As the filing season progresses for AY2026-27, taxpayers with business or professional income need to carefully determine whether they should file ITR-3 or ITR-4.
ITR-3 is for individuals and HUFs reporting business or professional income, as well as income from salary, house property, capital gains or other sources. ITR-4, on the other hand, is for resident individuals, HUFs and firms (other than LLPs) opting for the under Sections 44AD, 44ADA or 44AE.
Who should file ITR-3?
ITR-3 is meant for individuals and HUFs that earn income from business or profession and do not opt for the presumptive taxation scheme under the Income Tax Act.
Taxpayers who calculate business or professional income based on actual books of accounts generally use this form. It applies to both tax-audit and non-tax-audit cases where presumptive taxation provisions are not being used.
Apart from business income, taxpayers filing ITR-3 can also report income from multiple sources, including salary, house property, , dividends, interest income, lottery winnings and remuneration or interest received as a partner in a partnership firm.
Who cannot use ITR-3?
ITR-3 is not meant for taxpayers who do not have income from business, profession or partnership firms.
Further, companies, LLPs, charitable or religious trusts, local authorities, associations of persons (AOPs), and bodies of individuals (BOIs) are not permitted to use this return form.
Taxpayers who are not eligible to file ITR-1, ITR-2 or ITR-4 are generally required to file ITR-3, provided they have income from business or profession.
Who should file ITR-4?
ITR-4, also known as Sugam, is designed for resident individuals, HUFs and partnership firms (excluding LLPs) that opt for presumptive taxation under Sections 44AD, 44ADA or 44AE of the Income-tax Act,1961.
The presumptive taxation scheme allows eligible taxpayers to declare income at a prescribed percentage of turnover or receipts without maintaining detailed books of accounts. The scheme significantly reduces compliance requirements for small businesses and professionals.
However, ITR-4 is available only if the taxpayer’s total income does not exceed ₹50 lakh during the financial year.
In addition to presumptive business or professional income, taxpayers filing ITR-4 can report income from salary or pension, up to two house properties, interest income, dividend income, family pension, agricultural income up to ₹5,000 and long-term capital gains under Section 112A up to ₹1.25 lakh.
Who cannot use ITR-4?
Taxpayers cannot use ITR-4 if they are directors of a company, hold unlisted equity shares, earn income from foreign assets or foreign sources or have signing authority in overseas bank accounts.
The form is also unavailable to taxpayers with short-term capital gains, long-term capital gains under Section 112A exceeding ₹1.25 lakh, income taxed at special rates, deferred tax liability on ESOPs, or losses that need to be carried forward.
Similarly, taxpayers with total income exceeding ₹50 lakh or income from certain foreign retirement benefit accounts covered under Section 89A cannot file ITR-4.
What are key differences between ITR‑3 and ITR‑4?
| Particulars | ITR-3 | ITR-4 (Sugam) |
| Eligible Taxpayers | Individuals and HUFs | Resident Individuals, Resident HUFs and Firms (other than LLPs) |
| Business Income | Regular business/professional income | Presumptive income under Sections 44AD, 44ADA and 44AE |
| Income Limit | No specific limit | Total income up to ₹50 lakh |
| Salary Income Allowed | Yes | Yes |
| House Property Income | Yes | Up to two house properties |
| Capital Gains | Allowed | Only LTCG under Section 112A up to ₹1.25 lakh |
| Foreign Assets/Foreign Income | Allowed to report | Not permitted |
| Partner’s Interest/Remuneration from Firm | Allowed | Not applicable in most cases |
| Carry Forward of Losses | Allowed | Not allowed |
| Directors in Companies | Can file if otherwise eligible | Cannot file |
| Unlisted Equity Shares | Allowed | Not allowed |
| Suitable For | Businesses and professionals maintaining books of accounts | Small businesses and professionals using presumptive taxation |
| Complexity Level | Detailed return form | Simplified return form |
Disclaimer: This is only for informational and educational purposes. Please consult a qualified tax expert for the latest tax laws and regulations.