Difference between ITR 3 and ITR 4

Several professional & business owners are unsure about when they need to file an ITR 3 and when do they file an ITR 4.

Read on to find out which one applies to you.

Generally speaking ITR 3 (ITR 4 until FY 2015-16) can be filled by any individual or HUF who is running a business or undertaking a profession. There is no minimum income you should be earning to file this return. Say if you are a shopkeeper, a construction contractor, a doctor, a tutor, a retailer, a wholesaler, an insurance agent, interior decorator or fashion designer, you can file ITR-3.

Absolutely all businesses are eligible to file ITR 3 .ITR-3 is a detailed form ITR which broadly requires the following details of ‘Income from Business’ head –

• Part A -GEN: General information and Nature of Business
• Part A-BS: Balance Sheet as of March 31, 2018 of the Business or Profession
• Part A-P&L: Profit and Loss details for the Financial Year 2017-18
• Part A-OI: Other Information (optional in cases where audit is not mandatory)
• Part A-QD: Quantitative Details (optional in cases where audit is not mandatory)
• Part B: Outline of the total income and tax computation

Besides this there are about 35 other schedules in ITR-3 where additional information is asked for.

In summary, everyone who runs a business or carries on profession, however big or small, can file ITR-3.

Who can file ITR-4?

ITR-4 is a special case ITR ( ITR 4 was ITR 4S until FY 2015-16), applicable for businesses where income is calculated on ‘presumptive method’. As per presumptive method – net income is estimated to be 8% of gross receipts (Section 44AD of the income tax act) or Rs 7,500 per month for each vehicle where the tax payer is plies, leases or hires trucks (Section 44AE of the income tax act). This is a special scheme of income tax department – those who opt for this scheme – don’t have to maintain accounting records.

The ITR-4 is a very simple return, just about 3 pages and that’s all the income tax department wants to know. Broadly the ITR -4 asks for –

Gross Turnover or Gross Receipts Total presumptive income Total Sundry Debtors Total Sundry Creditors Total Stock-in-trade Cash Balance However there are 2 situations where ITR-4 cannot be filed, and ITR-3 has to be filed in these cases :

• Situation 1 – Where Gross receipts or turnover of a business or profession is more than Rs 2 crore. (The limit for applicability of presumptive scheme has been revised from Rs 1 crore to Rs 2 crore from FY 2016-17)
• Situation 2 – If you fall in any of the below mentioned case you cannot file ITR-4
  • Income from commission or brokerage
  • Income from Agency business
  • Income from Profession – those who are carrying on profession of legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, an authorized representative, film artist, company secretary and information technology. Authorized representative means – any person, who represents someone, for a fee or remuneration, before any Tribunal or authority under law. Film Artist includes a producer, actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screenplay writer, dialogue writer, dress designer – basically any person who is involved in his professional capacity in the production of a film.

Here, please note that the above professions too have been brought under the ambit of the presumptive scheme effective FY 2016-17.

Persons with the below-mentioned conditions cannot file ITR 4 :

• Own more than one house property
• Earned Speculative income like winning from lotteries, horse races
• Agriculture income or exempt income more than Rs 5,000
• Have Capital gains
• Losses to be carried forward
• Holds any assets outside the country or has any financial interest in any foreign entity
• Is a signing authority in any bank account located outside India
• Any resident having income from any source outside India
• Claimed relief under Section 90 or 91

Let’s take some examples

Case 1: Atul runs a cloth retail shop and has opted for the presumptive income scheme.

Atul can choose to file ITR-3 or ITR -4 (provided is gross turnover is less than Rs 2 crore).

Case 2: Neha is an interior decorator and wants to know which ITR form should she file.

As a professional, as long as her gross receipts from profession does not exceed Rs.50 lakh, she can opt for presumptive scheme of tax and file her return with ITR-4 Form.

Case 3 : Deepika had opted for presumptive income for FY 2016-17. She runs a wholesale business and her turnover for FY 2017-18 was Rs 2.20 crores.

Since Deepika’s turnover exceeds Rs 2 crore, for financial year 2017-18 she will have to file ITR-3 as ITR-4 is not applicable in cases where turnover exceeds Rs 2 crore.

Case 4: Rahul is an insurance agent and his income was Rs 18 lakhs in the financial year 2017-18, he wants to file ITR-4.

Those running insurance commission business cannot file ITR-4. Therefore Rahul has to file ITR -3 for financial year 2017-18.

Case 5 : Shashank is a practicing heart specialist and his turnover for the financial year 2017-18 is Rs 55 lakhs. Shashank wants to file ITR-4.

As Shashank has his own practice, he carries on the profession. Hence he can file ITR 4 only if his annual receipts are less than Rs.50 lakhs. As Shashank’s income is more than Rs.50 lakhs, he has to file ITR-3. 

Case 6 : Prashant carries on 2 businesses . He has a manufacturing business with a turnover of Rs 2.4 crores and another business of truck hiring and leasing, which is eligible for presumptive income as per section 44 AD. Prashant wants to know which ITR to file.

Even though Prashant runs a business which is eligible under section 44AD, he shall have to file ITR-3. Return of income must include income from all sources and given Prashant’s first business, ITR-3 shall be applicable for filing his consolidated income details.

Case 7 : Ashish is in the business of plying, hiring , or leasing goods carriage. In the financial year 2017-18  he owned 13 lorries.

Presumptive method of taxation under section 44AE is applicable only in cases where not more than 10 trucks are owned. Therefore, Since Ashish owns more than 10 trucks he has to file ITR-3.

Case 8 : Vijay is in the business of plying, hiring, leasing goods carriage and owns 5 goods carriage during the year but Vijay chooses not to opt for 44 AE scheme and want to declare income lower than the income estimated under section 44AE.

Vijay can declare income lower than what is calculated under section 44AE, however he shall have to maintain books of accounts as prescribed and will have to file ITR-3 for his income.

* all names are fictitious and used only for the purpose of illustration.

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