Which ITR Form Should You File? Understand the Rules for ITR-1, ITR-2, ITR-3, and ITR-4 Based on Your Income Type

Filing Income Tax Returns (ITR) is a legal responsibility for every taxpayer in India, but choosing the correct form can be confusing. The Income Tax Department offers multiple ITR forms, each designed for a specific category of taxpayer based on income sources, income levels, and professional status.

Whether you're a salaried employee, a business owner, a freelancer, or someone with capital gains, selecting the appropriate ITR form is crucial to avoid legal issues and ensure a smooth filing process.

Here’s a detailed and easy-to-understand breakdown of who should use which ITR form — ITR-1, ITR-2, ITR-3, or ITR-4.

🧾 ITR-1 (SAHAJ): For Salaried Individuals with Simple Income

Who can file:ITR-1 is designed for individuals whose total income is up to ₹50 lakh and who earn from:

• Salary or pension

• One house property

• Other sources like interest or dividend

Who cannot file:You cannot use ITR-1 if:

• You have income from more than one house property

• You earned capital gains from shares or mutual funds

• You have foreign income or own foreign assets

• You are a director in a company or have invested in unlisted equity shares

This form is best suited for salaried professionals with straightforward financial profiles.

🏠 ITR-2: For Those with Capital Gains or Multiple House Properties

Who can file:ITR-2 is applicable for individuals and HUFs (Hindu Undivided Families) who earn income from:

• Salary or pension

• More than one house property

• Capital gains from shares, mutual funds, or property

• Other sources (e.g., lottery, interest)

Who cannot file:This form is not for individuals with business or professional income. If you earn from a business or freelance practice, you'll need to look at ITR-3 or ITR-4.

This form is ideal for investors and those with real estate or capital market gains.

💼 ITR-3: For Business Owners and Professionals

Who can file:ITR-3 is meant for individuals or HUFs who earn income from:

• Business or profession (e.g., doctors, lawyers, consultants)

• Proprietorships

• Unlisted equity shares

• Directorship in a company

Who cannot file:If you fall under the Presumptive Taxation Scheme, you should consider ITR-4 instead.

This form is for self-employed individuals and entrepreneurs who do not opt for presumptive income tax schemes.

📊 ITR-4 (SUGAM): For Presumptive Income and Small Businesses

Who can file:ITR-4 is applicable to individuals, HUFs, and firms (except LLPs) who:

• Opt for the Presumptive Taxation Scheme under sections 44AD, 44ADA, or 44AE

• Have a business turnover of up to ₹2 crore

• Have professional income up to ₹50 lakh

This includes:

• Small traders

• Freelancers like doctors, engineers, architects

• Truck owners/operators

Who cannot file:You cannot use ITR-4 if:

• You are a director in a company

• You have foreign assets or income

• Your income exceeds the presumptive scheme limits

• You belong to an LLP

This form simplifies the tax process for those with small businesses and stable digital incomes.

🔍 Quick Comparison: Which ITR Form is Right for You?

📅 Final Word

Filing your ITR with the correct form ensures timely processing and helps avoid scrutiny or penalties from the Income Tax Department. Always assess your income sources, profession, and financial details before choosing the right form.

For a hassle-free filing experience, consider consulting a tax advisor or using the official income tax e-filing portal: https://www.incometax.gov.in