ITR-3 vs ITR-4: Which Form to Choose for Business or Professional Income
- PRITI SIRDESHMUKH
- Nov 6
- 7 min read
Choosing the right ITR form is vital for accurate tax filing, especially for individuals earning from business or professional activities. The 2025 updates by the Income Tax Department have clarified eligibility and simplified reporting, making it easier for taxpayers to decide between ITR-3 and ITR-4 based on their income type, turnover, and record-keeping practices.
Both ITR-3 and ITR-4 apply to business or professional income, but the choice depends on whether the taxpayer maintains books of accounts or opts for presumptive taxation. In short, ITR-3 suits those with detailed accounts or audits under Section 44AB, while ITR-4 is ideal for small taxpayers declaring presumptive income under Sections 44AD, 44ADA, or 44AE.
Table of Contents
Difference Between ITR-3 and ITR-4
The Income Tax Department offers different ITR forms based on income sources and taxpayer categories. ITR-3 and ITR-4 both cater to individuals and Hindu Undivided Families (HUFs) earning business or professional income, but they differ significantly in terms of eligibility, complexity, and reporting requirements.
ITR-3 is applicable to taxpayers who maintain books of accounts and may be subject to a tax audit under Section 44AB. It is meant for individuals with business or professional income, including partners in firms, freelancers, consultants, and traders. On the other hand, ITR-4 (also called Sugam) is a simplified form designed for small taxpayers opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE. It allows eligible individuals, HUFs, and partnership firms (other than LLPs) to declare income as a fixed percentage of turnover, avoiding the need for maintaining detailed accounts.
Eligibility Criteria for ITR-3 and ITR-4 in AY 2025-26
Taxpayers filing for Assessment Year 2025-26 must choose between ITR-3 and ITR-4 based on their income type and accounting approach.
ITR-3 applies to those having income from business or profession where books of accounts are maintained, including situations involving audits or partnerships. It also covers income from capital gains, multiple house properties, and foreign assets.
ITR-4 is suitable for taxpayers under the presumptive taxation scheme whose turnover or gross receipts do not exceed ₹50 lakh (for professionals under Section 44ADA) or ₹2 crore (for businesses under Section 44AD). The form is limited to individuals, HUFs, and partnership firms that are not LLPs.
If the taxpayer maintains books or exceeds the prescribed turnover, they must file ITR-3 instead of ITR-4.
Key Features and Reporting Requirements
ITR-3 requires comprehensive reporting of income and expenses, including profit and loss details, balance sheet particulars, depreciation schedules, and audit information if applicable. It is ideal for businesses or professionals wanting to claim actual expenses and deductions.
ITR-4, however, simplifies the process. Taxpayers declare a fixed percentage of turnover as income — typically 8% for non-digital transactions and 6% for digital receipts under Section 44AD, and 50% of gross receipts for professionals under Section 44ADA. No detailed books of accounts or audit reports are necessary unless the taxpayer’s income exceeds the limits or they opt out of the presumptive scheme.
Recent Updates from the Income Tax Department and CBDT
For Assessment Year 2025-26, the CBDT has introduced refinements in ITR forms based on Budget 2025 provisions. The updated ITR-3 and ITR-4 now include enhanced fields for capital gains reporting, foreign asset disclosures, and TDS reconciliation. The due date for filing ITR-4 has been extended to September 15, 2025, while ITR-3 filers subject to audit can file up to October 31, 2025.
The new tax regime changes under Section 115BAC also influence reporting, allowing taxpayers to declare income under simplified slab rates with fewer deductions. The CBDT has emphasized digital validation, ensuring smoother and faster processing for returns filed through verified platforms such as TaxBuddy.
When to File ITR-3 for Business or Professional Income
ITR-3 should be filed when the taxpayer:
Maintains books of accounts or undergoes an audit under Section 44AB.
Earns income from business or professional sources not covered under presumptive taxation.
Is a partner in a firm earning income from the partnership.
Has multiple income sources such as capital gains, dividends, or rental income.
For example, a consultant earning ₹60 lakh per year with detailed expense records or a trader dealing in unlisted shares should file ITR-3.
When to File ITR-4 under Presumptive Taxation
ITR-4 is meant for small businesses and professionals choosing presumptive taxation for simplicity. It applies when:
Examples include a shop owner, driver owning a few transport vehicles, or a small professional like a graphic designer with gross receipts below ₹50 lakh who wishes to declare 50% of receipts as income.
Major Differences in Compliance, Audit, and Turnover Limits
Particulars | ITR-3 | ITR-4 (Sugam) |
Applicable to | Individuals/HUFs with business or professional income | Individuals/HUFs/Firms under presumptive scheme |
Books of Accounts | Mandatory | Not required |
Audit Requirement | Applicable under Section 44AB | Not applicable if under presumptive scheme |
Turnover Limit | No upper limit | Up to ₹2 crore (business), ₹50 lakh (profession) |
Deductions and Expenses | Allowed based on actuals | Not allowed; deemed income basis |
Filing Deadline (AY 2025-26) | October 31, 2025 (audited cases) | September 15, 2025 |
Choosing Between ITR-3 and ITR-4: Practical Scenarios
A marketing consultant earning ₹60 lakh and maintaining detailed expense records should file ITR-3 since they are not under presumptive taxation. Conversely, a local shopkeeper earning ₹40 lakh annually may choose ITR-4 under Section 44AD, declaring 8% or 6% of turnover as income.
Similarly, a doctor or architect earning ₹45 lakh can opt for ITR-4 under Section 44ADA, provided they do not claim specific expenses and meet the presumptive limits. If the same professional exceeds ₹50 lakh or keeps formal books, ITR-3 becomes mandatory.
Common Mistakes While Selecting ITR Forms
Many taxpayers incorrectly file ITR-4 while maintaining books of accounts, which can lead to rejection or reassessment. Another common error is opting for presumptive taxation without meeting eligibility criteria, such as turnover limits or non-LLP partnership firms. Filing the wrong ITR form delays refunds, attracts scrutiny, and may invite penalties under the Income Tax Act.
Taxpayers should carefully assess their eligibility or seek guidance from verified e-filing platforms to avoid these mistakes.
How TaxBuddy Simplifies ITR Filing and Form Selection
TaxBuddy provides an AI-driven platform that automatically identifies the correct ITR form based on a taxpayer’s income sources and financial profile. Its system checks turnover limits, detects audit applicability, and offers step-by-step filing assistance for both ITR-3 and ITR-4. TaxBuddy also ensures compliance with the latest CBDT updates and Budget 2025 rules, minimizing manual errors and delays.
Its mobile app offers personalized dashboards, document uploads, and real-time support from experts, making ITR filing smooth and secure for business owners and professionals.
Conclusion
Choosing between ITR-3 and ITR-4 depends on the nature of business, income scale, and accounting method. Those maintaining books or subject to audit should file ITR-3, while small taxpayers under presumptive taxation can opt for ITR-4 for simplified compliance. Recent Budget 2025 updates and CBDT notifications have further streamlined these forms, making filing easier through digital platforms.
For anyone looking for assistance in tax filing, it is advisable to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. What is the main difference between ITR-3 and ITR-4?
The main difference is the method of calculating business/professional income. ITR-3 is for taxpayers who calculate income based on actual profits (maintaining detailed books of accounts), while ITR-4 is for taxpayers who opt for the Presumptive Taxation Scheme (declaring income as a fixed percentage of turnover/receipts) and whose income is below ₹50 lakh.
Q2. Can a freelancer with gross receipts of ₹75 Lakh file ITR-4?
A freelancer can file ITR-4 under Section 44ADA if their gross receipts are up to ₹50 lakh. However, this limit is extended to ₹75 lakh if at least 95% of the gross receipts are received through digital modes (bank transfer, UPI, etc.). If they meet the digital transaction criteria, they can file ITR-4.
Q3. If I choose presumptive taxation (ITR-4), can I claim business expenses?
No, if you choose presumptive taxation and file ITR-4 under Section 44AD or 44ADA, you cannot claim separate business expenses. The presumed percentage of profit (e.g., 6%, 8%, or 50%) is considered profit after all expenses have been implicitly deducted.
Q4. Who is mandatorily required to file ITR-3 instead of ITR-4?
You must file ITR-3 if your total income exceeds ₹50 lakh, you are a partner in a firm, you have income from Capital Gains, you hold Foreign Assets/Income, or you are a Director in a company, irrespective of whether you are otherwise eligible for presumptive taxation.
Q5. What is the turnover limit for a business to be audited under Section 44AB?
A tax audit under Section 44AB is mandatory for businesses if their turnover exceeds ₹1 crore. This limit is increased to ₹10 crore if the taxpayer's cash receipts and payments during the year do not exceed 5% of the total receipts and payments, respectively. Professionals are subject to audit if gross receipts exceed ₹50 lakh.
Q6. What is the ITR filing deadline for ITR-3 and ITR-4 for AY 2025-26?
For AY 2025-26 (FY 2024-25), the general deadline for ITR-4 (presumptive non-audit cases) and non-audit ITR-3 cases is September 16, 2025 (as per recent extensions). For ITR-3 filers whose accounts are subject to audit, the deadline is December 10, 2025, with the audit report submission due by November 10, 2025.
Comments