income tax

Published on 25 April 2025

ITR 3 vs ITR 4: Key Differences for Indian Tax Filers

Differentiating Between ITR 3 and ITR 4

Understanding the nuances between ITR 3 and ITR 4 is crucial for accurate tax compliance in India. Below, we detail the applicability, sources of income, presumptive taxation, and audit requirements of each form.

Applicability

  • ITR 3: This form is designed for individuals and Hindu Undivided Families (HUFs) whose income derives from business or professional activities. It caters specifically to taxpayers running proprietary business operations or practicing as sole proprietors.

  • ITR 4: This form is intended for individuals, HUFs, and firms (excluding LLPs) who have opted for presumptive taxation under Section 44AD, Section 44ADA, or Section 44AE of the Income Tax Act. It is also appropriate for professionals who wish to avail themselves of the presumptive taxation scheme under Section 44ADA.

Sources of Income

  • ITR 3: Taxpayers filing ITR 3 must report income from their business or profession, as well as other income sources—including salary, house property, capital gains, and additional income streams.

  • ITR 4: Taxpayers using ITR 4 will report income from the specific business or profession covered under their presumptive taxation scheme. They can include income from salary, house property, and other sources; however, income from speculative business activities cannot be reported using this form.

Presumptive Taxation

  • ITR 3: This form does not pertain to presumptive taxation. Taxpayers are required to compute their income and tax liability based on actual income and expenses related to their business or profession.

  • ITR 4: Taxpayers using ITR 4 can benefit from presumptive taxation provisions specified in certain sections of the Income Tax Act. This allows them to declare income at predetermined rates, simplifying the accounting process. Tax liability is calculated based on these prescribed rates.

Audit Requirements

  • ITR 3: Taxpayers filing ITR 3 may be required to undergo an audit if their total sales or gross receipts exceed a specified threshold determined by the tax authorities.

  • ITR 4: Taxpayers using ITR 4 and opting for the presumptive taxation scheme are generally exempt from audit requirements, regardless of turnover, unless they declare profits lower than the established presumptive rates and their total income surpasses the taxable limit.

Conclusion

Choosing the correct ITR form based on your income sources and profession is vital for adhering to tax regulations effectively. If there is uncertainty regarding which form to use or for assistance with tax filings, consulting with a qualified tax professional or chartered accountant is strongly recommended.

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