ITR-3 or ITR-4 for Freelancers? Choosing the Right Presumptive Option
- Farheen Mukadam
- Jul 31
- 8 min read
Freelancers have a unique tax filing situation compared to salaried employees or large business owners. While they enjoy the flexibility of working on multiple projects or offering specialized services, their tax filings can often seem complicated due to the variety of income sources and deductions involved. In India, freelancers are required to file their taxes using one of the two main ITR forms: ITR-3 or ITR-4. Choosing the right form depends on the nature of their income and the type of tax regime they wish to opt for. Let us explore the differences between ITR-3 and ITR-4, the factors that will help freelancers decide which one to choose, and important filing guidelines for each form.
Table of Contents
Choosing the Right Tax Form: ITR-3 vs ITR-4 for Freelancers
Freelancers in India must choose between ITR-3 and ITR-4 depending on their sources of income, eligibility for the presumptive taxation scheme, and whether they wish to opt for a simpler tax calculation process. The decision is not straightforward, as it depends on several factors, including the type of work a freelancer does and the amount of income they generate. Understanding these key distinctions will help freelancers ensure they file their taxes correctly, avoid penalties, and take full advantage of available tax deductions.
Key Differences Between ITR-3 and ITR-4
ITR-3 is generally used by individuals, Hindu Undivided Families (HUFs), and businesses that earn income through a profession or business, such as freelancers. This form is designed for individuals who do not opt for the presumptive taxation scheme under Section 44ADA but have professional income.
On the other hand, ITR-4 is specifically for individuals and businesses that earn income from a business or profession but choose to avail of the presumptive taxation scheme under Section 44ADA. Under this scheme, freelancers with gross receipts or turnover up to ₹50 lakh can declare 50% of their income as taxable, simplifying the entire filing process.
The primary differences lie in the way income is calculated, with ITR-3 requiring detailed breakdowns of income and expenses, while ITR-4 allows for simplified calculations based on the presumptive taxation scheme.
When Should a Freelancer Choose ITR-4?
A freelancer should choose ITR-4 if their total gross receipts or turnover does not exceed ₹50 lakh in a financial year and they wish to opt for the presumptive taxation scheme under Section 44ADA. This option allows freelancers to declare 50% of their total income as taxable, simplifying the tax calculation process significantly. Under this scheme, freelancers are not required to maintain detailed books of accounts or perform a formal audit, making it a great choice for small freelancers with relatively straightforward income sources.
ITR-4 is the go-to choice for freelancers who want a simple, streamlined process without getting into the complexities of detailed accounting. This form is designed to reduce paperwork, making it easier for freelancers to comply with tax regulations.
When Should a Freelancer Choose ITR-3?
Freelancers who earn more than ₹50 lakh in gross receipts or turnover or prefer not to avail of the presumptive taxation scheme should opt for ITR-3. This form is for individuals and businesses that earn income from a profession or business and must declare their income in a more detailed manner.
ITR-3 requires freelancers to maintain and report a detailed breakdown of their income, including receipts from all sources and the necessary expenses incurred in generating that income. This form is also suitable for freelancers who wish to claim deductions for business-related expenses beyond the 50% presumptive income allowed under ITR-4.
Presumptive Taxation: Simpler, But With Caveats
Presumptive taxation under Section 44ADA is a key feature that many freelancers take advantage of, as it simplifies the entire filing process. Freelancers can declare 50% of their gross receipts or turnover as taxable income, with no requirement for detailed bookkeeping. This makes the tax filing process faster and less complicated, and it reduces the chances of mistakes or omissions.
However, this scheme does have some limitations. Freelancers must meet the eligibility criteria, including the ₹50 lakh turnover cap. Additionally, freelancers who choose presumptive taxation cannot claim deductions for expenses beyond the standard 50% allowance. If a freelancer has significant business expenses (like office rent, equipment costs, etc.), they may find it more beneficial to opt for ITR-3, where they can claim these expenses in detail.
Real-Life Scenarios
To better understand when to choose ITR-3 versus ITR-4, let’s consider a few examples:
Scenario 1:
A graphic designer with ₹45 lakh in income from various projects chooses to file using ITR-4. Since their total receipts are under ₹50 lakh and their income is primarily professional (design work), they opt for presumptive taxation. This allows them to file a simpler return without needing to provide detailed expense documentation.
Scenario 2:
A freelance consultant with ₹60 lakh in earnings chooses to file using ITR-3 because they exceed the ₹50 lakh limit for presumptive taxation. Additionally, the freelancer has significant expenses for office space, software tools, and employee salaries, making it more beneficial to itemize and claim deductions through ITR-3 rather than using the presumptive method.
These scenarios demonstrate the key factors in choosing the right form: turnover, eligibility for the presumptive scheme, and whether the freelancer wishes to claim detailed deductions.
Filing Deadlines for ITR-3 and ITR-4
For ITR-3 and ITR-4, the filing deadlines are aligned with the general ITR filing deadlines. For FY 2024-25 (Assessment Year 2025-26), the due date for filing ITR for individuals (who are not subject to audit) is September 15, 2025. This is also the due date for freelancers using ITR-4 under the presumptive taxation scheme.
For businesses that require audits, including those that use ITR-3, the deadline is extended to October 31, 2025. It's crucial to meet the filing deadlines to avoid penalties and interest on late submissions.
Conclusion
Choosing the correct ITR form is crucial for freelancers to ensure they meet tax regulations and avoid unnecessary complications. ITR-4 offers a simplified process through presumptive taxation for freelancers with gross receipts under ₹50 lakh, while ITR-3 is ideal for those with higher turnover or more detailed deductions. By understanding the differences between these forms, freelancers can make informed decisions that benefit both their tax filings and overall financial management. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile appfor a simplified, secure, and hassle-free experience.
FAQs
Q1: What is the key difference between ITR-3 and ITR-4 for freelancers?
ITR-3 and ITR-4 are two different income tax return forms meant for different categories of freelancers. ITR-3 is for freelancers who do not opt for the presumptive taxation scheme and who may have higher earnings, complex deductions, or additional sources of income. Freelancers who have substantial deductions or income from sources like rental income, capital gains, etc., should use this form. On the other hand, ITR-4 is for freelancers who opt for the presumptive taxation scheme under Section 44ADA, where 50% of their income is automatically presumed to be taxable, simplifying the filing process. This form is meant for those with earnings up to ₹50 lakh and less complex tax situations.
Q2: Can a freelancer with earnings above ₹50 lakh use ITR-4?
No, freelancers with earnings above ₹50 lakh cannot use ITR-4 under the presumptive taxation scheme. The scheme under Section 44ADA applies only to freelancers whose total gross receipts or turnover do not exceed ₹50 lakh. If your income exceeds ₹50 lakh, you will have to use ITR-3, which allows for detailed reporting of income and expenses.
Q3: What is presumptive taxation under Section 44ADA?
Presumptive taxation under Section 44ADA is a tax scheme that simplifies the process for small taxpayers, especially freelancers. If your gross receipts or turnover are up to ₹50 lakh, you can declare 50% of your income as taxable, which means that the government assumes 50% of your income is taxable and the remaining 50% can be considered as your expenses. This eliminates the need for detailed bookkeeping and accounting records, making it easier for small businesses and freelancers to file their returns.
Q4: Can I claim expenses beyond 50% if I file ITR-4?
No, if you file under ITR-4 and opt for presumptive taxation, you cannot claim expenses beyond the 50% of your gross receipts that are automatically presumed as income. Under this scheme, the 50% deemed income is considered to cover all expenses. This simplifies the process but limits the ability to claim actual expenses that exceed this amount. If you have expenses greater than 50% of your earnings, it may be better to file using ITR-3 instead.
Q5: What is the filing deadline for ITR-3 and ITR-4?
The filing deadline for both ITR-3 and ITR-4 for freelancers and professionals who do not require an audit is September 15, 2025. However, if you are required to undergo an audit for your business or profession, the deadline extends to October 31, 2025. It is important to meet the deadline to avoid penalties and interest charges on unpaid taxes.
Q6: Should I choose ITR-4 if I have significant business expenses?
If you have significant business expenses that exceed the 50% of your gross receipts (presumed income), it would be more beneficial to file ITR-3. While ITR-4 simplifies the filing process by allowing you to claim 50% of income as taxable, it does not allow you to claim expenses beyond that. Therefore, if you have substantial business expenses that exceed this amount, ITR-3 is a better option to ensure that you can claim these expenses and reduce your taxable income.
Q7: Can I switch between ITR-3 and ITR-4 from one year to another?
Yes, you can switch between ITR-3 and ITR-4 from year to year depending on your income and business structure. If your income or expenses change, you may become eligible for one form over the other. For instance, if your gross receipts in a given year exceed ₹50 lakh, you will have to file ITR-3, even if you filed ITR-4 in the previous year. Similarly, if your earnings fall under the ₹50 lakh limit, you can opt for ITR-4 the following year.
Q8: Is it possible to revise my tax return if I made a mistake?
Yes, you can file a revised return if you discover any errors or omissions in your original return. You can submit a revised return under Section 139(5) of the Income Tax Act, as long as the assessment year has not ended. The revised return must be filed before the completion of the assessment year for the relevant financial year.
Q9: Can I file ITR-4 if my freelance income exceeds ₹50 lakh?
No, if your freelance income exceeds ₹50 lakh, you are not eligible for presumptive taxation under Section 44ADA, and therefore cannot file ITR-4. In this case, you must file ITR-3, which allows you to report detailed income and claim actual expenses. Filing ITR-4 is only allowed for freelancers with gross receipts up to ₹50 lakh.
Q10: How do I know if I’m eligible for presumptive taxation?
You are eligible for presumptive taxation under Section 44ADA if your total gross receipts or turnover in a financial year do not exceed ₹50 lakh. Additionally, the income must be derived from a profession such as freelancing, where the nature of the work involves providing professional services rather than conducting business in the traditional sense. If you meet these criteria, you can opt for ITR-4 and simplify your filing process by declaring 50% of your income as taxable.
Q11: What documents do I need for filing ITR as a freelancer?
As a freelancer, you need the following documents to file your ITR:
Proof of income: This includes invoices, payment receipts, and bank statements showing your freelance earnings.
TDS certificates: If taxes have been deducted at source, ensure you have the Form 16A or any relevant TDS certificates.
Proof of deductions: Documents supporting any tax-saving deductions, such as investments in provident funds or insurance premiums.
Balance sheet and profit and loss account: These are required if you opt for ITR-3, especially if you have substantial expenses to report.
Bank account details: To claim any refunds, ensure you have accurate bank details.
Q12: Can I claim deductions for expenses under ITR-4?
Under ITR-4, which applies to the presumptive taxation scheme, you cannot claim actual expenses beyond the 50% of gross receipts that are automatically presumed as your income. However, if you have expenses that exceed this 50%, you will need to file ITR-3, which allows you to report and deduct actual expenses, thus reducing your taxable income. ITR-4 simplifies the filing process but limits deductions, so it is only beneficial for freelancers with minimal expenses.
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