Introduction

Taxpayers often get confused about whether they should file ITR-3 or ITR-4, especially when their income includes business, profession, salary, interest, or presumptive income. Both forms cater to different categories of taxpayers and have specific eligibility criteria.

This guide by Bisways Consulting Group explains the key differences between ITR-3 and ITR-4, who can file them, and how presumptive taxation under Section 44ADA/44AD/44AE impacts small business owners and professionals.

What Is ITR-3?

ITR-3 is meant for individuals and HUFs whose income includes:

• Business income (non-presumptive)

• Professional income (regular books maintained)

• Income from partnership firm (interest/salary)

• House property

• Capital gains

• Other sources

ITR-3 is applicable when the taxpayer maintains books of accounts and follows the normal taxation method.

Best suited for:

• Business owners maintaining detailed accounts

• Doctors, lawyers, architects, and professionals not opting for presumptive tax

• Traders with complex transactions

• Partners drawing interest/salary from a partnership firm

What Is ITR-4? (Sugam Form)

ITR-4 is used by individuals, HUFs, and partnership firms (except LLPs) who opt for Presumptive Taxation under:

• Section 44AD – Small businesses

• Section 44ADA – Professionals

• Section 44AE – Goods transport businesses

Under these sections, income is computed on a presumptive basis without maintaining books of accounts.

Eligibility:

• Total income up to ₹50 lakh

• Business turnover up to ₹2 crore (44AD)

• Professional receipts up to ₹75 lakh (44ADA updated limit)

• Transporters with < 10 goods vehicles (44AE)

Who Should Choose ITR-3?

Choose ITR-3 if:

• You maintain books of accounts

• Your business or profession has high expenses

• You earn capital gains

• You have foreign income or assets

• You are a partner receiving salary or interest from a partnership firm

• Your turnover crosses presumptive limits

Who Should Choose ITR-4?

Choose ITR-4 if:

• You want simplified filing without books

• Your income is predictable and qualifies for presumptive taxation

• You are a small trader, shop owner, freelancer, or professional

• Your total income is below ₹50 lakh

• You want to reduce compliance burden and audit requirements

Presumptive Taxation – When Does It Help?

Section 44AD (Small Businesses)

Income assumed at 8% or 6% of turnover depending on mode of receipt.

Section 44ADA (Professionals)

Income assumed at 50% of gross receipts.

Section 44AE (Transporters)

Fixed income per vehicle per month.

Benefits:

• No books of accounts

• No tax audit

• Lower compliance cost

• Quick return filing

Common Mistakes to Avoid

Be careful to avoid the following mistakes:

• Filing ITR-4 despite having capital gains

• Opting for presumptive taxation while maintaining full books

• Filing ITR-3 without reporting business expenses properly

• Not checking turnover and income limits before choosing a form

• Declaring lower income under Section 44AD/44ADA without audit

Which Form Should You File? – Quick Decision Table

Conclusion

Choosing the correct ITR form is essential to ensure accurate reporting and avoid notices. While ITR 4 simplifies tax filing for small businesses and professionals under presumptive taxation, ITR-3 is suitable for taxpayers with detailed accounts, multiple income heads, or higher complexity.

Bisways Consulting Group provides expert support in selecting the right ITR form, preparing income proofs, and filing accurate returns under the Income Tax Act.