ITR 3 and ITR 4 are both income tax return forms used by individuals, Hindu Undivided Families (HUFs), and professionals to file their income tax returns in India. However, they are applicable to different categories of taxpayers based on their sources of income and the nature of their profession or business. Here’s the difference between the two:

Applicability:

ITR 3: This form is applicable to individuals and HUFs who have income from business or profession. It is meant for taxpayers who have income from carrying out a proprietary business or are in a profession as a sole proprietor.

ITR 4: This form is applicable to individuals, HUFs, and firms (other than LLPs) who have opted for the presumptive taxation scheme under Section 44AD, Section 44ADA, or Section 44AE of the Income Tax Act. It is also suitable for taxpayers who have income from a profession and have opted for the presumptive taxation scheme under Section 44ADA.

difference between ITR 3 & ITR 4

Sources of Income:

ITR 3: Taxpayers using ITR 3 should report income from their business or profession, along with any other sources of income they might have, such as salary, house property, capital gains, and income from other sources.

ITR 4: Taxpayers using ITR 4 should report income from the business or profession for which they have opted for the presumptive taxation scheme. Additionally, they can also report income from salary, house property, and income from other sources. However, they cannot report income from speculative business or profession.

Presumptive Taxation:

ITR 3: This form does not deal with presumptive taxation. Taxpayers using ITR 3 should calculate their income and pay taxes based on the actual income and expenses incurred in their business or profession.

ITR 4: Taxpayers using ITR 4 can avail the benefits of presumptive taxation under certain sections of the Income Tax Act, where they are allowed to declare their income at a prescribed rate without the need for detailed accounting. The presumptive rates are fixed by the tax authorities, and the taxpayer needs to pay taxes based on these rates.

Audit Requirements:

ITR 3: Taxpayers using ITR 3 may need to get their accounts audited if the total sales or gross receipts from their business or profession exceed a specified threshold.

ITR 4: Taxpayers using ITR 4 and opting for presumptive taxation are not required to get their accounts audited, irrespective of their turnover, unless they have claimed profits or gains lower than the presumptive rates and their total income exceeds the taxable limit.

It is essential to use the correct ITR form based on your income sources and profession to comply with tax regulations accurately. If you are unsure about which form to use or need assistance with tax filing, it is advisable to consult a qualified tax professional or chartered accountant.

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