ITR 4: Applicability and How to File for F.Y. 2023-2024 (A.Y. 2024-2025)
Updated: Oct 2
Out of the many available ITR forms, ITR 4 serves as a principal document if one chooses the presumptive taxation scheme. Through this blog, you will be able to understand what ITR 4 is, its purpose, and applicability, along with the process required for filing it. Be it a businessman, a professional, or a person with presumptive income, ITR 4 is of utmost importance for smooth and accurate tax filing.
Table of Content
ITR 4: Brief Overview
ITR 4 is also referred to as Sugam, specially designed for resident individuals, HUFs, and partnership firms (excluding Limited Liability Partnership firms). These taxpayers should have opted for presumptive taxation scheme under Section 44AD, 44ADA, or 44AE of the Income Tax Act. ITR 4 simplifies the complex ITR form since it is based on a specific percentage of gross receipts as income, thereby reducing the maintenance of details of expenses.
The attractive feature of ITR 4 is the applicability to small businesses and professionals who wills to declare their income on presumptive basis, thereby simplifying the requirements of detailed record-keeping. Moreover, an individual having income from salary, one house property, income from other sources (like interest), and agricultural income up to INR 5,000 can file ITR 4.
Budget 2023 Update for ITR 4
Budget 2023 introduced certain updates Section 44AD and Section 44ADA of the Income Tax Act, thereby affecting the presumptive taxation scheme for the F.Y. 2023-2024 (A.Y. 2024-2025).
Amendment to Section 44AD
Section 44AD is applicable to small businesses. Earlier the threshold for eligibility under the presumptive taxation scheme was up to INR 2 Crore. The Budget 2023 revised the limit to INR 3 Crore, typically to enhance the scope and make it more adaptable to small businesses.
Amendment to Section 44ADA
Section 44ADA applies to professionals such as doctors, engineers, lawyers, and technical consultants whose gross total receipts does not exceed INR 50 Lakhs. The Budget 2023 has enhanced this limit to INR 75 Lakhs.
Who should File ITR 4?
Following categories of taxpayers should file ITR 4:
Small Business Owners: Individuals having small businesses and whose total turnover or gross receipts does not exceed INR 2 Crore or INR 50 Lakh during the financial year can opt for the presumptive income scheme under Section 44AD.
Professionals: Self-employed professionals like doctors, lawyers, architects, and so on whose gross receipts do not exceed INR 50 Lakhs during the financial year are eligible to opt for Section 44ADA.
Transporters: The transporters owning not more than 10 goods carriages at any time during the year and who opted for Section 44AE.
Salaried Individuals: Those who have salary or pension income but choose to have additional income from business or profession assessed on a presumptive basis, provided the turnover does not exceed the prescribed limits.
Other Income: Individuals having income from one house property and other sources, including agricultural income up to INR 5,000, can also file ITR 4, provided their total income does not exceed the specified threshold.
Who is Not Required to File ITR 4?
Despite ITR 4 being designed to simplify the tax filing process for many, some individuals and entities are excluded from availing themselves of this form because of the kind of income sources and financial activities that they undertake. These exclusions are as follows:
Non-Resident Indians and RNOR: Non Resident Individuals and Residents Not Ordinarily Resident of India cannot file ITR 4.
Exceeding Threshold: Individuals whose total income exceeds INR 50 Lakhs are excluded from using ITR 4 form.
Multiple House Properties: Those with income from more than one house property cannot avail themselves of this form.
Capital Gains: Such individuals who have income by way of capital gains, either short or long-term, have to use other relevant forms, which cover these kinds of income.
Lottery, Betting, and Horse Races: Income from the lottery, betting or horse races cannot be declared through ITR 4.
Carrying Forward Losses: Taxpayers who want to carry forward losses to future years cannot use forms other than ITR 4.
Content and Structure of ITR 4
ITR 4 is designed to include various types of income under the presumptive scheme while ensuring that the form remains simple for the taxpayer. The key sections of ITR 4 include:
Part A: General Information which captures personal details such as name, address, PAN, Aadhaar number, and nature of employment.
Part B-Total Income: Computation of Total Income.
Part B-Tax on Total Income: Computation of Tax Liability on Total Income.
Schedule-House Property: Details of income from House Property (if applicable).
Schedule Business and Profession: Computation of income from Business or Profession on a presumptive basis.
Schedule Asset and Liability: Asset and Liability at the year-end (applicable if total income exceeds INR 50 lakhs).
Schedule Income Tax: Statement of payment of advance taxes and tax on self-assessment.
Schedule TDS: Detail of Tax Deducted at Source on Income other than Salary.
The form also includes various other schedules to support and verify the income and tax details provided by the taxpayer.
Major Changes in ITR 4 for A.Y. 2024-2025
The ITR 4 form has undergone many changes for the A.Y. 2024-2025, keeping in mind the latest tax regulations and provisions brought in through the budgets.
Increased Digital Transaction Reporting: There is an increased emphasis on reporting digital transactions in order to ensure better compliance and monitoring of digital payments.
Presumptive Income Adjustments: Adjustments in the limits for presumptive income under Sections 44AD and 44ADA to enable more taxpayers to avail of this simple regime.
Enhanced Disclosure Requirements: Certain additional disclosures have been introduced to ensure greater transparency and check tax evasion, including mandatory disclosure of certain high-value transactions.
Presumptive Taxation Scheme as per Section 44AD
The Presumptive Taxation Scheme under Section 44AD of the Income Tax Act has been framed to make it easy to comply with tax regulations by small businesses and to reduce the burden of maintenance of detailed books of accounts and audit. Under this scheme, income is calculated on a presumptive basis at a set percentage of the total turnover or gross receipts of the business for the financial year.
Features of Presumptive Taxation Scheme
Following are the features of presumptive taxation scheme:
Simplified Tax Filing: Businesses falling under this scheme are not obligated to maintain detailed books of accounts. On the contrary, the income is declared at a prescribed rate, which in turn makes the filing of tax returns a very simple process.
Fixed Income Rate: The income is presumed to be 8% of the total turnover or gross receipts for businesses. For receipts through digital/electronic means, the rate is lower at 6%, which is aimed at encouraging digital transactions.
No Audit Requirement: Businesses availing of the presumptive taxation scheme under Section 44AD are not required to have their accounts audited as part of routine checking, provided their total turnover does not exceed the specified limit.
Advance Tax: Other taxpayers in this group also get exemption from paying the quarterly advance taxes. The full amount of advance tax can be paid by 15th March of the financial year.
Eligibility Criteria for Presumptive Taxation Scheme
The eligibility criteria for presumptive taxation scheme are as below:
Type of Taxpayer: The scheme can be availed by resident individuals, HUFs, and partnership firms excluding LLPs.
Turnover Limit: It can be availed if the total turnover or gross receipts of business during the financial year do not exceed INR 2 crore. Thus, it is particularly popular amongst small and medium-scale enterprises.
Business Type: Not all businesses can choose to pay under the presumptive scheme. It is specifically envisaged for businesses, manufacturing, or businesses in the service industry, excluding those of professionals under Section 44AA, such as accountants, lawyers, doctors, and so on.
Inapplicability to Companies: Companies and LLPs cannot avail themselves of this scheme.
No Loss Reporting: The taxpayer should not have claimed a deduction for any brought forward business loss or depreciation under the income tax provisions.
Certain Deductions Not Available: When paying under the presumptive taxation scheme Section 44AD of the Act, deductions under Sections 30 to 38 of the Act, which are on account of various business-related expenses, cannot be availed.
Eligible Business as per Section 44AD
Presumptive Taxation Scheme available under Section 44AD of the Income Tax Act is availed mainly by small businesses involving almost any economic activity except for plying, hiring, or leasing of goods carriages as referred to in Section 44AE. Here are the types of businesses usually allowed:
Retail traders: Those engaged in the buying and selling of goods.
Small manufacturers: Businesses that produce or manufacture products.
Service providers: Small enterprises engaged in rendering services but excluding the services of professions listed under Section 44AA, like Chartered Accountants, medical and health professionals, lawyers and advocates, engineers and architects, technical consultants, interior decorators, and other notified professionals.
Contractors: Those who have a civil construction or supply business.
The scheme is open to resident individuals, Hindu Undivided Families, and partnership firms (excluding Limited Liability Partnerships, LLPs).
Deduction for Business Expenses
Under the Presumptive Taxation Scheme of Section 44AD, the taxpayer is not required to maintain elaborate books of account, nor is he required to account for and claim detailed expense deductions for business expenses. The income is deemed 8% of the total turnover or gross receipts, which is considered net of business expenses. Consequently:
Taxpayers cannot claim deductions for any business expenses like rent, wages, repairs, depreciation, and other similar expenses usually allowed as deductions under Sections 30 to 38 of the Income Tax Act.
Since the income is assessed on a presumptive basis, this simplified method supersedes the need to subtract specific business expenses from the turnover.
Can the Taxpayer Declare Higher or Lower Income under Section 44AD?
Declaring Higher Income: Under this scheme, the taxpayers are free to declare a higher income other than the presumptive 8% or 6% of turnover if they feel that the actual income is higher than the assumed percentage. The need to declare higher income sometimes arises, especially if a taxpayer gets higher income from other heads, which in turn affects the slab rates.
Declare Lower Income: If an assessee is desirous of declaring a lower profit than the percentages prescribed, namely, 8% or 6%, then he needs to maintain regular books of account and get it audited by a Chartered Accountant. He should file ITR-3 or any other form as applicable instead of ITR-4 meant for the presumptive scheme. The said option is to be used when the actual expenses are high and the net income is lower than the rates presumed.
Presumptive Taxation Scheme as per Section 44ADA
Section 44ADA of the Income Tax Act, 1961, is specially designed for professionals to make their tax filing process quite easy. The law has also been extended to cover doctors, lawyers, engineers, architects, accountants, technical consultants, and other notified professionals for opting for a simplified method of income computation under the presumptive taxation scheme.
Applicability and Tax Rate under Section 44ADA
Eligibility: This scheme is applicable to resident individuals, Hindu Undivided Families, and partnership firms, excluding LLPs, who are engaged in a profession referred to in section 44AA(1) and whose total gross receipts do not exceed INR 50 Lakhs in a financial year.
Tax Rate: Under Section 44ADA, 50% of the total gross receipts or turnover is taken as net income for the financial year. This implies that without an audit of expense records, half of the gross receipts are automatically taken as income post all business expenses.
Deduction for Business Expenses
When the presumptive scheme of taxation under Section 44ADA is availed of:
No further deductions: Since net income is assumed to be 50% of the gross receipts, no further business-related deductions are allowed for the taxpayer, such as rent, wages, travel, utilities, or depreciation.
No need to maintain books of accounts: The taxpayer is exempted from maintaining detailed books of accounts as envisaged under the Income Tax Act.
Can the Taxpayer Declare Higher or Lower Income under Section 44ADA?
Declaring Higher Income: Taxpayers can declare an income higher than the standard 50% of gross receipts if they believe that their net income is higher than what the presumption allows. This could be for a variety of reasons: higher actual profitability, or other strategic tax planning reasons.
Declaring Lower Income: If a taxpayer wants to declare income lower than 50% of gross receipts, they will have to maintain detailed books of accounts and get them audited by a Chartered Accountant. They would also have to file ITR-3 instead of ITR-4, which is usually available in the case of opting for the presumptive scheme. This may be the case where actual expenses in the profession are much higher than the 50% mark and the actual net income is much lower.
Presumptive Taxation Scheme as per Section 44AE
The scheme of presumptive taxation under Section 44AE of the Income Tax Act is specially designed for taxpayers whose business is plying, hiring, or leasing out goods carriages. This scheme facilitates the income tax filing process for small transporters by allowing them to declare income on a presumptive basis, which means they need not maintain detailed bookkeeping.
Applicability and Tax Rate under Section 44AE
The scheme of presumptive taxation under Section 44AE of the Income Tax Act is specially designed for taxpayers whose business is plying, hiring, or leasing out goods carriages. This scheme facilitates the income tax filing process for small transporters by allowing them to declare income on a presumptive basis, which means they need not maintain detailed bookkeeping.
Eligibility: The scheme applies to individuals, HUFs, partnership firms, companies, and any other taxpayer who owns goods vehicles. It applies to taxpayers who do not own more than ten goods vehicles at any time during the tax year.
Tax Rate: Under Section 44AE, income is presumed to be:
INR 7,500 per month or part of a month for each vehicle in the case of heavy goods vehicles, being vehicles having gross vehicle weight exceeding 12,000 kilograms.
For vehicles other than heavy goods vehicles, the income is presumed to be the amount declared by the taxpayer that is higher than INR 7,500 or the amount of INR 7,500 per vehicle per month.
This is considered as a presumptive income, no matter what the actual earnings are, and thus provides for a simple method to compute the taxable income that is free from the problems of recording actual income and expenditure.
Deduction for Business Expenses
Under the presumptive scheme of taxation of Section 44AE:
No deductions allowed: Taxpayers opting for this scheme are not required to maintain detailed books of accounts; therefore, no deduction for actual expenses incurred, such as repairs, fuel, driver salaries, or depreciation, is allowed.
Standard deduction: The scheme assumes that all expenses have been met from the declared income (either INR 7,500 or higher as declared by the taxpayer). The income calculated under Section 44AE is considered net income, and no further expenses are deductible.
Can the Taxpayer Declare Higher or Lower Income under Section 44AE?
Higher Income: Taxpayers can declare a higher income than the presumptive income rate of INR 7,500 per month per vehicle if their actual earnings are greater. This might be opted for to show higher profitability, for instance, or to use higher actual earnings to calculate tax liabilities more accurately. Declaring a higher income than the presumptive rate does not require the taxpayer to maintain detailed books of accounts.
Lower Income: If a taxpayer wishes to declare an income lower than the standard presumptive rate under Section 44AE, they must maintain detailed books of accounts and get them audited by a certified accountant. Declaring lower income than the presumptive amount means the taxpayer cannot use the simplified provisions of Section 44AE and would need to file their taxes under a different ITR form, such as ITR-3, which requires an audit report to be filed if the income from the business is below the presumptive rate and the total sales turnover exceeds INR 1 crore.
FAQ
Q1. What is ITR 4?
ITR 4, also known as Sugam, is a simplified Income Tax Return form used by individuals, HUFs, and partnership firms excluding LLP that opt for presumptive income schemes under Sections 44AD, 44ADA, or 44AE of the Income Tax Act.
Q2. Who is eligible to file ITR 4?
ITR 4 can be filed by resident individuals, HUFs, and partnership firms whose total income includes business income under the presumptive taxation scheme, salary/pension, one house property, and other sources, provided the total income does not exceed INR 50 lakhs.
Q3. Can salaried individuals file ITR 4?
Yes, salaried individuals can file ITR 4 if they have presumptive business income along with salary income, and the total income is within the specified limit of INR 50 lakhs.
Q4. Is audit necessary if filing ITR 4?
No, audit is not necessary if you opt for the presumptive taxation scheme as per Sections 44AD, 44ADA, or 44AE and your turnover is within the prescribed limits.
Q5. What if my business turnover exceeds the threshold limit for ITR 4?
If your business turnover exceeds the threshold limit for the presumptive taxation scheme (INR 2 Crore for businesses under Section 44AD and INR 50 lakhs for professionals under Section 44ADA), you must file ITR 3 and get your accounts audited.
Q6. How do I declare income from two house properties in ITR 4?
ITR 4 does not allow for declaration of income from more than one house property. If you have income from more than one house property, you should file ITR 3 or another applicable ITR form.
Q7. Can I declare capital gains in ITR 4?
No, capital gains cannot be declared in ITR 4. You need to file ITR 2 or ITR 3 if you have capital gains income.
Q8. What if I want to declare an income lower than the prescribed percentage under the presumptive scheme?
If you want to declare income lower than the presumptive percentage (8% or 6% for digital transactions under Section 44AD), you have to maintain proper books of account, get them audited, and file ITR 3.
Q9. Can I claim deductions for business expenses in ITR 4?
Under the presumptive income scheme, you cannot claim deductions for business expenses as your income is estimated at a flat rate. However, you can claim deductions under Chapter VIA (e.g., Section 80C, Section 80D).
Q10. How can I rectify an error after filing ITR 4?
You can file a revised return using the same ITR 4 form if you discover any error or omission after filing your original tax return. The revised return can be filed before the end of the assessment year or before the completion of the assessment, whichever is earlier.
Q11. Is there a deadline for filing ITR 4?
Yes, the deadline for filing ITR 4 is generally on the 31st of July following the end of the financial year unless extended by the Income Tax Department.
Q12. Can I file ITR 4 if I am a non-resident?
No, non-resident individuals are not eligible to file ITR 4. They need to file ITR 2 or ITR 3 depending on their income and situation.
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