Which ITR Form Should You File? ITR‑1 vs ITR‑3 vs ITR‑4 Explained for FY 2024‑25

Which ITR Form Do You Need? ITR‑1 vs ITR‑3 vs ITR‑4

It's that time of year again, filing your income tax in India. For many of us, it feels like a confusing puzzle. Moreover, choosing the right ITR form (for FY 2024-25) is extremely crucial. If you pick the wrong one, you could face penalties or receive notice from the Income tax office.

But don't worry. This article will help you understand how to choose the best form for your source of income. We'll explain the clear differences between ITR-1, ITR-3, and ITR-4. This way, you'll know exactly which ITR form to file and what makes you eligible for each one. Think of it as getting the perfect map for your financial journey, which will make everything much more clear.

Difference between ITR-1, ITR-3, ITR-4

ITR-1 (Sahaj):

• The most common ITR form, ITR-1, or Sahaj, is designed for people with comparatively simple income structures.
• Residents (not including non-residents and those who are not normally residents) should file ITR-1.
• You should file ITR-1 if your total earnings are up to Rs.50 lakh.
• Sources of income such as Pension or salary, One house property (not including situations where a loss is carried forward or brought forward from prior years), Other Sources (apart from lottery and horse racing winnings, such as interest income, family pension, etc.) and Income from agriculture up to Rs.5,000. You must file an ITR-1 if your total income is less than Rs.50 lakh and your only sources of income include a salary, a single property, and "other sources" like bank interest.
• Only Long term Capital Gains u/s 112A upto Rs 1.25 lakhs can file ITR 1 for FY 2024-25.
• As long as the other requirements for ITR-1 are fulfilled, this also applies if you receive rental income from a single house property.

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ITR-4(Sugam): For Presumptive Income

• Individuals, Hindu Undivided Families (HUFs), and Partnership Firms (apart from LLPs) that choose the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE of the Income Tax Act need to opt for ITR-4, also known as Sugam.

Who is eligible to submit an ITR-4?

• HUFs, partnership firms, or resident individuals (but not LLPs)
• Total earnings up to Rs.50 lakh

Revenue from:

• Business income calculated according to Section 44AD (subject to cash receipts not exceeding 5% of total gross receipts for small businesses with turnover up to Rs.3 crore). Once you opt into the presumptive taxation scheme (for business), you're required to continue it for the next five assessment years. If you opt out during this 5 year period, you will not be allowed to opt back in for the next five assessment years.
• Professional income (for specified professions) calculated in accordance with Section 44ADA (for certain professionals with gross receipts up to Rs.75 Lakh, subject to cash receipts not exceeding 5% of total gross receipts).
• Income from using, renting, or leasing goods carriages w.r.t Section 44AE.
• Income from Salary/Pension
• Income derived from One house property
• Only Long term Capital Gains u/s 112A upto Rs 1.25 lakhs can file ITR 1 for FY 2024-25.
• Income arising out of Other sources (not including lottery and horse racing winnings)
• Income from agriculture up to Rs.5,000
• ITR form for presumptive income: ITR-4 is the perfect form to file if you are a self-employed person or small business owner who wants to declare the income under the presumptive taxation scheme and your yearly turnover or gross receipt falls under the predetermined limits.
• ITR form for freelancers in India: Since many freelancers opt to file under Section 44ADA, ITR-4 is a good choice as long as their gross receipts fall within the allowed amount and they fulfill other ITR-4 requirements. You would probably switch to ITR-3 if you go over the presumptive limits or decide not to use it.

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ITR-3: For Business and Professional Income (Non-Presumptive)

ITR-3 should be filed by individuals and HUFs who have incomes from a proprietary business or profession and do not select the presumptive taxation scheme, or have more complex income sources.

Who is eligible to submit an ITR-3?

Individuals and HUFs who earn money from:

• Profits and Gains from Business or Profession (PGBP): this includes actual business income as well as income that is not eligible for presumptive taxes in the case of self-employment.
• Trader of Futures & Options (F&O): Any profits and losses from F&O trading are typically classified under non-speculative business income. Therefore, F&O traders file their taxes using ITR-3.
• Salary or Pension
• Residential Real Estate (one or more)
• Capital Gains (both short- and long-term, including those that exceed the limits set by the ITR-1 & ITR 4)
• Additional Sources (such as lottery and horse racing winnings)* As a business partner (interest, pay, commission, bonus, or compensation)
• People who serve as a company's directors.
• People who owned unlisted equity shares at any point in the preceding year.
• People who have foreign income or assets.
• ITR form for Indian freelancers (not choosing presumptive taxation or going over the limit): You must file an ITR-3 if you are a freelancer and decide to keep accurate books of accounts and report actual profits after subtracting expenses, or if your gross receipts are more than the presumptive taxation limits.

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ITR Filing Guide for Individuals

Following your selection of an ITR form, the filing procedure typically includes the following steps:

1. Assemble the following documents: bank statements, Form 16/16A/26AS, Annual Information Statement (AIS), PAN, Aadhaar, investment proofs for deductions (80C, 80D, etc.), and any other related income proofs.
2. Access E-filing Portal: Go to incometax.gov.in, the official website for income tax e-filing.
3. Login/Register: Enter your PAN as your password and user ID. Register first if you're new to file.
4. Select Assessment Year: Select the appropriate assessment year (for example, FY 2024–2025 for AY 2025–26).
5. Select the "Online" filing option, which is advised for the majority of taxpayers.
6. Select Status: "Individual."
7. Choose ITR Form: Choose the relevant ITR form based on the previously mentioned eligibility requirements.
8. Enter information carefully: enter all of your personal information, income sources, tax paid, and deductions in accordance with your documentation.
9. Check all entries for accuracy before submitting.E-verify using Aadhaar OTP or Net Banking to confirm your return.

The first and most important step in filing taxes successfully is choosing the right ITR form.

But always remember to check the official website of the Income Tax Department for the most recent rules and amendments, or seek advice from a tax expert if your income situation is complicated. Book an expert from Taxspanner now to avoid any complications in your tax filing.

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