ITR-3 vs ITR-4: Which income tax return form should freelancers, traders and business owners use?
The August 31, 2026 income-tax return deadline is approaching for freelancers, professionals and business owners whose accounts do not require a tax audit. But should you file ITR-3 or ITR-4? The answer depends on your income, business activity, trading transactions and whether you opt for presumptive taxation.
- Aug 29, 2026,
- Updated Aug 29, 2026 2:30 AM IST
The August 31, 2026 deadline for filing income-tax returns is approaching for individuals and entities with business or professional income whose accounts do not require a tax audit. For such taxpayers, choosing between ITR-3 and ITR-4 is important, as eligibility depends on factors such as income level, business structure, trading activity and whether the taxpayer opts for presumptive taxation.
More than 6.5 crore income-tax returns had already been filed by the July 31 deadline, according to the Income Tax Department, including over 2 crore ITR-3 and ITR-4 filings.
When should you file ITR-3?
ITR-3 is generally applicable to individuals and Hindu Undivided Families (HUFs) who earn income from a business or profession but do not opt for the presumptive taxation scheme.
It can apply where taxpayers maintain regular books of accounts or otherwise do not qualify for ITR-4. The form can cover income from salary or pension, house property, business or profession, capital gains and other sources.
ITR-3 is also relevant for taxpayers whose total income exceeds ₹50 lakh. Individuals involved in futures and options (F&O) trading may also need to use ITR-3 rather than ITR-4.
For taxpayers with business or professional income who fall outside the eligibility conditions for ITR-1, ITR-2 or ITR-4, ITR-3 is generally the applicable form.
Who can file ITR-4?
ITR-4, also known as Sugam, is meant for individuals, HUFs and firms opting for the presumptive taxation scheme, subject to the prescribed conditions and income limits.
A key eligibility requirement is that total income should generally be up to ₹50 lakh. The form allows eligible taxpayers to declare income from specified businesses and professions on a presumptive basis, reducing the need for detailed accounting of actual expenses.
Eligible taxpayers can also report salary or pension income, income from up to two house properties and certain income from other sources, including interest, family pension and dividends.
Agricultural income of up to ₹5,000 and certain long-term capital gains under Section 112A, subject to the applicable ₹1.25 lakh limit, can also be included.
However, several taxpayers are excluded from ITR-4. These include individuals with certain short-term capital gains, long-term capital gains under Section 112A exceeding ₹1.25 lakh, foreign assets or income, unlisted equity shares, losses to be carried forward or deferred ESOP tax. Company directors are also not eligible to use ITR-4.
| Parameter | ITR-3 | ITR-4 (Sugam) |
|---|---|---|
| Who can file | Individuals and HUFs with business/professional income | Individuals, HUFs and eligible firms with business/professional income |
| Tax regime | Generally used when not opting for presumptive taxation | Used when opting for presumptive taxation |
| Income limit | No ₹50 lakh ceiling | Total income generally up to ₹50 lakh |
| Books of accounts | Applicable where regular books are maintained or required | Generally not required under presumptive taxation |
| F&O trading | Applicable to eligible taxpayers with F&O income | Not applicable |
| Salary/Pension | Can be reported | Can be reported |
| House property | Can include house-property income | Can include income from up to two house properties |
| Capital gains | Can include capital gains | Limited capital-gains eligibility; subject to prescribed conditions |
| Foreign assets/income | Can be filed, subject to applicable disclosure requirements | Not eligible |
| Unlisted equity shares | Can be filed, subject to applicable conditions | Not eligible |
| Loss carried forward | Can be used where applicable | Not eligible in specified cases |
| Company directors | Can be filed if other eligibility conditions are met | Not eligible |
| Presumptive taxation | Not required | Key purpose of the form |
| August 31, 2026 deadline | Applies to eligible non-audit taxpayers | Applies to eligible non-audit taxpayers |
| Audit cases | Generally October 31, 2026 | Not applicable where the taxpayer is otherwise required to file an audit return |
August 31 deadline and documents
Taxpayers covered by the August 31 deadline should keep Form 26AS, AIS, TIS, Form 16 and 16A, bank statements and tax-payment challans ready.
Business owners should also maintain profit and loss statements, balance sheets, invoices, GST returns and payment-gateway statements. Those with investments should keep brokerage statements, contract notes, demat records and capital-gains details.
Taxpayers requiring an audit have a later October 31, 2026 deadline. Returns can be filed through the Income Tax Department’s e-filing portal and must be verified after submission.
MUST READ: Foreign assets disclosure scheme: Who is eligible, what it means for small taxpayers & tax payable
The August 31, 2026 deadline for filing income-tax returns is approaching for individuals and entities with business or professional income whose accounts do not require a tax audit. For such taxpayers, choosing between ITR-3 and ITR-4 is important, as eligibility depends on factors such as income level, business structure, trading activity and whether the taxpayer opts for presumptive taxation.
More than 6.5 crore income-tax returns had already been filed by the July 31 deadline, according to the Income Tax Department, including over 2 crore ITR-3 and ITR-4 filings.
When should you file ITR-3?
ITR-3 is generally applicable to individuals and Hindu Undivided Families (HUFs) who earn income from a business or profession but do not opt for the presumptive taxation scheme.
It can apply where taxpayers maintain regular books of accounts or otherwise do not qualify for ITR-4. The form can cover income from salary or pension, house property, business or profession, capital gains and other sources.
ITR-3 is also relevant for taxpayers whose total income exceeds ₹50 lakh. Individuals involved in futures and options (F&O) trading may also need to use ITR-3 rather than ITR-4.
For taxpayers with business or professional income who fall outside the eligibility conditions for ITR-1, ITR-2 or ITR-4, ITR-3 is generally the applicable form.
Who can file ITR-4?
ITR-4, also known as Sugam, is meant for individuals, HUFs and firms opting for the presumptive taxation scheme, subject to the prescribed conditions and income limits.
A key eligibility requirement is that total income should generally be up to ₹50 lakh. The form allows eligible taxpayers to declare income from specified businesses and professions on a presumptive basis, reducing the need for detailed accounting of actual expenses.
Eligible taxpayers can also report salary or pension income, income from up to two house properties and certain income from other sources, including interest, family pension and dividends.
Agricultural income of up to ₹5,000 and certain long-term capital gains under Section 112A, subject to the applicable ₹1.25 lakh limit, can also be included.
However, several taxpayers are excluded from ITR-4. These include individuals with certain short-term capital gains, long-term capital gains under Section 112A exceeding ₹1.25 lakh, foreign assets or income, unlisted equity shares, losses to be carried forward or deferred ESOP tax. Company directors are also not eligible to use ITR-4.
| Parameter | ITR-3 | ITR-4 (Sugam) |
|---|---|---|
| Who can file | Individuals and HUFs with business/professional income | Individuals, HUFs and eligible firms with business/professional income |
| Tax regime | Generally used when not opting for presumptive taxation | Used when opting for presumptive taxation |
| Income limit | No ₹50 lakh ceiling | Total income generally up to ₹50 lakh |
| Books of accounts | Applicable where regular books are maintained or required | Generally not required under presumptive taxation |
| F&O trading | Applicable to eligible taxpayers with F&O income | Not applicable |
| Salary/Pension | Can be reported | Can be reported |
| House property | Can include house-property income | Can include income from up to two house properties |
| Capital gains | Can include capital gains | Limited capital-gains eligibility; subject to prescribed conditions |
| Foreign assets/income | Can be filed, subject to applicable disclosure requirements | Not eligible |
| Unlisted equity shares | Can be filed, subject to applicable conditions | Not eligible |
| Loss carried forward | Can be used where applicable | Not eligible in specified cases |
| Company directors | Can be filed if other eligibility conditions are met | Not eligible |
| Presumptive taxation | Not required | Key purpose of the form |
| August 31, 2026 deadline | Applies to eligible non-audit taxpayers | Applies to eligible non-audit taxpayers |
| Audit cases | Generally October 31, 2026 | Not applicable where the taxpayer is otherwise required to file an audit return |
August 31 deadline and documents
Taxpayers covered by the August 31 deadline should keep Form 26AS, AIS, TIS, Form 16 and 16A, bank statements and tax-payment challans ready.
Business owners should also maintain profit and loss statements, balance sheets, invoices, GST returns and payment-gateway statements. Those with investments should keep brokerage statements, contract notes, demat records and capital-gains details.
Taxpayers requiring an audit have a later October 31, 2026 deadline. Returns can be filed through the Income Tax Department’s e-filing portal and must be verified after submission.
MUST READ: Foreign assets disclosure scheme: Who is eligible, what it means for small taxpayers & tax payable