In Which Form is ITR to Be Filed by an Individual Having Business Income
- Farheen Mukadam
- Sep 8
- 7 min read
An ITR serves as documentation of income as well as a way to claim overpayments of taxes, carry forward losses, etc. An ITR is required in some situations, such as when proving income in order to apply for loans, process visas, or participate in government tenders. Generally speaking, different income tax return forms (ITR-1 to ITR-7) are appropriate for different taxpayer classes based on their income sources, income levels, and residential status. Individuals having business income need to understand the guidelines regarding the ITR Form they need to file to stay on the right side of the law and save themselves from penalties.
Table of Contents
What is Business Income?
The profits and gains that come to an individual, corporation, organisation, or other entity from trade, commerce, manufacturing, or other comparable commercial operations are referred to as business income under the Income Tax Act of 1961. According to Section 28 of the Act, these incomes are subject to taxation under the heading "Profits and Gains of Business or Profession." Any revenue received by an individual from the sale of goods or services, trade profits, pay for contract termination, and other incidental benefits or perks is considered business income. Net taxable income is calculated by subtracting gross earnings from all other business-related expenses, such as rent, salaries, depreciation, interest on loans, and advertising costs. Operators of businesses must maintain accurate accounting records, and if their gross turnover surpasses certain thresholds, they may be subject to tax audits. Accurately declaring business income for tax purposes is equivalent to following the law and will prevent fines.
Which ITR Form is to Be Filed for Reporting Business Income?
Depending on the organisation's size and function, there are many ITR forms designed for commercial revenue. Two frequently submitted ITRs for business income are ITR-3 and ITR-4.
An ITR-3 should be filed by an individual or HUF who receives income from a profession or single proprietorship and does not choose to use the presumptive taxation scheme under sections 44AD or 44ADA. If a taxpayer keeps regular books of accounts and their income includes profits from their business or profession, real estate, capital gains, and other sources, they use this form.
ITR-4 (Sugam) must be filed by individuals, HUFs, and businesses (apart from LLPs) that choose to use the presumptive taxation scheme under sections 44AD, 44ADA, or 44AE. This form provides assistance while filing with less documentation needs, making it appropriate for small enterprises and professions with modest incomes (up to Rs. 2 or 3 crore, depending on digital transactions).
Who Files ITR-3?
Individuals and HUFs that opt not to employ the presumptive system under Sections 44AD, 44ADA, or 44AE and who receive income from a proprietary business or profession are required to file Form ITR-3. This form is meant for people who maintain regular books of accounts and must submit thorough financial statements, including a profit and loss account and balance sheet. This group includes taxpayers who own their own businesses or offer professional services, such as doctors, lawyers, chartered accountants, consultants, independent contractors, merchants, and traders.
This form would allow the declaration of income from capital gains, house property, salaries, and other sources like interest or dividends, in addition to revenue from a business or profession. All financial information, including assets and liabilities, must be included when filing an ITR-3. If the turnover exceeds the allowed thresholds, this could result in a tax audit. For high-earning professionals and business owners who must accurately calculate their taxes and adhere to legal requirements, this is crucial.
Who Cannot File ITR-3?
If a person has no revenue from a proprietary business or profession, they are not permitted to file an ITR-3. Taxpayers who file under Sections 44AD, 44ADA, or 44AE on the basis of presumed taxation are not permitted to file ITR-3 and must instead file ITR-4 (Sugam). Additionally, companies, limited liability partnerships, and partnership firms (apart from sole proprietorships) are not permitted to use ITR-3 and must instead choose to use ITR-5 or ITR-6. Depending on the type of income, those who get income from capital gains, salaries, real estate, or other sources but do not receive any business or professional income must submit either an ITR-1 or an ITR-2. If an ITR-3 is filed when one is not authorised to do so, processing may be delayed or rejected.
ITR-3 Deadline and Penalties
The deadline for filing an ITR-3 falls on July 31 of the assessment year. The deadline is October 31 of the assessment year if a business or profession conducts a tax audit under Section 44AB (for instance, turnover exceeding stipulated limits). If ITRs are filed after the deadline, a time-limit penalty is imposed. There won't be a late fee if it's submitted by the deadline. If not, Section 234F will impose a fine of Rs. 5,000 if the total income exceeds Rs. 5 lakh and Rs. 1,000 for assessees with total income up to Rs. 5 lakh. The taxpayer will forfeit their entitlement to certain deductions and be required to pay interest on any unpaid taxes if they fail to file by the deadline. An additional downside is the inability to carry forward losses.
Who Files ITR-4?
Choosing the presumptive scheme under Sections 44AD, 44ADA, or 44AE of the IT Act is appropriate when the revenue comes from small businesses, freelancing occupations like shopkeepers, and so forth. Income is presumptively assessable under this method at a specific percentage of gross receipts or total turnover. It is less complicated than ITR-3 because it doesn't involve extensive accounting and works well for companies with annual revenue up to the specified threshold, which is now Rs. 50 lakhs for professionals and Rs. 2 crores for corporations.
How Businesses Can Choose the Right ITR Form?
Business Type: If the company has a lot of complex transactions, a high turnover rate, or specialised professional services that call for thorough financial statements, ITR-3 is better suited. Smaller companies or those seeking simpler tax compliance and reporting—especially when it comes to matters for which presumptive taxation is applicable—will find ITR-4 more suitable.
Income Sources: ITR-3 might manage each of these varied sources of revenue efficiently if they involve a number of elements, such as a salary, rental income, capital gains, or even lottery winnings in addition to business income. Only presumed business income, salary or pension, one home property, and other source income—excluding capital gains—may be reported on ITR-4.
Compliance and Recordkeeping: Businesses should select ITR-3 if they feel comfortable keeping thorough records or if they need to claim certain deductions or losses. ITR-4 might be a preferable option for small enterprises that require less record-keeping and easier compliance, particularly if their revenue is steady or easily foreseeable.
Steps to File Business ITR Online
Step 1: Examine all financial records, including bank statements, previous income tax return records, TDS certificates, profit and loss statements, balance sheets, and investment records that qualify for tax exemptions or deductions.
Step 2: Visit incometaxindiaefiling.gov.in, the official Income Tax e-Filing portal. Use the 'Register Yourself' button to register if you are a new user. For current users, enter their User ID (PAN), password, and captcha code to log in.
Step 3: Select the 'Downloads' section from the dashboard of the portal. To download the appropriate ITR utility based on your business type—ITR-3 or ITR-4, as previously mentioned, click on the Assessment Year.
Step 4: Use the downloaded utility to submit the ITR form. It is necessary to open the downloaded application, which can be either Java-based or Excel-based, and enter the personal data, income information, deductions, taxes paid, etc. The tax liability is automatically calculated by the form.
Step 5: Create and verify the XML document. Once the information has been entered, any errors can be checked by clicking the 'Validate' button. Create an XML file if the data is accurate. The e-Filing portal uses this for uploads.
Step 6: Open the e-Filing site and log in. Choose the 'Income Tax Return' option from the 'e-File' menu. Select the appropriate ITR Form Number, Assessment Year, and Submission Mode ('Upload XML'). After browsing and choosing the XML file you created, upload it.
Step 7: You must now confirm your return after submitting the XML file. It can be verified using a digital signature certificate, a bank account, a Demat account, or an Aadhaar OTP or EVC. Within 120 days after filing a return, print the ITR-V form, sign it, and mail it to the CPC in Bangalore if you are unable to e-verify right away.
Step 8: You will receive acknowledgement from the Income Tax Department after the ITR has been successfully uploaded and verified. Additionally, the acknowledgement is sent to the email address you registered.
Conclusion
Individuals and Hindu Undivided Families (HUFs) who earn money from a proprietary business or profession are required to file their ITR on time. This is a legal requirement that promotes transparency; maintaining a spotless financial record with the Income Tax Department is an additional benefit. If completed correctly and on time, such a filing protects one from fines and legal action. This file history helps you in the future when you seek loans, tenders, or visas. By simplifying procedures, increased automation has promoted voluntary compliance. Each and every qualified taxpayer is urged to carry out this mission in order to support the nation's economic governance and perform their obligations as responsible citizens.
Frequently Asked Questions
How is income tax calculated on business income?
Presumptive taxation and normal provision are two methods used to determine taxable business income. The cost of sold items and other expenses are subtracted from the total sales to determine the taxable income with usual provisions.
Which form is applicable for business income?
For business income, ITR-3, ITR-4 (Sugam), and ITR-5 are relevant. ITR-5 is for businesses, limited liability partnerships, and cooperative societies; ITR-4 is for users of presumptive taxation schemes; and ITR-3 is for people or HUFs making money from their business or profession.
Can ITR 3 be filed without a balance sheet?
No. You must file your income with a balance sheet, trading account, profit and loss account, and depreciation if you have business income and are completing an ITR-3.
Who needs to file ITR for proprietorship?
If a proprietorship's income exceeds the basic exemption limit, it must file an income tax return, regardless of whether it makes money or loses money.
What is the last date for proprietorship businesses to file ITR?
Usually, the deadline is July 31st of the assessment year. That might change, though, if the company is being audited.
Which form should proprietors use for filing ITR?
If a proprietor reports income from a business or profession, ITR-3 is utilised; if not, ITR-4 is used under the presumptive taxation method.
How to file ITR for small businesses online?
The Income Tax Department's e-filing service allows you to upload your ITR online. Make sure you have all the required paperwork on hand, such as bank statements, TDS certificates, and financial statements.
Is ITR 3 or ITR 4 for freelancers?
If a freelancer wants to use the presumptive taxation plan under Section 44ADA and their total gross earnings or turnover in a fiscal year do not exceed Rs. 50 lakh, they should select ITR-4.
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