ITR 1 vs ITR 4: Differences for Freelancers, Business Owners, and Salaried Individuals
- Bhavika Rajput
- Jun 19
- 12 min read
ITR 1 and ITR 4 are among the most frequently used return forms for filing income tax in India. Each caters to a specific category of taxpayers and is governed by distinct eligibility rules. While ITR 1 is best suited for salaried individuals with uncomplicated income sources, ITR 4 is tailored for small business owners and freelancers opting for presumptive taxation. Filing the incorrect form can lead to rejections, compliance notices, and delays in processing. For AY 2025-26, the Income Tax Department has introduced new updates that impact form eligibility, LTCG reporting, and validation protocols. Understanding the nuances of both forms is essential for seamless tax compliance.
Table of Contents
ITR 1 vs ITR 4: Core Differences for AY 2025-26
Feature | ITR-1 (Sahaj) | ITR-4 (Sugam) |
Who Can File | Resident individuals | Resident individuals, HUFs, and firms (non-LLP) |
Total Income Limit | Up to ₹50 lakh | Up to ₹50 lakh |
Income Sources Allowed | Salary, one house property, other sources, LTCG u/s 112A (up to ₹1.25L) | Presumptive business/professional income, one house property, other sources |
Business/Professional Income | Not permitted | Permitted under presumptive taxation (Sec 44AD/ADA/AE) |
Freelancers Allowed | No | Yes, if presumptive scheme opted |
House Property | Only one | Only one |
Capital Gains | LTCG under Section 112A up to ₹1.25 lakh | LTCG under Section 112A up to ₹1.25 lakh |
Foreign Assets/Income | Not allowed | Not allowed |
Crypto, Lottery, Betting | Not allowed | Not allowed |
Director/Unlisted Shares | Not allowed | Not allowed |
Carry Forward Losses | Not allowed | Not allowed |
Eligibility Criteria: Who Can File ITR 1 or ITR 4
Filing eligibility for ITR 1 and ITR 4 is based on various factors related to income sources and the taxpayer's status.
ITR 1 (Sahaj) is available for resident individuals who meet the following criteria:
Income Limit: The total income should not exceed ₹50 lakh during the assessment year.
Income Sources: The income should come from salary, pension, one house property, and other sources like interest, dividends, or other minor sources of income.
Agricultural Income: Agricultural income must not exceed ₹5,000 in a financial year.
Exclusions: ITR 1 is not available for those earning income from business or profession, multiple properties, capital gains, or foreign assets. These individuals must file ITR 2 or ITR 3.
ITR 4 (Sugam) is designed for:
Who Can File: Resident individuals, Hindu Undivided Families (HUFs), and firms (excluding Limited Liability Partnerships, or LLPs) are eligible to file ITR 4.
Income Criteria: The total income, including business or professional income under the presumptive taxation scheme, should not exceed ₹50 lakh.
Presumptive Taxation: The income must be from a business or profession that is taxed under the presumptive taxation scheme, making the process simpler and reducing the need for detailed accounting and audits.
If a taxpayer has income from cryptocurrency, multiple properties, foreign assets, or agricultural income exceeding ₹5,000, they must use ITR-2 or ITR-3. These forms accommodate more diverse sources of income and offer space to report such details properly.
Which ITR is Best for Salaried Individuals?
Salaried taxpayers generally find ITR 1 to be the most convenient form for filing their income tax returns. They are eligible to file ITR 1 under the following circumstances:
Income Limit: The total income of the individual should be ₹50 lakh or less during the assessment year.
Income Sources: The taxpayer's income should come from salary or pension, one house property, and income from other sources like interest. There should be no income from freelance work, capital gains (except for specific long-term capital gains), or foreign assets.
Exclusions: ITR 1 is not for individuals earning from business or professional activities, capital gains, or income from more than one house property.
What if a salaried person has additional freelance income? If a salaried person has a small freelance income and opts for presumptive taxation under Section 44ADA, they can file ITR 4. This applies as long as the combined income from salary, freelance work, and other sources stays within ₹50 lakh. Presumptive taxation under Section 44ADA allows taxpayers to report 50% of their gross receipts or turnover as income, without maintaining detailed books of accounts.
Which ITR is Suitable for Freelancers and Consultants?
Freelancers and consultants need to be aware of which ITR form to use, as their income type and amount significantly influence the filing requirements.
ITR 4 for Freelancers and Consultants: Freelancers and consultants can file ITR 4 if they are eligible for presumptive taxation under Section 44ADA. This applies to professionals earning income from services like writing, designing, coaching, etc. If the total income does not exceed ₹50 lakh and the taxpayer opts for the presumptive taxation scheme, ITR 4 is the simplest form to use.
Presumptive Taxation under Section 44ADA: Under Section 44ADA, 50% of the gross receipts or turnover is presumed to be income. This significantly reduces the complexity of filing, as freelancers are not required to maintain detailed books of accounts or undergo an audit.
When ITR 3 is Required: If a freelancer or consultant does not wish to opt for the presumptive taxation method or if their income exceeds ₹50 lakh, they must file ITR 3. This form is used when income is from a business or profession and requires detailed reporting of business profits and losses, as well as all other income.
In essence, ITR 4 is best for:
Professionals like architects, doctors, lawyers, etc., who opt for the presumptive scheme.
Freelancers with minimal expenses and income under ₹50 lakh.
Those who prefer simplified filing and reduced compliance requirements (e.g., no need to maintain books of accounts).
Presumptive Taxation in ITR 4: How It Works
Presumptive taxation is a simplified tax scheme designed to ease the filing process for small businesses and professionals. The scheme helps in estimating income without the need for maintaining detailed records or undergoing audits. Here's how it works under various sections:
Section 44AD: This section applies to businesses with a turnover of up to ₹2 crore (or ₹3 crore if 95% of receipts are through digital transactions). Under Section 44AD, 8% of the gross receipts or turnover (6% for digital transactions) is presumed to be the income, and no further details or audits are required.
Section 44ADA: This is for professionals like architects, doctors, lawyers, and others. Under this section, 50% of the gross receipts or turnover is presumed to be income. This simplifies the tax calculation for small professionals by allowing them to report half of their earnings as taxable income, without maintaining detailed books.
Section 44AE: This section applies specifically to transporters who own up to 10 goods vehicles. For such businesses, the income is computed based on a fixed amount per vehicle per month, depending on the type of vehicle, and no detailed accounts are needed.
These sections allow businesses and professionals to bypass extensive record-keeping and audits, making filing ITR 4 quicker and easier. Presumptive taxation, therefore, is highly beneficial for small taxpayers seeking to reduce the administrative burden and simplify their tax filing process.
Common Filing Mistakes and How to Avoid Them
Choosing the wrong ITR form can lead to scrutiny from the Income Tax Department, delayed refunds, or even legal consequences. Here are some of the most frequent mistakes taxpayers make when filing ITR 1 or ITR 4 and how to steer clear of them:
1. Using ITR 1 Despite Freelance or Business Income
One of the most common errors is salaried individuals with side income from freelancing, online gigs, or a small business continuing to file ITR 1. This form is only meant for pure salaried income, one house property, and interest income—without any business or professional earnings. Even a single transaction of freelance work disqualifies a taxpayer from using ITR 1. Filing with the wrong form can lead to rejection or invalidation of your return.
Avoid It: Use ITR 4 if the freelance or business income qualifies under presumptive taxation. If not, opt for ITR 3.
2. Filing ITR 4 Without Choosing Presumptive Taxation
ITR 4 is exclusively designed for taxpayers who opt for presumptive taxation under Sections 44AD, 44ADA, or 44AE. Filing this form without opting into one of these schemes is a mismatch and will not be accepted by the system or may trigger compliance notices. For example, a consultant who doesn’t declare 50% of gross receipts as income under Section 44ADA cannot use ITR 4.
Avoid It: Confirm you’re choosing presumptive taxation before selecting ITR 4. If you intend to report actual income and expenses, use ITR 3 instead.
3. Including Crypto or Speculative Income in ITR 1 or ITR 4
Cryptocurrency trading, income from online gaming, lottery winnings, or speculative business income are strictly disallowed in ITR 1 and ITR 4. These income types fall under special taxation provisions and require detailed disclosures not supported in these simplified forms.
Avoid It: If you’ve earned from any virtual digital assets, use ITR 2 (for capital gains without business income) or ITR 3 (if you also have professional or business income).
4. Not Adhering to Agricultural Income Limits
Both ITR 1 and ITR 4 allow reporting of agricultural income, but only up to ₹5,000. Many taxpayers with higher agricultural income mistakenly choose these forms, unaware that doing so violates eligibility conditions.
Avoid It: If your agricultural income exceeds ₹5,000, you must switch to ITR 2 (if no business income) or ITR 3 (if there’s business/professional income).
5. Claiming Carry-Forward of Losses in ITR 1 or ITR 4
Neither ITR 1 nor ITR 4 permits reporting or carrying forward of losses from house property, business, or capital gains. Attempting to declare or carry forward such losses in these forms may render the return defective or invalid.
Avoid It: To claim or carry forward losses, file ITR 2 or ITR 3 within the prescribed due date and maintain necessary documentation.
How TaxBuddy Helps You Avoid These Pitfalls
TaxBuddy’s intelligent form selection process prevents such mismatches at the very first step. The platform evaluates your income sources, checks for disqualifying conditions like multiple properties or crypto earnings, and recommends the correct ITR form based on current tax rules. Whether you’re using the app or the web version, TaxBuddy minimizes the risk of errors through real-time validations and expert support—ensuring your return is accepted and processed without delays.
Latest Changes in ITR Forms for FY 2024-25
The Income Tax Department has introduced several updates and changes to the Income Tax Return (ITR) forms for the Assessment Year (AY) 2025-26, particularly affecting ITR 1 and ITR 4. These changes aim to improve the accuracy of tax reporting and align with evolving income sources, especially with the rise of investments in cryptocurrencies and online gaming. Below is a detailed look at the significant changes:
Excel Utilities Released
For taxpayers who prefer filing their returns offline, the Income Tax Department has introduced offline Excel utilities for ITR 1 and ITR 4. These utilities allow users to fill out their returns offline and then upload them on the e-filing portal. This feature is designed for individuals who may not be comfortable with online filing interfaces or for those with poor internet connectivity. The offline utility helps in maintaining privacy and allows taxpayers to work at their own pace without worrying about server downtime. After completing the offline form, taxpayers can easily upload the filled ITR using the same utility. This offline filing option is especially useful for small business owners and salaried individuals who need a straightforward filing process without complications.
LTCG Reporting Enabled
The changes introduced for AY 2025-26 now enable both ITR 1 and ITR 4 to accommodate the reporting of Long-Term Capital Gains (LTCG) up to ₹1.25 lakh under Section 112A. This provision allows individuals to report gains from the sale of listed equity shares, mutual funds, or units of equity-oriented mutual funds, subject to the ₹1.25 lakh exemption. Under the new tax regime, LTCG exceeding ₹1 lakh is taxable at a rate of 10%. However, taxpayers who meet the exemption limit (up to ₹1.25 lakh) will not be required to pay taxes on those gains. Previously, ITR 1 did not allow reporting of LTCG from assets such as shares and mutual funds unless it was under Section 112A. This new change ensures that more taxpayers can take advantage of the tax-free limit and file using ITR 1 or ITR 4, streamlining the filing process for those with investments in these assets.
Crypto and Gaming Restrictions
One of the most significant updates in this assessment year involves the taxation of income from cryptocurrencies and online gaming. As per the new guidelines, any income earned from cryptocurrency investments, transactions, or online gaming disqualifies a taxpayer from using ITR 1 or ITR 4. This change reflects the growing concerns regarding the transparency and regulation of digital assets. Given the highly speculative and volatile nature of cryptocurrencies, the Income Tax Department now requires taxpayers involved in such activities to file more detailed returns under ITR 2 or other applicable forms. These forms are specifically designed to accommodate complex reporting of income, especially when dealing with multiple asset classes. This restriction is also aimed at preventing non-compliance in the rapidly expanding crypto and gaming sectors by ensuring that more detailed disclosures and scrutiny take place through the filing of ITR 2.
Deadline Extended
Due to technical delays and system updates, the Income Tax Department has extended the ITR filing deadline for AY 2025-26. The new deadline is set for 15th September 2025, giving taxpayers an additional three months to file their returns. The extension is a relief for those who faced difficulties during the usual filing period, whether due to system outages, complexity of the return filing, or difficulties in gathering necessary documentation. This extension allows taxpayers ample time to correct any discrepancies, include all relevant information (such as capital gains or new sources of income), and ensure accurate filing without rushing. Taxpayers are encouraged to file their returns as early as possible to avoid last-minute issues and penalties.
TaxBuddy’s Role in Simplifying ITR Filing
TaxBuddy offers a user-friendly mobile app and online platform that makes tax filing seamless, whether it’s ITR 1, ITR 4, or more complex forms. For freelancers and salaried individuals, the app suggests the correct form, verifies deductions, and ensures accurate calculations. Whether you’re self-filing or want expert assistance, TaxBuddy supports both approaches and ensures every submission meets compliance standards.
Conclusion
Selecting between ITR 1 and ITR 4 hinges on income source, presumptive taxation, and compliance boundaries. Filing the wrong form can trigger scrutiny and refund delays. For smooth, accurate tax filing—especially with the evolving rules of AY 2025-26—guidance becomes essential.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
Yes, TaxBuddy offers both self-filing and expert-assisted plans for income tax return filing. Self-filing plans are ideal for individuals confident in navigating their ITR independently, while expert-assisted plans are tailored for those with complex income structures or those who prefer guided filing. Both options are available through theTaxBuddy mobile app, making it convenient to file returns securely and accurately.
Q2. Which is the best site to file ITR?
The best site to file your Income Tax Return depends on the complexity of your income. For most individuals and small business owners, TaxBuddy stands out due to its AI-powered interface, expert assistance, and seamless experience. As a government-authorized E-Return Intermediary (ERI), TaxBuddy ensures compliance while simplifying form selection, deduction claims, and final submission.
Q3. Where to file an income tax return?
Income Tax Returns can be filed on the official government portal atincometax.gov.in or through registered third-party platforms like TaxBuddy. The benefit of using TaxBuddy lies in its step-by-step assistance, automated error-checking, and access to tax professionals—all of which reduce the risk of notices or rejections and help maximize eligible deductions.
Q4. Can I use ITR-1 if I have both salary and small freelance income?
No, ITR-1 is strictly meant for salaried individuals with income from one house property and other sources like interest. If you have even minimal freelance income—whether from writing, consulting, or other services—you are no longer eligible to file ITR-1. Instead, if the freelance income is declared under presumptive taxation, ITR-4 can be used. Otherwise, you must file ITR-3.
Q5. Is ITR-4 suitable for part-time consultants?
Yes, part-time consultants can file ITR-4 if they meet two conditions:
Their total income does not exceed ₹50 lakh in the financial year.
They choose to declare professional income under the presumptive taxation scheme, specifically Section 44ADA.
This option is ideal for consultants who want to reduce paperwork and avoid maintaining books of accounts.
Q6. What is presumptive taxation?
Presumptive taxation is a simplified scheme available under Sections 44AD, 44ADA, and 44AE of the Income Tax Act. It allows eligible businesses and professionals to declare income at a fixed percentage of turnover or gross receipts without maintaining detailed financial records.
Section 44AD: For businesses, presumed income is 8% (6% if digital).
Section 44ADA: For professionals, presumed income is 50% of receipts.
Section 44AE: For transporters with up to 10 vehicles.
Q7. Can I file ITR-4 if I have agricultural income above ₹5,000?
No. Both ITR-1 and ITR-4 restrict agricultural income to ₹5,000 or less. If your agricultural income exceeds this threshold, you are required to use either ITR-2 (for salaried individuals without business income) or ITR-3 (if you also have business or professional income).
Q8. How does TaxBuddy help with ITR filing?
TaxBuddy simplifies the entire ITR filing process by offering intelligent form suggestions based on income types, deduction optimization, real-time compliance checks, and personalized support. Users can either file independently or choose expert-assisted filing through the app or web platform. The system is designed to minimize errors and maximize refunds while ensuring timely and accurate submission.
Q9. What if I have income from two house properties?
In such cases, you cannot use ITR-1 or ITR-4, as both forms are limited to one house property. If you own multiple residential properties and have no business income, you should file ITR-2. If business or professional income is also involved, ITR-3 becomes applicable.
Q10. I have earned from crypto trading. Which ITR should I use?
Cryptocurrency or virtual digital asset (VDA) income disqualifies you from using ITR-1 or ITR-4. You must file either ITR-2 or ITR-3 depending on your other income sources. For example, if you have salary and crypto gains, ITR-2 is suitable. If you also have business or freelance income, ITR-3 is required.
Q11. Can I carry forward losses in ITR-1 or ITR-4?
No, neither ITR-1 nor ITR-4 supports the carry forward of losses—whether from business, capital gains, or house property. To carry forward eligible losses to future years, you must file either ITR-2 or ITR-3 before the due date and comply with the relevant sections of the Income Tax Act.
Q12. What if my business turnover exceeds ₹2 crore (₹3 crore for digital receipts)?
If your total business turnover exceeds ₹2 crore (or ₹3 crore in case of ≥95% digital transactions), you are no longer eligible for presumptive taxation and cannot file ITR-4. Instead, you are required to maintain books of accounts and file ITR-3. This applies to both professionals and businesses exceeding the prescribed threshold.
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