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When it comes to filing Income Tax Returns (ITRs) in India, individuals earning income through business or profession often find themselves confused about the correct ITR form to use. Using the wrong ITR form can lead to rejection of your return, penalties, and even scrutiny notices from the Income Tax Department. This blog will clear all your doubts and help you determine which ITR form is applicable for individuals with business income.
Understanding Business Income
Business income refers to the profits or gains earned from running a trade, commerce, manufacturing, or any professional activity. This also includes freelance income, consultancy services, or any other self-employment income.
As per the Income Tax Act, if you are earning through:
- Sole proprietorship
- Freelancing
- Consultancy
- Online business
- Traditional business
- Partnership (only if you are an individual partner and not the firm itself)
Then, you fall under the category of individuals with business income.
Which ITR Form to File for Business Income?
Here’s a breakdown of the applicable ITR forms:
1. ITR-3
Applicable for:
Individuals and Hindu Undivided Families (HUFs) having income from business or profession.
Who should file ITR-3?
- If you maintain regular books of accounts
- If your turnover exceeds the threshold for tax audit
- If you are not opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE
Includes:
– Income from salary/pension
– Income from house property
– Capital gains
– Income from business/profession
– Other sources
2. ITR-4 (Sugam)
Applicable for:
Individuals, HUFs, and Firms (other than LLPs) opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE.
Who should file ITR-4?
- If your business turnover is up to ₹2 crore (under 44AD)
- If you are a professional with income up to ₹50 lakh (under 44ADA)
- If you are in the transport business (under 44AE)
Note:
ITR-4 is simple and best suited for small business owners, professionals, or freelancers opting for presumptive taxation.
When Not to Use ITR-4
- If income exceeds limits for presumptive schemes
- If you have more than one house property or capital gains
- If you’re a director in a company or have foreign income/assets
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How to Choose the Right ITR Form for Business Income?
| Criteria | ITR-3 | ITR-4 (Sugam) |
| Books of accounts maintained? | Yes | No |
| Presumptive taxation opted? | No | Yes |
| Turnover exceeds ₹2 crore? | Yes | Not allowed |
| Multiple sources of income? | Yes | Limited to simple cases |
| Suitable for freelancers/consultants? | Yes | Yes (if under presumptive taxation) |
Key Takeaways
- Use ITR-3 if you have complex business income or maintain regular books.
- Use ITR-4 (Sugam) if you are under the presumptive taxation scheme.
- Filing the wrong ITR form can invalidate your return.
- If unsure, always consult a tax expert or CA.
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Conclusion
Filing the correct ITR form is crucial for smooth processing of your income tax return. For individuals having business income, your choice lies between ITR-3 and ITR-4, depending on your tax structure and income source. Ensure you assess your financial situation and compliance requirements before choosing the right ITR form.
FAQs
1. Can an individual with business income file ITR-1?
No. ITR-1 is only for salaried individuals and pensioners with no business or professional income.
2. What if I mistakenly file ITR-1 instead of ITR-3 or ITR-4?
Your return may be treated as defective and you’ll be asked to file the correct form within a specified time.
3. Can I file ITR-4 if I have freelance income?
Yes, if your income is within ₹50 lakh and you opt for presumptive taxation under Section 44ADA.
4. What is the turnover limit for ITR-4 under Section 44AD?
₹2 crore for businesses opting for presumptive taxation under Section 44AD.
5. Is audit mandatory for ITR-3?
Yes, if your business turnover exceeds the prescribed audit limit (₹1 crore or ₹10 crore, depending on digital transactions).
6. Can professionals file ITR-4?
Yes, if they opt for presumptive taxation under Section 44ADA and income is below ₹50 lakh.
7. What documents are needed for filing ITR-3?
Profit & Loss Statement, Balance Sheet, tax computation, bank statements, TDS certificates, etc.
8. Do I need to register my business to file ITR-3 or ITR-4?
No, registration is not mandatory. You can file returns even for informal or unregistered businesses.
9. Can salaried individuals with side business file ITR-4?
Yes, if the business income falls under presumptive taxation. Otherwise, they must file ITR-3.
10. What happens if I delay filing ITR?
Late filing can lead to penalties, interest on tax due, and loss of carry-forward of losses.
