It is essential to choose the right Income Tax Return (ITR) form so that the tax filing will be accurate. There are two basic forms for individuals and Hindu Undivided Families (HUFs) earning income from business or profession – ITR-3 and ITR-4. Both forms apply where the individuals earn business income, but they differ in eligibility, relative scope, and conditions for filing.
From this blog, you will be able to understand the differences between ITR-3 and ITR-4, know who should file which forms, and avoid several mistakes when you file your tax return.
Introduction
Every taxpayer must select the correct ITR form according to their income sources. Filing the wrong form may lead to a “defective return” notice under Section 139(9), requiring refiling and possibly delaying refunds.
Both ITR-3 and ITR-4 are designed for those earning income from business or profession. However –
- ITR-3 is for taxpayers who maintain regular books of accounts.
- ITR-4 is for taxpayers under the presumptive taxation scheme (Sections 44AD, 44ADA, 44AE).
Let us look at the details.
What is ITR-3?
ITR-3 is for individuals and HUFs who have:
- Business or professional income where the books of accounts are maintained
- Share of income from partnership firms (profit share, salary, interest, etc.)
- Other income, such as salary, house property, capital gains, or other sources
Who can file ITR-3?
- Individual and HUFs that keeps books of accounts and practice the profession (CA, doctor, lawyer, consultant, etc.)
- Individuals or HUFs eligible to file ITR-3 but chose presumptive taxation (then these individuals file ITR-4).
- Partners in a partnership firm who receive income from the partnership firm; income could be any, including/combining profit, drawings, interest in capital, or salary.
- Individuals with capital gains along with business/professional income
Who cannot file ITR-3?
- Individuals or HUFs eligible to file ITR-3 but chose presumptive taxation (then these individuals file ITR-4).
- Companies and LLPs (these entities file ITR-6).
What is ITR-4?
ITR-4 (Sugam) is for Individuals, HUFs and partnership firms (not LLP) opting for presumptive taxation under –
- Section 44AD – small businesses having a turnover of up to ₹2 crore.
- Section 44ADA – professionals with gross receipts up to ₹50 Lakhs
- Section 44AE – transporters with up to 10 goods vehicles.
Taxpayers declare income on a prescribed percentage of turnover/receipts instead of maintaining detailed books of account.
Who can file ITR-4?
- Small traders, shopkeepers, freelancers, and consultants are opting for presumptive taxation.
- Transporters with limited vehicles.
- Partnership firm (non-LLP) opting to pay tax in a presumptive manner.
Who can’t file ITR-4?
- LLPs.
- Businesses with a turnover of over ₹2 crore.
- Professionals with receipts over ₹50 Lakhs.
- Those with any foreign income or assets.
- Directors in a company.
- Partners in an LLP.
ITR-3 Vs ITR-4: The Key Differences
| Particulars | ITR-3 | ITR-4 |
| Applicable To | Individuals & HUFs with business/profession income (regular books) | Individuals, HUFs, Partnership Firms (non-LLP) under presumptive scheme |
| Taxation Scheme | Regular taxation | Presumptive taxation (44AD, 44ADA, 44AE) |
| Turnover/Receipts Limit | No limit | Up to ₹2 crore (business), ₹50 lakh (profession) |
| Books of Accounts | Mandatory | Not required |
| Audit Requirement | If turnover exceeds limits under Section 44AB | Only if turnover exceeds scheme limits or profit is below prescribed % |
| Eligible Entities | Professionals, partners in firms, business owners | Small traders, professionals, transporters (under presumptive scheme) |
| Complexity | Detailed filing with financials and audit details | Simple filing with limited disclosures |
When Should You Use Each?
Choose ITR-3 if –
- You are a partner in a firm.
- Your business turnover exceeds ₹2 crore.
- You are a professional earning above ₹50 lakh.
- You need to claim foreign income, capital gains, or multiple income sources.
Choose ITR-4 if –
- You are a small trader, shopkeeper, or freelancer with income within limits.
- You want to avoid maintaining books of accounts.
- You are declaring income under presumptive taxation.
- You prefer a simplified return filing process.
Legal and Compliance Considerations
- Accuracy – Choosing the wrong form may lead to defective returns and penalties.
- Books of Accounts – If you file ITR-3, you must maintain detailed records as per Section 44AA.
- Audit – Both forms may require an audit depending on turnover and profit declaration.
- Foreign Assets – Anyone with foreign assets, directorship, or income outside India cannot use ITR-4.
Mistakes to Avoid
- Use ITR-4 when turnover/professional receipts exceed limits.
- Normal Partnership Declaring lower income than presumptive rate (using ITR-4) and not audited.
- ITR-4 can only be filed by individuals, not Partners in LLPs/ companies.
- Influential source of income is omitted (other interests, rents, etc.).
Conclusion
ITR-3 and ITR-4 apply to taxpayers who earn business and professional income, but they belong to distinct categories of taxpayers. If you are a business or professional with books and want full reporting, you will have to use ITR-3 form. If you are a small business or “profession” under presumptive taxation, ITR-4 form will provide a simplified process for reporting.
In the end, the determination of which form to use will depend on factors including your turnover, your profession, your business model, and your recordkeeping and compliance obligations. Filing the appropriate form means that the processing of your return will be more efficient, as you will receive no notices, and you will maintain a clean tax record.
References
The Income Tax Rules, 1962
https://incometaxindia.gov.in/
