ITR 4 Filing: Complete Guide to Presumptive Taxation (Sugam)

Small business owners and professionals often dread tax compliance. The thought of maintaining detailed books, hiring accountants, and facing potential audits keeps many entrepreneurs awake at night. Fortunately, ITR 4 filing under the presumptive taxation scheme offers a simpler path to tax compliance for eligible taxpayers across India.

This comprehensive guide explains everything about ITR 4 for small business owners, freelancers, and professionals. From understanding the presumptive taxation scheme 44AD to filing your return step-by-step, this article covers all aspects to help you leverage this beneficial provision.

What is ITR-4 Sugam: Understanding the Basics

ITR-4, also known as Sugam (meaning 'easy' in Hindi), is a simplified income tax return form for taxpayers who opt for presumptive taxation. Instead of computing actual profits from books of accounts, you declare a minimum percentage of your turnover as taxable profit. This significantly reduces paperwork and compliance requirements.

The form is available through the Income Tax e-Filing Portal and can be filed online or through authorised intermediaries. Three sections of the Income Tax Act govern presumptive taxation: Section 44AD (businesses), Section 44ADA (professionals), and Section 44AE (goods carriage operators).

ITR 4 Eligibility Criteria: Who Can File

Understanding ITR 4 eligibility criteria India is crucial before opting for this form. Not everyone qualifies, and filing incorrectly can lead to notices from the tax department.

Eligible Taxpayers:

• Resident individuals
• Hindu Undivided Families (HUFs)
• Partnership firms (excluding LLPs)

Turnover and Receipt Limits:

Who Cannot File ITR-4:

• Non-residents and RNORs
• Limited Liability Partnerships (LLPs)
• Taxpayers with income from capital gains
• Those with income from more than one house property
• Individuals with foreign income or assets
• Directors in companies
• Holders of unlisted equity shares

Presumptive Taxation Scheme 44AD: How It Works

The presumptive taxation scheme 44AD simplifies profit computation by establishing minimum profit rates. Instead of calculating actual income minus expenses, you declare a fixed percentage of turnover as your taxable profit.

Deemed Profit Rates Under Section 44AD

• 6% of turnover: For receipts through banking channels (cheque, NEFT, RTGS, UPI, cards)
• 8% of turnover: For cash receipts

For example, if your business has Rs. 1 crore turnover with Rs. 80 lakh received digitally and Rs. 20 lakh in cash, your minimum deemed profit would be: (Rs. 80 lakh × 6%) + (Rs. 20 lakh × 8%) = Rs. 4.8 lakh + Rs. 1.6 lakh = Rs. 6.4 lakh.

Section 44ADA for Professionals

Professionals covered under Section 44ADA must declare at least 50% of gross receipts as profit. This applies to doctors, lawyers, chartered accountants, architects, engineers, interior decorators, technical consultants, and other notified professionals. The limit is Rs. 50 lakh in gross receipts.

Section 44AE for Transporters

Goods carriage operators with up to 10 vehicles can declare Rs. 7,500 per month per heavy goods vehicle or Rs. 1,000 per ton of gross vehicle weight for other vehicles. This section doesn't consider actual income or expenses.

Benefits of Filing ITR-4 Under Presumptive Taxation

Choosing ITR 4 for small business offers several advantages that make compliance easier and potentially reduce your tax burden.

Key Benefits:

• No books of accounts: You're exempt from maintaining detailed accounting records under Section 44AA.
• No tax audit: As long as you declare profit at or above the deemed percentage, tax audit under Section 44AB doesn't apply.
• Simplified advance tax: Pay entire advance tax in one instalment by March 15, instead of quarterly payments.
• Lower compliance costs: Reduced need for accountants and auditors saves money.
• All deductions deemed included: The presumptive profit is after allowing all business expenses including depreciation.
• Easy form: ITR-4 is simpler than ITR-3, with fewer schedules to complete.

Step-by-Step ITR 4 Filing Process

Filing your return correctly ensures smooth processing. For professional assistance, consider using an ITR-4 Filing Service to avoid errors.

Step 1: Gather Documents

Collect PAN, Aadhaar, bank statements showing business receipts, Form 26AS, AIS, and any TDS certificates. Calculate your total turnover by payment mode (digital vs cash).

Step 2: Login to the Portal

Access the Income Tax e-Filing portal using your PAN and password. Navigate to e-File, Income Tax Returns, and select File Income Tax Return.

Step 3: Select ITR-4 and Assessment Year

Choose the relevant assessment year and select ITR-4 as your form. The portal will pre-fill data from Form 26AS and AIS. Verify this information carefully.

Step 4: Fill Business Details

Enter your business code, turnover figures, and compute deemed profit based on applicable rates. Separate digital and cash receipts for accurate 44AD computation.

Step 5: Add Other Income

Report salary (if any), house property income, and other sources like interest. Remember, ITR-4 allows only one house property and no capital gains.

Step 6: Claim Deductions

Enter deductions under Chapter VI-A: Section 80C investments, 80D health insurance, 80E education loan interest, and others. These apply to your total income, not just business income.

Step 7: Verify and Submit

Review computed tax against TDS credits and advance tax paid. Pay any balance due. Submit the return and complete e-verification using Aadhaar OTP, net banking, or EVC within 30 days.

Important Considerations and Restrictions

Before opting for presumptive taxation, understand these key restrictions based on CBDT guidelines.

• 5-year lock-in: Once you opt out of Section 44AD, you cannot return for 5 consecutive years.
• No loss carry forward: Business losses cannot be reported or carried forward under presumptive taxation.
• Partner's remuneration: Salary or interest paid to partners isn't separately deductible; it's deemed included in presumptive profit.
• Below threshold declaration: If you declare profit below the deemed percentage, books and audit become mandatory.
• Total income ceiling: Your total income (all sources) shouldn't exceed Rs. 50 lakh for ITR-4 eligibility.

Conclusion: Simplifying Tax Compliance with ITR-4

ITR 4 filing under the presumptive taxation scheme offers a legitimate way to reduce compliance burden while staying within legal boundaries. For small business owners, traders, and professionals meeting the ITR 4 eligibility criteria India requirements, this form eliminates the need for detailed books, audits, and quarterly advance tax payments.

Evaluate whether your actual profit margins align with deemed rates before opting for this scheme. If your actual expenses are high and profits are below the threshold, normal taxation through ITR-3 might be more beneficial. When uncertain, consulting a qualified chartered accountant helps you make the optimal choice for your specific business situation.