Difference between ITR 1 and ITR 4
Updated: Sep 24, 2024
Introduction
Choosing the correct Income Tax Return (ITR) form is crucial for accurately reporting income and complying with tax regulations. There are several ITR forms available, each designed for different types of taxpayers and income categories. Among these, ITR 1 and ITR 4 are two of the most commonly used forms.
ITR 1, also known as Sahaj, is for salaried individuals with simple income structures. ITR 4, also known as Sugam, is designed for individuals, Hindu Undivided Families (HUFs), and firms (other than LLPs) with income from business or profession under the presumptive taxation scheme.
Knowing the difference between ITR 1 and ITR 4 is vital, as filing the wrong form can lead to penalties, legal complications, or delays in tax processing. In this article, we will further compare ITR 1 vs ITR 4, helping you determine which form is best suited for your financial situation.
Overview of ITR 1
ITR 1 is primarily designed for resident individuals with relatively straightforward income sources. This form is suitable for those earning income from salaries, a single house property, and other sources such as interest income.
However, it is important to note that ITR 1 can only be used if the total income does not exceed INR 50 lakhs in a financial year. This form is ideal for salaried individuals, pensioners, and those with simple income structures, provided they do not have any business, professional income, or income from more than one house property. It also cannot be used by individuals who are directors in a company or who have investments in unlisted shares.
Overview of ITR 4
ITR 4 is intended for individuals, HUFs, and firms (excluding LLPs) who have opted for the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE of the Income Tax Act.
This form is suitable for those with income from business or profession that is calculated on a presumptive basis, provided their total turnover or gross receipts do not exceed INR 2 crores for business (under Section 44AD) or INR 50 lakhs for professions (under Section 44ADA).
Additionally, ITR 4 can be used by individuals who also have income from salaries, a single house property, and other sources like interest income, as long as they meet the presumptive taxation criteria. However, it cannot be used by individuals who are directors in a company, have foreign assets or income, or have income from more than one house property.
Differences Between ITR 1 and ITR 4
Let us understand the differences between ITR Form 1 and 4 with the help of the table below:
| Criteria |
ITR 1 |
ITR 4 |
| Eligibility |
ITR 1 is applicable to resident individuals with a total income of up to INR 50 lakhs, earned from salaries, one house property, and other sources like interest. |
ITR 4 is applicable to individuals, HUFs, and firms (except LLPs) with income under the presumptive income schemes, provided the turnover does not exceed INR 2 crores for business income or INR 50 lakhs for professional income. |
| Income Sources |
This form covers income from salaries, one house property, and other sources such as interest income and pension. |
This form is designed for those with presumptive income from business or profession, and it also covers income from salaries, one house property, and other sources. |
| Business Income |
ITR 1 does not cater to any form of business or professional income. |
ITR 4 is used for reporting presumptive business or professional income under Sections 44AD, 44ADA, and 44AE of the Income Tax Act. |
| Capital Gains |
ITR 1 does not accommodate reporting capital gains, as it is meant for simple income sources. |
Capital gains are not reported in ITR 4, making it unsuitable for individuals who have such income. |
| Foreign Assets/Foreign Income |
ITR 1 cannot be used by individuals who have foreign assets or foreign income, even if they are residents. |
ITR 4 also does not cater to individuals with foreign assets or foreign income. |
| Presumptive Scheme |
Taxpayers cannot use ITR 1 if they are opting for presumptive taxation schemes. |
ITR 4 specifically supports presumptive taxation under Sections 44AD (business income), 44ADA (professionals), and 44AE (transport business). |
| Tax Audit Requirement |
ITR 1 does not require a tax audit, as it is for simple income scenarios. |
A tax audit is generally not required if filing ITR 4 under the presumptive taxation scheme, provided conditions under the respective sections are met. |
| For Non-Residents |
ITR 1 is not applicable to non-residents, regardless of their income sources or amounts. |
ITR 4 is also not applicable to non-residents; it is meant for residents only. |
Conclusion
Understanding the ITR 1 vs ITR 4 difference is crucial for accurately filing your income tax returns. Choosing the correct form is vital to ensure compliance with tax laws and avoid any penalties or legal issues. Always consult with a tax professional or advisor if you are unsure about which ITR form to use for your specific income situation.
Staying tax-compliant is also important when you consider financial products such as a home loan. Lenders often request income tax returns to assess your financial credibility and responsibility.
If you’re considering homeownership in the near future, SMFG Grihashakti can support your ambition with home loans of up to INR 1 crore*. Check your eligibility and apply today to benefit from attractive interest rates and flexible repayment tenures of up to 30 years*.
FAQs
What is the primary difference between ITR 1 and ITR 4?
When we consider ITR 1 vs ITR 4, the primary difference is that ITR 1 is for individuals with simple income sources like salaries and one house property. ITR 4 is for individuals and businesses using the presumptive taxation scheme for business or professional income.
Can an individual with business income file ITR 1?
No, an individual with business or professional income cannot file ITR 1. If the business income is under the presumptive taxation scheme, ITR 4 would be the correct form to use.
Is it mandatory to file ITR 4 if I am eligible for the presumptive taxation scheme?
Yes, if you have opted for the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE, you must file ITR 4, provided your total turnover or gross receipts do not exceed INR 2 crores (INR 50 lakhs for professionals under Section 44ADA).
Who cannot file ITR 1?
Non-residents, individuals with income exceeding INR 50 lakhs, those with more than one house property, or those with capital gains or foreign assets/income cannot file ITR 1. Additionally, individuals with business or professional income are not eligible to use ITR 1.
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