If you are an MSME owner, choosing the right ITR form can make your tax filing easy or unnecessarily complicated. Let’s break it down simply.

ITR 1 (Sahaj)

• For salaried individuals or pensioners.
• Only allowed if your total income is up to ₹50 lakhs.
• Income can include salary, one house property, and interest.
• Not for MSMEs or anyone with business income.

ITR 2

• This is for individuals and HUFs (Hindu Undivided Families) without business income.
• You can report capital gains, more than one house, or foreign income.
• Not suitable for small business owners or MSMEs with a turnover.

ITR 3

• Best for MSMEs, professionals, freelancers, and partners in firms.
• Use this if you maintain books of accounts and have income from a business or profession.
• Also needed if you’re a director in a company or have unlisted shares.

ITR 4 (Sugam)

• For those who opt for Presumptive Taxation under Section 44AD, 44ADA, or 44AE.
• Suitable for small traders, professionals, or transporters with income up to ₹75 lakhs.
• Simple and ideal for Healthcare MSMEs and service providers who want easy compliance.

Quick Snapshot:

Bottom line:

If you’re a small healthcare business, clinic, supplier, or trader, ITR 4 or ITR 3 is usually your go-to form. 

Avoid ITR 1 and 2 unless you’re only earning from salary or property.

2. Which ITR form should small business owners and traders file under the presumptive taxation scheme?

If you’re a small business owner, trader, doctor, consultant, or transporter and you don’t want to maintain detailed books, Presumptive Taxation might be perfect for you. 

This is where ITR-4 (Sugam) comes in.

So, what is presumptive taxation?

Under this method, your income is calculated as a fixed percentage of your turnover. 

You don’t need to track every expense or maintain full accounts. 

It’s meant to make life easier for small businesses.

When to use ITR-4?

You should file ITR-4 if:

• You are opting for Section 44AD (for small businesses and traders)
• Or Section 44ADA (for professionals like doctors, freelancers, architects)
• Or Section 44AE (for transport businesses with goods vehicles)

Your total business receipts must be up to ₹75 lakhs to qualify. Also, your income is assumed to be:

• 8% or 6% (digital) of turnover under 44AD
• 50% of gross receipts under 44ADA
• Fixed monthly income per vehicle under 44AE

Real Example:

Let’s say you own a small pharmacy with ₹60 lakhs turnover, mostly through UPI and cards. Under Section 44AD, 6% of ₹60 lakhs = ₹3.6 lakhs is your taxable income. 

You file ITR-4 and skip maintaining full accounts.

Key benefits of ITR-4:

• No need to prepare profit and loss statements.
• Fewer compliance headaches.
• Faster return processing and refunds.

But remember:

If you don’t want to opt for presumptive taxation or if your turnover crosses ₹75 lakhs, then ITR-3 is the correct form.

In short:

If you run a small business or clinic and want to file taxes the easy way, ITR-4 is your best friend under presumptive taxation.

3. When should an MSME file ITR-3 instead of ITR-4?

While ITR-4 is great for small businesses under Presumptive Taxation, it doesn’t fit everyone. 

Some MSMEs need to file ITR-3, and here’s when.

You should file ITR-3 if:

1. Your income is more than ₹75 lakhs

   • If your business or professional receipts cross ₹75 lakhs in the year, you’re not eligible for presumptive taxation.
   • So, you must maintain regular books and file ITR-3.

2. You don’t want to use presumptive taxation

   • Maybe you had higher expenses this year.
   • Or maybe you want to show lower profits due to actual losses or investments.
   • In this case, even if your turnover is below ₹75 lakhs, you can opt out of presumptive tax and use ITR-3.

3. You have multiple income sources

   • Let’s say you run a clinic and also have a diagnostic lab business.
   • Or you earn professional income as a consultant and also do trading on the side.
   • When you have more than one type of business or professional income, ITR-3 is the correct form.

4. You are a partner in a firm

   • If you’re a partner in an MSME or healthcare partnership firm and earn a share of profit, interest, or salary from the firm, then you must use ITR-3, not ITR-4.

5. You have foreign income or capital gains

   • For example, if you sold stocks, mutual funds, or property and made capital gains, you’ll need ITR-3, even if you’re running a business.

Real Example:

Suppose you are a dentist earning ₹85 lakhs per year. You can’t use ITR-4 because you crossed the ₹75 lakh limit under 44ADA. 

You will need to file ITR-3, show your detailed income and expenses, and keep proper records.

To sum up:

• Use ITR-4 for simple cases under presumptive tax (below ₹75 lakhs).
• Use ITR-3 if your income is high, complex, or if you want to declare actual profit and loss.

4. Can salaried individuals running side businesses use ITR-1 or must they switch to ITR-3/4?

This is a common question, especially for salaried people running a small business, side hustle, or doing freelance work. 

Let’s break it down simply.

First, What is ITR-1?

ITR-1 (Sahaj) is meant only for:

• People with salary income
• One house property
• Other income like interest (from savings or FDs)

But the moment you earn any business or professional income, you are not allowed to use ITR-1.

If you have a salary + side business:

Here’s what happens based on your situation:

a) If your side income is under presumptive taxation

Example: You are a full-time nurse and run a small clinic part-time, or do medical consulting on weekends.

• If your clinic or freelance income is below ₹75 lakhs
• And you opt for presumptive taxation under Section 44ADA

👉 You can file ITR-4.

b) If your side income is not under presumptive scheme

Maybe you don’t opt for 44ADA/44AD, or your income is higher

👉 Then you must use ITR-3

This applies even if your salary is your main income and your business is small.

Summary:

Final Word:

If you’re a salaried person with any kind of side business, do not use ITR-1.

Choose ITR-4 for simplicity under presumptive tax.

Use ITR-3 if you keep full accounts or have complex income.

Would you like to continue to the next question, which ITR to choose based on capital gains or rental income?

5. Which ITR form should professionals like doctors or consultants file under 44ADA?

If you are a doctor, consultant, architect, engineer, or freelancer, and you earn income from your profession, then you may be eligible to file under Section 44ADA.

This section is part of the Presumptive Taxation scheme, meant to simplify tax filing for professionals.

First, what does 44ADA say?

Under Section 44ADA, if your gross receipts are up to ₹75 lakhs, you can declare 50% of that as your taxable income.

This saves you from the burden of maintaining books, preparing profit & loss statements, or getting audits done.

Now, which ITR form should I file?

It depends on how you choose to file your income:

a) If you opt for presumptive taxation under 44ADA

Then you should file ITR-4 (Sugam)

• Easy and simple form
• No need to show expenses
• Only 50% of your professional income is assumed to be taxable
• You also declare basic business details like receipts, digital payment use, etc.

Example:

A doctor earning ₹40 lakhs in 2024–25 from OPD consultation

Under 44ADA, ₹20 lakhs (50%) is treated as taxable income.

So they can file ITR-4 easily.

b) If you do not opt for 44ADA

Maybe because your expenses are high, or your income is more than ₹75 lakhs

Then you must file ITR-3

• A full profit and loss statement is required
• Maintain books of accounts
• Audit may apply (depending on limits)

Summary Table:

Final Tip:

If you’re a Healthcare MSME professional, like a doctor or consultant, and your expenses are low, using Section 44ADA with ITR-4 is the easiest way to save tax and time. 

But if your setup is large with many expenses, you may benefit more by using ITR-3.

6. What are the filing deadlines and audit requirements for ITR-3 vs ITR-4 in 2025?

When it comes to filing your Income Tax Return (ITR), the deadlines and audit requirements are different for ITR-3 and ITR-4. 

As an MSME owner or professional, it’s important to know which rules apply to you so you don’t face late fees or legal trouble.

Filing Deadlines:

For ITR-4 (Presumptive Taxation under 44AD, 44ADA, or 44AE):

• Due date: July 31, 2025
• This applies if you are not liable for a tax audit
• Most small traders, professionals, and service providers use the presumptive tax file ITR-4

For ITR-3 (Regular income declaration):

• Due date: October 31, 2025
• But this is only if you are required to get your books audited
• If no audit is needed, then the due date remains July 31, 2025

Audit Requirements:

Under ITR-4:

• No audit is required if you’re under presumptive taxation and your income is declared as per the scheme (e.g., 8% or 6% for 44AD, or 50% for 44ADA)
• This is a big reason why many Healthcare MSMEs, such as small pharmacies or solo doctors, prefer ITR-4

Under ITR-3:

• Audit is mandatory if:
  • Your business turnover crosses ₹1 crore (for non-digital payments)
  • Or, it crosses ₹10 crore if 95%+ transactions are digital
• Also, audit applies if you’re under presumptive tax, but declare income less than the assumed percentage (and your income exceeds the basic exemption limit)

Example:

• A diagnostic lab with ₹85 lakh turnover and digital payments can use ITR-4.
  
  No audit required if they declare income at 8% or more.
• A clinic earning ₹1.5 crore with multiple income streams and high expenses may need to use ITR-3.
  
  If books are maintained and turnover crosses limits, an audit becomes mandatory.

Summary Table:

Final Note:

To stay safe, always match your filing type with your actual income and turnover. 

If you’re unsure, talk to a CA before the deadline.

Avoiding audits and penalties starts with choosing the correct ITR form.

7. How can MSMEs avoid errors by choosing the wrong ITR form?

Filing the wrong ITR form is a common mistake for many MSME owners. 

It can delay refunds, lead to tax notices, or even penalties. 

But the good news is that this can be easily avoided with a few smart steps.

First, know your income type

Before choosing an ITR form, understand how your business earns:

• Are you a trader, shop owner, or small manufacturer with a single business?
• Are you a doctor, consultant, or designer earning professional fees?
• Do you have freelance income, along with a salary job?

Different income sources often need different forms. For example:

• ITR-4 suits small businesses and professionals under presumptive taxation.
• ITR-3 suits those who maintain books and want to declare actual income and expenses.
• ITR-1 or ITR-2 is for salaried individuals with no business income.

Use filters on the Income Tax Portal

The income tax website has a simple tool when you begin your return.

It asks a few questions like:

• Are you self-employed?
• Are you under presumptive tax?
• Do you have multiple sources of income?

Based on your answers, it suggests the correct ITR form. 

So, don’t skip this; it helps avoid mistakes early.

Talk to a CA or tax expert if unsure

Even if you use software, a 15-minute consultation with a Chartered Accountant (CA) can help you:

• Confirm the right form
• Check if you qualify for presumptive tax
• Know if you’re crossing audit thresholds

Especially if it’s your first time filing business income, don’t take chances.

Cross-check last year’s ITR and business changes

Maybe you filed ITR-4 last year as a single pharmacy owner. But now, if you opened another branch or added consulting income, you might need to move to ITR-3.

Always review:

• Business turnover this year
• Any new income sources
• Whether you opted in or out of presumptive taxation

Final Tip:

Wrong ITR form = delay in processing, possible scrutiny, and no refund until correction.

Right ITR form = smoother filing, faster refund, peace of mind.

Would you like a downloadable checklist of ITR forms and matching income types?

Conclusion: Which ITR Should MSMEs File?

Choosing the right ITR form is critical for every MSME. ITR-1 suits salaried individuals. 

ITR-2 works for capital gains and other sources. 

ITR-3 is for businesses or professionals with regular books of accounts, while ITR-4 fits MSMEs under presumptive taxation like those filing under Sections 44AD, 44ADA, or 44AE.

Don’t just guess; match your income type and filing method. 

If you’re earning mixed incomes (salary + business) or crossing turnover thresholds, consider ITR-3. 

For doctors, consultants, or freelancers earning under ₹75 lakh, ITR-4 is a smart, simplified route under Section 44ADA.

Always double-check using the Income Tax portal guide or consult a CA. 

Using the wrong ITR form can lead to penalties, blocked refunds, or audit triggers. 

Filing right saves time, builds credit trust, and keeps your tax record clean.

FAQs

1. Can an MSME file ITR-1 if it earns only from a small business?

No. ITR-1 is only for salaried individuals or those earning pension and interest income. If you earn from any business, you must use ITR-3 or ITR-4, depending on your tax scheme.

2. When should I use ITR-4 as a small business owner?

You should file ITR-4 if you are opting for Presumptive Taxation under Sections 44AD, 44ADA, or 44AE, and your turnover is up to ₹3 crore with digital receipts.

3. What happens if I choose the wrong ITR form?

If you file the wrong form, your return may be marked defective, you may get notices, and your refund could be delayed. Always double-check your income type before choosing the form.

4. Can doctors or consultants with freelance income use ITR-4?

Yes. If they choose Section 44ADA, they can file under ITR-4. But if they want to claim actual expenses, they must file ITR-3 with full profit-loss details.

5. Do I need to get my accounts audited under ITR-4?

Usually no. Audit is not required under presumptive taxation (ITR-4) unless your income is very high or you stop using the presumptive scheme after opting in previously (under 44AD).

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