ITR-4 Form, A comprehensive guide to understanding the ITR-4 Form

The ITR-4 form is a tax return form for those taxpayers, who have opted for a guessing scheme in terms of Section 44AD, Section 44ADA and Section 44AE and whose income does not exceed Rs 50 lakh.

Recent Updates

CBDT has notified all income tax return forms (ITR forms) AY 2021-22 with minor changes in ITR Form 1 to ITR Form 7.

The IT department introduced the use of JSON and left the Excel and Java version of the resources from AY 2021-22.

Latest Update:

CBDT issued a circular on 9 Sep 21 extending the specific tax guidelines AY 2021-22.

1. ITR Filing due date extension:

  1. ITR filing by taxpayers not covered under audit is extended from 30th Sep 21 to 31st Dec 21
  2. ITR filing for Tax audit cases is extended to 15th Feb 22
  3. ITR filing for transfer Pricing is extended to 28th feb 22
  4. ITR filing of Belated or Revised Return for FY 20-21 is extended from 31st Dec 21 to 31st March 22

2. Furnishing Audit Report:

  1. The deadline for reporting is audited on 15 Jan 22
  2. The due date for reporting the referral audit report is extended to 31 Jan 22

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1. What is the ITR 4?

Form ITR-4 is a taxpayer form for taxpayers who prefer a predictive income scheme under Section 44AD, Section 44ADA, and Section 44AE of the Income Tax Act.

However, if the business profit mentioned above exceeds Rs 2 crores, the taxpayer will have to file ITR-3.

2. Who is required to file ITR 4?

ITR 4 is to be filed by the individuals/HUF/ Partnership firm whose total income of AY 2020-21 includes as below:

  • Business income under section 44AD or 44AE
  • Income from profession calculated under section 44ADA
  • Salary/pension having income up to Rs 50 lakh
  • Income from One House Property having income up to Rs 50 lakh (excluding the brought forward loss or loss to be carried forward cases under this head)
  • Income from Other Sources having income up to Rs 50 lakh (Excluding winning from lottery and income from horse races).

Note: Freelancers engaged in the above profession can also opt for this scheme if their gross receipts don’t exceed Rs 50 lakhs.

3. Who is not required to file ITR 4 for AY 2021-22?

  • A person earning money from wages, property, or other sources in excess of Rs 50 lakh cannot use this form.
  • A person who may be a director of a company and who has invested in unregistered shares may not be able to use this form.
  • Individuals, HUF, or corporate companies with account books to be audited under the Income Tax Act, 1961.

4. What is the Structure of ITR 4?

ITR-4 is divided into parts as mentioned below:

PART A: General Information

PART B: Gross total income from the five heads of income

PART C: Deduction and total taxable income

PART D: Tax computation and tax status

Schedule BP: Details of income from Business-Section 44AD, 44ADA and 44EA

Information regarding turnover/Gross receipts reported for GST

Financial Particulars of Business

Schedule IT, TCS and TDS 1: Statement of payment of advance tax and tax on self-assessment, tax collected at source and TDS from salary

Schedule TDS2: Statement of tax deducted at source on income other than salary.

Verification column

5. How do I file my ITR-4 Form?

You can submit your ITR-4 Form either online or offline.

Offline

The ITR form can be filed offline only in any of the following case:

  • Individual is of the age of 80 years or more.
  • The income of the individual is less than Rs 5 lakhs and who do not have to claim a refund in the income tax return.

The return can be filed offline in the following ways :

  • By furnishing a return in a physical paper form
  • By furnishing a bar-coded return

The Tax Department will give you a letter of consent at the time of submitting your paper forms.

Online/Electronically

  • By providing a computer return under digital signature -

    If you submit your ITR-4 form electronically under a digital signature, the information will be sent to your registered email ID. You can also choose to download it manually from the Income Tax website.
  • By electronic transfer and submission of the return confirmation in return form ITR-V- You are required to sign it and send it to the CPC office of the Income Tax Department in Bangalore within 120 days of e-filing.

Remember that ITR-4 is an additional form which means you do not have to attach any documents when you submit it.

6. Major Changes made in ITR-4 for AY 2021-22

  • There are no major changes to ITR 4 compared to last year.
  • ITR 4 of AY 2021-22 has been updated with a declaration of choice between the old and new tax laws. The declaration is subject to the general details of Part A such as ‘Do you prefer a new tax regime under section 115BAC (Yes or No). If so, please provide the date of completion of Form 10IE and 'consent number'.
  • Part B - Under the income from other sources, deductions such as interest from savings account, deposit etc. will be provided on the use of e-filing which specifies the type of income. In the case of a dividend, a quarterly separation must be provided to allow for effective exemption from interest on non-payment of prepaid tax under section 234C.
  • Schedule DI inserted AY 2020-21 removed.
Click here to download ITR 4 Form for AY 2021-22.

7. Major Changes made in ITR-4 for AY 2020-21

  • Each taxpayer who meets the procedure (a) to make more than Rs crores by the bank or (b) costs more than Rs 2 lakh in foreign travel or (c) costs more than Rs 1 lakh in electricity must also apply ITR- 1. The taxpayer must indicate the amount of the deposit or expense.
  • Under Section A, the 'Govt' checkboxes have been changed to 'Central Govt' and 'State Govt', and the 'Not Applied' check box (eg family pension, etc.) has been introduced under the Employment category.
  • The return entered under the category is separated between the standard filling and the entered with notices.
  • The ‘Schedule VI-A’ of the tax deduction is amended to include deductions under section 80EEA and section 80EEB. It is deducted to enter donation details under section 80G
  • In ‘Schedule BP’, total profit or capital receipts that include revenue from fixed electronic modes were received before the due date.
  • Details of investment tax deduction applications or payments or expenses incurred between 1 April 2020 and 30 June 2020.

8. Major Changes made in ITR-4 for AY 2019-20

  • Form ITR 4 of FY 2018-19 does not apply to a person who is a company director or who has invested in unlisted financial shares.
  • Under Part A, the 'pensioners' checkbox is presented under the 'Employment' section.
  • The return entered under the category is separated between the standard filling and the entered with notices.
  • Deductions under salary will be deducted from standard deductions, entertainment allowance and professional tax.
  • 80G Download: Donation amount is divided into cash and other modes.
  • Different business details such as business name, business code, section definition 44AD, 44ADA & 44AE.
  • The new camps under section 44AE have been introduced as Truck Registration Number, Whether owned / leased / leased, Tonnage Capacity of carriage carriage (in MT), No. .
  • Under the GST specification the input text has been replaced by "Annual value of external supply in accordance with the filed GST refund".
  • The 'Assigned Assets' option is now available under 'Household Income'.
  • Taxpayers will be required to provide detailed information on income under ‘income from other sources’.
  • A separate column is introduced under ‘sources from other sources’ to deduct / s 57 (iia) - in the case of a family pension income.
  • Section 80TTB column included for adults.

9. Presumptive Income & its Taxation – under section 44AD

When running a small business, you may not have enough resources to keep proper accounting information and calculate your profits or losses. This makes it difficult to keep track of your income and taxes from such a business.

With this in mind, the Income Tax Department has set some simple rules, where your money is deducted based on the major receipts for your business. This method is called speculation, in which taxes are paid in moderation.

Features of this Scheme

  • Your revenue is estimated to be 8% of the maximum receipts for your business. However, from FY 2016-17, if large receipts are received in digital payment mode, then Revenue is estimated at 6% of such receipts for cash receipts. However, the rate is equivalent to 8% of such cash receipts.
  • You do not need to keep accounts of this business.
  • You must pay 100% tax before March 15 for such business.
  • There is no need to comply with the requirements for quarterly paid dates (June, Sep, Dec) of prepaid taxes.
  • In the case of Advance Tax, the prepaid tax benefit for a single installment on 15 March is only granted to the designated entity. If a taxpayer earns income outside the business, where his or her tax debt exceeds
  • Rs 10,000 per annum, he or she must pay prepayment on the other income.
  • You are not allowed to deduct any business expenses from your salary.
  • If you run more than 1 business, the scheme should be selected for each business. For example, if you run 3 businesses where only 1 is tested under section 44AD. The freedom to keep financial records and no audit requirements apply only to the business operating the program. For 2 other entities not covered under this category - financial records must be kept and audits are required.

Eligibility Criteria for this Scheme

  • Your gross receipts or turnover of the business for which you want to avail this scheme should be less than Rs 2 crore.
  • You must be a ‘Resident’ in India. The scheme is not applicable to non-residents.
  • This scheme is allowed to an individual, a HUF, or a partnership firm. It is not available to a Company or an LLP (Limited liability partnership).
  • The scheme cannot be adopted by the taxpayer, if he has claimed deduction under section 10, 10A, 10B, Section 10BA, or Section 80HH to 80RRB in the relevant year.
Not sure which ITR form you need to use? Read our guide for help.

Eligible Businesses

  • A taxpayer can be in any business - wholesale or wholesale or community building or other business to acquire this program.
  • But this accounting method does not apply to:
    • Income from commission or brokerage
    • Agency business
    • Walking, renting or leasing business (see section 44AE)
    • Professionals - practicing law, medicine, engineering, construction, accounting, technology, interior decoration, licensed lawyer, filmmaker, company secretary, and information technology. An authorized attorney means - any person, representative of a person, by money or payment, before any Tribunal or authority under any law. Filmmaker includes producer, actor, photographer, director, music director, art director, dance director, editor, musician, songwriter, story writer, screenplay writer, interview writer, costume designer - basically any person involved in the work build film production (see Sec 44ADA). These are the activities listed under section 44AA (1).

Let us consider an example:

Devesh runs a medical store in his area. Receipts for his business are Rs 1,50,00,000 for the 2020-21 financial year. Can Devesh benefit from this program under section 44AD?

Devesh is a resident and his receipts from the business are worth less than two million dollars. His business is not listed under the list of non-eligible businesses and therefore may benefit from the scheme under section 44AD.

Deduction for Business Expenses

No business expenses are allowed to be deducted from the gross salary. Depreciation is also not being held.

However, in the case of a cooperative firm, a separate deduction from the partner's salary and interest paid by the partners is allowed. This must be within the limit specified under section 40 (b).

Although a decrease is not permitted as a reduction, the recorded value (WDV) of assets will be considered a decrease.

For example, Rohit runs a Kirana store and his big receipts of Rs 75,12,260 come from this business. You have decided to choose this program under section 44AD. He also wants to get rid of 1 large refrigerator and a computer with a payment system he bought for Rs 2,50,500. He also spent Rs 1,50,000 to buy new racks to showcase his goods.

Since Rohit opted for a presumptuous scheme under section 44AD, his income is calculated as 8% (taking into account all receipts) of Rs 75,12,260 = Rs 6,00,981. Under this scheme, no deductions are allowed from salary. Rohit will not be allowed to deduct the cash flow from this income. He can't afford the cost of buying a new ruck.

Can the taxpayer declare higher or lower income than 8% of gross receipts?

A taxpayer may voluntarily declare a higher salary and pay the tax on it. In the event that a taxpayer chooses to declare income less than 8% of the maximum receipt - they will have to keep the books of account and have them audited.

Click here to read more about bookkeeping and audit requirements.

For example, Ritesh owns a bookstore and his profit in the business is Rs 85,20,000. He wants to choose a plan under section 44AD so his income will be Rs 6,81,600 (8% of the largest receipts, considering all cash receipts).

However, Ritesh's actual income from the business is Rs 5,74,000. Ritesh decides not to opt-out of the scheme under section 44AD and pays taxes on the actual income of his business. However, as he does not choose this system he must keep proper accounting records and have his records checked.

Computing Turnover or Gross Receipts :

Big receipts or profits mean a complete business collection. Receipts will be submitted to GST. Receipts will include delivery costs and receipts from the sale of discarded items.

Discounts provided, improvements made and proceeds from the sale of goods should not be included.

10. Presumptive taxation under Section 44AE

For those in the pedestrian business, renting or renting trucks a system similar to the revenue plan contemplated under section 44AD is available.

Eligibility Criteria:

  • You must be in the business of walking, renting, or renting carts.
  • You must not have more than 10 carts at any time during the year. Install carts taken at the time of purchase or in installments.
  • You can be a private, HUF, Company or Partner Company

Features of this scheme:

  • The taxable income from the goods vehicle (including any goods vehicle) will be calculated at Rs 7,500 per month per vehicle or part thereof during FY when the vehicle is owned by an observer.
  • The above calculation will be irrespective of a heavy goods vehicle (over 12000 kgs) and a light goods vehicle (less than or equal to 12000 kgs).
  • The thinker does not have to keep account books under this business.
  • Prepaid taxes must be paid at 100% by 15 March for these businesses.

Half of the month will be moved to the next month. For example, if a freight cart is owned for 9 months and 3 days, the revenue will be calculated as if the cart was owned for 10 months.

Deduction for Business Expenses:

  • No business expenses are allowed to be deducted from the gross salary. Depreciation is also not being held.
  • However, in the case of a cooperative firm, a separate deduction from the partner's salary and interest paid by the partners is allowed. This must be within the limit specified under section 40 (b).
  • Even if the downgrade is not allowed as the deductions are recorded (WDV) for assets will be deemed to be downgraded.

Let’s see the calculation with an example,

Rohan is involved in the business of hiking, renting, or renting freight cars, and has 5 trucks and 2 other trucks taken slowly. Rohan wants to know what will be his salary for this business?

Rohan can choose this program under section 44AE since he earns less than 10 trucks. You have 7 tracks in total, including slow-moving trucks even if some installments are not paid. Rohan's income from this business will be Rs 7 x Rs 7,500 x 12 months = Rs 6,30,000 will be Rohan's income from this business. No business expenses may be charged for this amount

Can the taxpayer declare higher or lower income?

A taxpayer may voluntarily declare a higher salary and pay the tax on it. In the event that a taxpayer chooses to declare a lower income than the above - he or she will be required to keep account books under section 44AA and audit them.

11. Presumptive taxation under Section 44ADA

Profit tax estimates were only available to businesses. But now this benefit has been extended to professionals. It will work for professionals, whose total receipts

do not exceed Rs 50 lakhs for the financial year.

Presumptive Tax Rate:

The income of the professionals who choose this program can be estimated at 50% of the total receipt for the year.

Applicability of the scheme:

The plan only applies to an individual, personal, HUF or Partnership and not an LLP (Limited Liability Partnership Firm). People who do the following work can choose this income recognition system:

  • Medical
  • Engineering
  • Legal
  • Architectural Profession
  • Accountancy Profession
  • Technical Consultancy
  • Interior Decoration

No requirement of Maintenance of books of Account:

Professionals who choose this program do not need to keep the required account books under section 44AA. Nor do account accounts need to be checked under section 44AB.

Deduction for Business Expenses:

No business expenses are allowed to be deducted from the gross salary. Depreciation is also not being held. Or downgrade is not allowed as a reduction. The recorded value of goods (WDV) for assets will be considered as impairment losses.

Can the taxpayer declare higher or lower income?

A taxpayer may voluntarily declare a higher salary and pay the tax on it. In the event that a taxpayer chooses to declare revenue of less than 50% of the total receipt - he or she will need to keep accounts under 44AA and have them audited.

Frequently Asked Questions

Q- Can I file ITR 4 offline also?

Yes, you can install ITR 4 offline only if: a) Each person is 80 years or older b) The per capita income is less than Rs. 5 lakh, and they are not required to apply for a refund of income tax.


 

Q- If I am opting presumptive scheme so can i claim deduction of other expenditures and depreciation?

No, if a person pays tax @ 8% in terms of section 44AD then he or she cannot claim depreciation or other amount.


 

CEO Krishna Gopal

Krishna Gopal Varshney is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Myitronline.com. Myitronline is amongst the top emerging startups of Asia and authorized ERI by the Income Tax Department. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. ”

Krishna Gopal Varshney
Co-founder & CEO