ITR-3 vs ITR-4: Which income tax return form should freelancers, traders and business owners use?

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.

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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.

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.

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