • Books of Accounts
- Tax payment details (advance tax, self-assessment tax)
- TDS certificates (Forms 16A/16C)
- Documents for investment and deductions (e.g., 80C, 80D)
- Loan and depreciation schedules (if any).
2. Verify eligibility. Confirm your eligibility for ITR-3 based on:
- Being an individual or HUF
- Income from business or profession (not opting for presumptive system)
- Maintaining proper books of accounts.
3. Select the mode of filing. ITR-3 can be filed either:
- Online using the Income Tax e-Filing Portal; or
- Offline using the Java Utility or Excel Utility, and then uploading the JSON file to the portal.
4. Enter an e-Filing portal. Go to: https://www.incometax.gov.in/ Log in with PAN (user ID) and password Go to e-File > Income Tax Return > File Income Tax Return.
5. Choose the Assessment Year and Form. Select the appropriate assessment year (for: AY 2024–25, referring to FY 2023–24). Enter your status as an Individual or HUF. Choose ITR-3
6. Fill out the ITR Form. You have the option to pre-fill the filing using details fetched from PAN, TDS, AIS, etc. Enter all details
- General information
- Income information (salary, business, property, capital gains, other sources)
- Deductions and tax payments
- Bank account details
- Verification details
7. Check and calculate tax by validating each schedule. Calculate tax liability or refund through the ‘Calculate’ option on the portal. Pay the tax, if any, through a challan and enter the challan details in Schedule IT
8. Submit the ITR by electronically filing the return and an acknowledgment (ITR-V) shall be generated.
9. Verifying the Return is a must; this can be done via —
- OTP through Aadhaar
- Netbanking
- Demat account
- DSC
- Submit a physically signed ITR-V to CPC, Bengaluru via post (when not e-verifying)
10. Once you are done with the verification process, you get a confirmation mail/SMS from the Income Tax Department. Keep this acknowledgment safely for any kind of future reference.
Consequences Of Non-Compliance
A person can face a variety of consequences for failure to comply with the obligations of filing ITR-3, such as filing late, furnishing incorrect information, or not filing at all. These cons could include serving as penalties of up to Rs. 5,000 as stated in Section 234F, interest so far as the taxes remain unpaid as per Sections 234A/B/C, disallowance of losses for future offset, and further scrutiny or notifications from the Income Tax Department. Persistent defaulting can affect the granting of loans and visas, and can also have an adverse impact on the general financial status. Practical steps to avoid such risk involve ensuring punctual and accurate filing.
Conclusion
Timely filing of ITR-3 is compulsory for individuals and Hindu Undivided Families (HUFs) deriving income from a proprietary business or profession. Transparency is fostered by this, which is an act of legal requirement; keeping a clean record of one’s finances with the Income Tax Department is another plus. Such a filing, if correctly done in time, keeps one away from penalties and legal proceedings. This record of filing is an advantage while applying for loans, tenders, or visas in the future. Increased automation has encouraged voluntary compliance by streamlining processes. Every eligible taxpayer is encouraged to fulfill this mandate to contribute to the country’s economic governance and uphold responsibilities as conscientious citizens.
