ITR Filing — Sole Proprietor / Business Income

ITR-4 Sugam if opting for presumptive taxation under Section 44AD (business turnover ≤ ₹3 crore, income declared at ≥ 8%/6%) or Section 44ADA (specified professional gross receipts ≤ ₹75 lakh, income declared at ≥ 50%). ITR-3 if maintaining actual books — required for F&O trading, capital gains alongside business income, or if turnover exceeds presumptive limits.

Finance Act 2023 raised the Section 44AD limit from ₹2 crore to ₹3 crore, and Section 44ADA from ₹50 lakh to ₹75 lakh — both applicable only if cash receipts/payments do not exceed 5% of total. Exceeding the 5% cash threshold in any year drops the eligible limit back to ₹2 crore (44AD) or ₹50 lakh (44ADA) for that year.

If a proprietor uses Section 44AD for any year and then opts out (declares income below 6%/8%), Section 44AD(4) bars the proprietor from using ITR-4 for the next five assessment years. Full books must be maintained and a tax audit is required for the year of opt-out — even if turnover is below ₹1 crore — under Sec 44AB, IT Act 1961 (≡ §63, IT Act 2025)(e).

Under actual books (ITR-3): proportionate business use deductions for home office rent, vehicle depreciation (Section 32 WDV method), fuel/maintenance (Section 37(1)), and phone/internet are available. Under presumptive taxation (ITR-4): no separate deductions allowed — the presumptive rate covers all expenses. This makes presumptive disadvantageous for professionals with high actual costs.

A sole proprietor must deduct TDS if their accounts were subject to tax audit in the immediately preceding year (Section 194C/194J). GST-registered proprietors with professional clients are expected to deduct TDS on professional service payments (Section 194J — 10%) and contractor payments (Section 194C — 1%/2%). TAN registration is mandatory before the first deduction.