Who Can Use ITR-4: Presumptive Taxation Rules for Business Owners (AY 2025-26)
- Asharam Swain
- Jul 16
- 9 min read
Filing Income Tax Returns (ITR) accurately and on time is a critical aspect of tax compliance for all taxpayers in India. The process of filing ITR involves not only submitting personal and financial information but also using certain software utilities and formats. For the Financial Year (FY) 2024-25 (Assessment Year 2025-26), the government has introduced significant changes to the way taxpayers can file their returns. A key part of this process involves using the ITR utilities and JSON files, which help streamline the filing process, ensuring that data is accurately captured and processed by the Income Tax Department’s system.
The introduction of JSON files and ITR utilities has become essential for tax professionals and individuals, especially when it comes to filing returns with complex tax scenarios or business transactions. These formats are designed to ensure that your filing is both accurate and in compliance with the regulations set by the CBDT (Central Board of Direct Taxes).
Table of Contents:
What Is ITR-4 and the Presumptive Taxation Scheme?
ITR-4 is a tax return form designed for individuals, HUFs, and businesses that have opted for the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE of the Income Tax Act. This scheme simplifies the income tax filing process by allowing taxpayers to declare a portion of their gross receipts or turnover as taxable income.
Section 44AD: This applies to small businesses (other than professionals) with a turnover up to ₹2 crore. The scheme allows the taxpayer to declare 8% (or 6% for digital transactions) of the total turnover as their income and pay tax on it, without the need for detailed books of accounts.
Section 44ADA: This applies to professionals, including lawyers, doctors, engineers, and other self-employed individuals with a gross receipt of up to ₹50 lakh. These professionals can declare 50% of their total receipts as income and be taxed accordingly.
Section 44AE: This section is for businesses engaged in the business of plying, leasing, or hiring goods carriages. The income under this scheme is presumed to be a fixed amount per vehicle.
ITR-4 allows these taxpayers to report income in a simplified manner and claim deductions under section 80C, 80D, etc., without the need to maintain detailed accounts and undergo an audit.
Eligibility Criteria for Filing ITR-4
To be eligible to file ITR-4, the taxpayer must meet the following criteria:
Small Businesses: Businesses that meet the eligibility criteria under Section 44AD (turnover up to ₹2 crore) and have opted for the presumptive taxation scheme. These businesses include traders, manufacturers, and service providers.
Professionals: Professionals such as doctors, lawyers, architects, engineers, and other eligible self-employed individuals can file ITR-4 under Section 44ADA, provided their gross receipts do not exceed ₹50 lakh.
Goods Vehicle Operators: If you are in the business of leasing, hiring, or plying goods carriages, you can opt for Section 44AE, where income is assumed based on the number of vehicles owned.
Other Conditions: To use ITR-4, taxpayers should not have income from capital gains, income from more than one house property, or income from lotteries or gambling. Additionally, taxpayers must not be claiming deductions under Chapter VI-A (other than 80G, 80GGA, etc.).
Presumptive Taxation Rules Under Sections 44AD, 44ADA, and 44AE
Section 44AD - Small Businesses: This scheme applies to small businesses with a turnover of up to ₹2 crore. The business owner can declare 8% (or 6% for digital transactions) of the total turnover or gross receipts as taxable income, which is subject to income tax. This scheme eliminates the need for detailed bookkeeping, thus simplifying tax filing.
Section 44ADA - Professionals: Under this section, professionals (like doctors, architects, engineers, etc.) can declare 50% of their gross receipts or turnover as taxable income. This scheme is available for professionals whose total gross receipts or turnover does not exceed ₹50 lakh in a financial year. By opting for this scheme, professionals avoid detailed record-keeping and complex tax computations.
Section 44AE - Goods Vehicle Operators: This section is designed for businesses involved in the transportation of goods via hired or owned vehicles. It allows the business to declare a fixed presumptive income based on the number of vehicles owned or leased. The income is considered to be a fixed sum per vehicle, and no detailed books of accounts are required for this type of business.
Who Cannot File ITR-4?
While ITR-4 is beneficial for many small businesses and professionals, certain individuals and entities are not eligible to file this form. They include:
Taxpayers with income from capital gains: If you earn income from the sale of assets like property, stocks, or other investments, you cannot file ITR-4.
Taxpayers with income from multiple house properties: If you have income from more than one house property, ITR-4 cannot be used.
Income from lotteries, gambling, or horse racing: If your income includes winnings from lotteries, gambling, or horse racing, ITR-4 cannot be filed.
Taxpayers who wish to claim deductions under Sections 10AA, 80-IA to 80-IE: These deductions require detailed accounts, and thus, taxpayers seeking such deductions cannot file ITR-4.
Companies or LLPs: ITR-4 is meant for individuals, HUFs, and businesses, not companies or limited liability partnerships (LLPs).
Presumptive Turnover Limits for AY 2025-26
For AY 2025-26, the turnover limits under the presumptive taxation scheme have remained largely unchanged:
Section 44AD: The turnover limit for small businesses has been set at ₹2 crore.
Section 44ADA: The gross receipts limit for professionals has been set at ₹50 lakh.
Section 44AE: For businesses involved in the transportation of goods via goods carriages, the scheme applies to businesses that own or lease up to 10 vehicles.
These limits help determine whether a business or professional is eligible for the simplified presumptive taxation scheme under ITR-4.
Recent Updates for AY 2025-26
For AY 2025-26, there are no significant changes in the presumptive taxation limits. However, the Finance Act 2023 has introduced more clarity in terms of the treatment of payments for professional services. Taxpayers opting for the presumptive taxation scheme are now required to ensure that the deductions under Section 80G or 80GGA are only applicable for eligible donations. These clarifications ensure that taxpayers do not mistakenly claim deductions that are not applicable under the presumptive scheme.
Key Benefits of Filing ITR-4
Filing ITR-4 offers several advantages, especially for small businesses and professionals who qualify under the presumptive taxation scheme:
Simplified Filing Process: Taxpayers opting for the presumptive taxation scheme can file their returns easily without maintaining detailed books of accounts. This reduces the compliance burden significantly.
Reduced Taxation: By opting for presumptive taxation, taxpayers can save on expenses related to maintaining detailed financial records, audits, and professional fees.
Easier Tax Computation: The fixed percentage method for income computation under sections 44AD, 44ADA, and 44AE eliminates the need for complex calculations.
Audit-Free Filing: If the turnover is within the prescribed limit, taxpayers are not required to undergo a tax audit, which simplifies the filing process further.
Claim Deductions: Even under the presumptive taxation scheme, taxpayers can claim deductions for investments under Section 80C, 80D, and others, enhancing their ability to reduce taxable income.
By opting for ITR-4 and the presumptive taxation scheme, taxpayers can enjoy a simpler, more straightforward filing process while still ensuring they remain compliant with tax laws.
Conclusion
Filing ITR-4 under the presumptive taxation scheme provides significant relief for small business owners, professionals, and freelancers, streamlining the tax process. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile appfor a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? Yes, TaxBuddy provides both self-filing and expert-assisted plans for ITR filing. The self-filing option is ideal for individuals who are comfortable navigating the tax filing process on their own. TaxBuddy’s platform provides the necessary tools and step-by-step guidance for users to file their returns independently. However, if you prefer more hands-on support, TaxBuddy also offers expert-assisted plans where a qualified tax professional assists with the entire process, ensuring accuracy and compliance with all tax regulations. This flexibility ensures that taxpayers of all levels of experience can find a plan that suits their needs.
Q2. Which is the best site to file ITR? The best site to file your ITR depends on your requirements. The official Income Tax Department portal is the most direct way to file ITR, offering the basic tools needed for filing. However, for a more user-friendly experience with added features like error-checking, expert assistance, and advanced tax-saving options, platforms like TaxBuddy are an excellent choice. TaxBuddy streamlines the filing process, ensuring that you can easily navigate the complexities of tax filing while offering both self-filing and expert-assisted options. It also provides real-time support, which can be invaluable for those new to the process.
Q3. Where to file an income tax return? Income Tax Returns can be filed through two main channels: the official Income Tax Department portal (incometax.gov.in) or through third-party platforms like TaxBuddy. The official portal is straightforward but may not provide the same level of user-friendly features, guidance, or support as TaxBuddy. If you're looking for a more streamlined process with error-checking, advice on deductions, and expert support, TaxBuddy offers an enhanced experience with both self-filing and expert-assisted options.
Q4. Can freelancers and consultants use ITR-4? Yes, freelancers and consultants can file their income tax returns using ITR-4 if their income is derived from business or profession under the presumptive taxation scheme under Section 44ADA. This form is designed for individuals who have opted for the presumptive taxation scheme and earn income from freelancing or consulting activities. Freelancers who meet the criteria for the scheme (income below ₹50 lakh from the profession) can use ITR-4 to report their income.
Q5. Can I file ITR-4 if I have both salary and presumptive business income? Yes, you can file ITR-4 if you have both salary and presumptive business income. ITR-4 is suitable for individuals who earn income from business or profession, including salaried individuals who have additional income from freelance or consulting work. If your presumptive income is below ₹50 lakh and you want to claim the benefits of the presumptive taxation scheme, ITR-4 is the appropriate form. However, you will need to ensure that the income from your salary is reported separately from your presumptive business income in the return.
Q6. What happens if my turnover exceeds ₹3 crore? If your turnover exceeds ₹3 crore, you are no longer eligible to use the presumptive taxation scheme under Section 44AD. This means you will need to file your tax returns under the regular provisions, which require more detailed reporting of income and expenses. If your turnover exceeds ₹3 crore, you will also be required to undergo a tax audit and submit audited financial statements along with your ITR. This requires using ITR forms like ITR-3 or ITR-5, depending on your specific situation.
Q7. Can I claim business expenses under the presumptive scheme? Under the presumptive taxation scheme (Section 44AD), you cannot claim specific business expenses like rent, salaries, or utilities. Instead, the scheme allows you to claim 50% of your total income as your income, which is presumed to be your profit. This simplifies the tax filing process by removing the need for detailed expense reporting. However, businesses with higher income or those who wish to claim specific expenses may have to opt for the regular taxation scheme instead.
Q8. Is digital payment mandatory for higher turnover limits? Yes, for businesses with a turnover exceeding ₹2 crore (and up to ₹3 crore for businesses opting for the presumptive taxation scheme under Section 44AD), digital payments are mandatory. This rule was introduced to promote transparency and reduce the scope of cash transactions. A certain percentage of the turnover (usually 95%) must be received through digital means, such as bank transfers, credit/debit cards, or digital wallets, to be eligible for the presumptive taxation scheme. Failing to comply may lead to disqualification from using the scheme.
Q9. What is the turnover limit for Section 44ADA for professionals? Under Section 44ADA, which applies to professionals like doctors, lawyers, chartered accountants, and architects, the turnover limit is ₹50 lakh. If your professional income is below ₹50 lakh in a financial year, you can opt for the presumptive taxation scheme under Section 44ADA. This allows you to declare 50% of your gross receipts as taxable income, simplifying the filing process by eliminating the need for detailed expense claims.
Q10. Can I file ITR-4 if I have agricultural income over ₹5,000? If you have agricultural income over ₹5,000, you can still file ITR-4, provided that you also meet the eligibility criteria for the presumptive taxation scheme (Section 44ADA) for business or professional income. However, if your agricultural income is the primary source of income and exceeds ₹5,000, the Income Tax Department may ask you to file ITR-2 instead. Agricultural income is exempt from tax, but it still needs to be reported in your return to determine the overall tax liability.
Q11. How does the presumptive taxation scheme benefit small business owners? The presumptive taxation scheme (under Section 44AD) simplifies the tax filing process for small business owners. If your annual turnover is below ₹2 crore, you can opt for this scheme, where 50% of your gross receipts are presumed to be your income, and no detailed expense claims are necessary. This reduces compliance costs and the need for maintaining extensive accounting records. Additionally, the scheme eliminates the requirement for a tax audit, making it highly beneficial for small business owners with simpler financials.
Q12. Can I use ITR-4 if I have capital gains under Section 112A? No, if you have capital gains under Section 112A (which deals with long-term capital gains on the sale of listed securities, units, or equity-oriented mutual funds), you cannot use ITR-4. Instead, you would need to file ITR-2, as it is specifically designed for individuals with capital gains income. ITR-2 allows you to report income from capital gains, along with other sources of income such as salary or business income, making it the appropriate form for those dealing with capital gains under Section 112A.
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