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ITR-3: What is ITR 3 Form and How to File Online?

Updated: Jun 25


ITR-3: What is ITR 3 Form and How to File Online

ITR-3 is a significant form for most taxpayers. It is especially designed for individuals and Hindu Undivided Families (HUFs) who have earned income from business or profession. While filing ITR for the F.Y. 2023-2024, understanding what all ITR-3 includes and how to e-file efficiently is of utmost importance.


 

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You need to know the following about ITR-3 form: who must file it, what kind of information it requires, and the latest updates for the current tax season. Be it freelancers, small business owners, or professionals having private practice, understanding the dos and don'ts of ITR-3 can significantly ease your tax filing process. From listing the applicable sections of ITR 3 to step-by-step process on online filing, all that can help you ensure compliance and probably even optimize your tax returns, are all covered in this article. Now, let us explore the ITR-3 basics and make the tax filing journey smoother for F.Y. 2023-2024.


Understanding ITR-3: What is ITR 3 Form and How to File Online?


ITR-3 is an Income Tax Return form to be used by individuals and Hindu Undivided families (HUFs) having income from proprietary business or profession. It captures all kinds of possible incomes, deductions, and allowances that apply to a business professional for comprehensive tax reporting.


Difference between ITR-3 and Other ITR Forms:


  • ITR-1-Sahaj: This form is for salaried people with income up to INR 50 lakh having income from salaries, one house property and other sources. This excludes winning from lottery and income from race horses.

  • ITR-2: ITR-2 is for individuals and HUFs who do not have any income by way of profits and gains of business or profession.

  • ITR-4: ITR-4 (Sugam) for presumptive income from business and profession.

  • What makes ITR-3 unique is that the form is for those individuals who have business and professional-related income, or those having multiple sources of income like salary, house property, or other sources.


Who Should File ITR 3?


ITR-3 is for individuals and HUFs who have income from the proprietary business or profession. This includes freelancers, consultants, contractors, business owners, and professionals like doctors, lawyers, architects, and so on, not opting for presumptive taxation schemes.


Examples of professions and, businesses that typically need to file ITR-3:

  • Freelancers and Consultants: These include any person who is offering services regarding any professional work, such as: writing, graphic designing, consulting, or any other freelancing services.

  • Professionals: Doctors, lawyers, architects, Chartered Accountants who have their own practice.

  • Traders and Shop Owners: The shop owners or the traders.

  • Manufacturers: Small to medium scale manufacturers who manage their own business operations.


Who Should Not File ITR 3?


Not every taxpayer has to file ITR-3. In general, the following persons should not file ITR-3:


  • Salaried Person with no other sources of income: A person whose income is from salaries and who does not have business or professional income shall not file ITR by using Form ITR-3. They may actually be entitled to use ITR-1 Sahaj, which is a simple form for employees.

  • Individuals opting for the Presumptive Taxation Scheme: An individual opting for the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE shall file ITR-4 (Sugam) and not ITR-3. The presumptive taxation schemes are specially designed for small business people and professionals desirous of declaring their income at a presumptive rate.

  • Individuals and HUFs not having Income from Business or Profession: In case, a person or any other category having income that is being received from sources other than business or profession, like the rental income, capital gains, or income from other sources, and no income is being received from business or profession, then ITR-2 has to be filed or any other form as may be applicable to their situation.

  • Companies and Partnership Firms: ITR-3 is only for individuals and HUFs. Companies, partnership firms, and any other forms of organizations have different forms for their tax filings; for example, they should file ITR-5 or ITR-6.

  • Non-Resident Indians (NRIs): NRIs who do not have their income generated from a business or profession in India should not use ITR-3. Their requirements in regard to tax filing would be covered under ITR-2, depending on the sources from which they derive income.


Key Components of ITR-3


Heads of Income


ITR-3 is meant to capture various heads of income, making it applicable for individuals and HUFs with different sources of income. So, in general, the following kinds of income can be reported under ITR-3:


  1. Salary:

  • Salary/Pension: Salary or pension received.

  • Allowances: House rent allowance, travel allowance, and so on.

  • Perquisites: Accommodation, cars, driver, and so on, provided by the employer.

  1. House Property:

  • Rental Income: Income from property let out during the year.

  • Passive Income from Property Ownership: This can be from property which is not actively managed by the owner.

  1. Business/Profession Income:

  • Net Profit or Gain: Income that one derives from operating a business or profession after deducting expenses formerly claimed against it.

  • Speculative and Non-Speculative Business Income: Income from speculative activities like intra-day trading and other non-speculative business activities.

  • Income from Freelancing: Income derived from freelance work of any type.

  1. Capital Gains:

  • Short-term and Long-term Capital Gains: Income on account of sale of capital assets such as shares, bonds, property, and so on, classified on the basis of the period of holding.

  1. Other Sources:

  • Interest Income: Savings account and fixed deposits.

  • Dividend Income: Received on the investment made in shares.

  • Income from Winnings from Lotteries, Game Shows: Any income won from lotteries, game shows, and so on.

  • Gifts: Monetary or other gifts that are taxa­ble under the Income Tax Act.


Deductions and Exemptions


Common deductions and exemptions available while filing of ITR-3 are:


  • Deductions Under Section 80C: Investment in PPF, NSC, ELSS, premiums on life insurance, principal repayment of home loan, and so on, up to a maximum limit of INR 1,50,000.

  • Deduction Under Section 80D: Medical insurance premium for self and family and for parents, which can provide extra deductions.

  • Deduction Under Section 80E: The interest paid on a loan taken for higher education.

  • Deduction Under Section 80G: Donations to charitable organizations.

  • Deduction for Loss from House Property: Loss on income from house property can be allowed to be set off against other sources of income.

  • Deductions for Business Expenses: All expenditures incurred for the purpose of business operation, which are not capital expenditures, are allowed as a deduction.


Specific provisions of the Income Tax Act applicable to ITR-3 filers are as follows:


  • Section 44AD, 44ADA, and 44AE: Small businesses, professionals, and transporters opting for presumptive taxation scheme are not required to File ITR 3.

  • Section 24: Deductions from the income from a house property can be claimed.

  • Section 43B: Certain deductions are allowed only on actual payment basis.



How to File ITR-3 Online for F.Y. 2023-2024?

  • PAN card: Necessary to identify the taxpayer.

  • Aadhaar card: Needed for linking with PAN.

  • Bank account details: To provide refunds and availability of financial details.

  • Form 16: Received from employer if you have salary income.

  • Form 26AS: Tax credit statement for finding the TDS deductions.

  • Profit and loss statement: For business or professional income. 

  • Balance sheet: If applicable for businesses, a balance sheet is required.

  • Investment proof: To claim the deduction under Sec 80C, 80D, and so on.

  • Other income documents: Interest certificates from banks and post offices.


How to use Form 26AS and other forms to prepare ITR:


  • Verify the TDS, TCS, and other taxes paid on your behalf in and through Form 26AS.

  • Match the TDS deducted against payments recorded in Form 26AS for making sure that all tax credits have been accounted for properly.

  • Collect all other forms related to your income and deductions. These would normally include Form 16 for salary and Form 16A for other TDS deductions like interest income.


Step-by-Step guide to filing ITR-3 online:


  • Log in to e-filing portal: Log in to the Income Tax India e-Filing portal using PAN and password.

Screenshot of Login page of Income Tax e-Filing

  • Visit the filing section: Go to the 'e-File' menu and click on 'Income Tax Return'

Screenshot of drop-down menu showing the option to file income tax return and other options

  • Select assessment year: The period for which return is being filed should be mentioned here. For instance, A.Y. 2024-2025 for F.Y. 2023-2024.

Screenshot of initial page visible after choosing "File Income Tax Return"

  • Fill the required details: Select the form ITR-3 and fill up your details in steps from personal information to income and then to deductions.

  • Upload supporting documents: Where required upload documents.


  • Verify and submit: Recheck all information entered for its accuracy, then submit. Verify using either of the following options: Aadhaar OTP, EVC, or DSC.


After Filing ITR 3 Online


How to check the ITR-3 submission status?


  1. Step 1: Log in to the e-Filing Portal: Open the portal of Income Tax India e-Filing by logging in with your credentials.

  2. Step 2: View filed returns/forms: Scroll down to the 'Dashboard' and further to the 'View Filed Returns/Forms' option and view your filed return.

  3. Status Explanation: Status will show as either, 'Submitted and Pending for e-Verification', 'Successfully e-Verified', 'Processed', or 'Defective'. If it shows 'Defective', you have to respond and correct the return accordingly.


Importance of e-Verification and acknowledgment receipt:


  • e-Verification: You have to complete this step after filing. This can be generated through options like Aadhaar OTP, EVC through net banking, or any Demat account. This ensures proof of your identity and gives consent to the IT Department for further processing of your return.

  • Acknowledgement Receipt (ITR-V): On submitting and verifying your ITR-3, an ITR-V, which is an acknowledgement receipt, will be generated. This receipt is an important document and will be the proof of your filing; hence, it should be kept safe.


FAQ

Q1. What is ITR-3?

ITR-3 is the form used by individuals and Hindu Undivided Families (HUFs) having income under the proprietary business or profession category, including those having income from other sources such as salary, house property, and capital gains.


Q2. Who shall file ITR-3?

ITR 3 form applies to all Individuals and HUFs having income from any proprietary business or profession, whether as a sole proprietor involving the practice of some profession, like doctors, lawyers, freelancers, etc.


Q3. Can I file ITR-3 if I am a salaried individual and also have a side business?

Yes, salaried people who run a business or have professional income have to file ITR-3, if their business income is to be reported alongside salary.


Q4. What are the documents required for filing ITR-3?

The necessary documents are the PAN card, Aadhaar card, details of bank account, Form 16  in the case of salaried persons, profit and loss statement, balance sheet, and Form 26AS.


Q5. What is the procedure to file ITR-3 online?

You can file ITR-3 online through the Income Tax Department's e-filing portal. You have to register on the site, log in with your credentials, select the appropriate assessment year, fill in the required particulars, and submit your form.


Q6. What are the key sections of ITR-3?

ITR-3 consists of reporting business or professional income, salary, house property income, capital gains, and other sources of income.


Q7. How do I check the status of my filing of ITR-3?

After submitting the return, you can e-verify your ITR-3 online using various options such as Aadhaar OTP, net banking, or by sending a signed ITR-V form to CPC Bengaluru.


Q8. What if I make an error in my ITR-3?

In case there is an error, after submission you can file a revised return any time before the end of the assessment year or before the completion of the assessment, whichever is earlier.


Q9. Are there any penalties for late filing of ITR-3?

Yes, filing ITR-3 after the due date may attract a late filing fee of maximum INR 10,000, subject to the date of filing and total income.


Q10. Can losses be carried forward in ITR-3?

Yes, in ITR-3, business and capital losses can be carried forward to future years that can be set off against future gains for tax relief.




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