Difference between ITR 3 and ITR 4

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.

• 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

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