ITR-1 vs ITR-3: Know the Differences and File Your Tax Return Correctly

Are you confused about which type of ITR form to file, ITR-1 or ITR-3? This is a common concern among individuals who have both salary and business income.

Filing the wrong form could lead to unnecessary penalties and government notices. Then, it becomes hectic to re-file as it will be more time-consuming.

Now, talking about ITR-1 vs ITR-3, both forms are to report your income to the Income Tax Department, but they are for different types of taxpayers. Choosing the right type of ITR form for you is important to avoid delays in filing.

This blog is all about ITR-1 vs ITR-3 to make you understand the difference between the two.

Let’s move ahead to understand ITR-1 first.

What is ITR-1?

ITR-1 is the first form in the list of ITR forms and is also called Sahaj. It is so because it’s the simplest form of income tax return in India. This form is for the ones who earn from salary, pension, one house property, and additional sources such as interest from savings accounts.

Who is eligible to file ITR-1?

Not everyone can file ITR-1! That means if you meet the criteria below, you can file this form.

• You are a resident individual below 60 years of age.
• Your total income is not more than INR 50 lakh in a financial year.
• You earn from salary/pension, one house property, and other sources like interest amount.
• You do not make money from a business or a profession.
• You do not have more than one house property income.
• You can report long-term capital gains (LTCG) up to ₹1.25 lakh from listed equity shares or equity mutual funds.
• Your agricultural income should not exceed ₹5,000.
• Non-resident individuals (NRIs) are not eligible to file ITR-1.

Suggested Read: How to File ITR-1: Step-by-Step Guide

What is included in the ITR-1 Form?

ITR-1 vs ITR-3: Compare eligibility, income types, house property rules, and filing tips to pick the right ITR form.You need the following details to file ITR-1:

• Personal details and PAN information
• Salary or pension details
• Income from other sources
• Income from a single house property
• Deductions under Chapter VI-A (like 80C, 80D, etc.)
• Tax paid details and refund claims

What is ITR-3?

This is on the third number in the ITR forms list. ITR-3 is for individuals and HUFs (Hindu Undivided Families) who make money from any business or profession.

Who is eligible to file ITR-3?

So, who exactly is eligible to file ITR-3? Find below the list of individuals or HUFs’ sources of income that allow ITR-3 filing:

• Income from multiple house properties
• Income from capital gains (long-term or short-term)
• Income from other sources, like interest, dividends, or winnings from the lottery
• Partnership firm income where you are a partner
• Income from business or profession under presumptive taxation schemes (Sections 44AD, 44ADA, 44AE)
• Income for individuals with profession-specific codes such as social media influencers, F&O traders, or commission agents

What is included in the ITR-3 Form?

Here’s what you need to file the ITR-3 form:

• Details of all sources of income, including salary, business, profession, and capital gains
• Expenses related to business or profession
• Depreciation on assets
• Deductions and exemptions
• Details of partners in a firm, if applicable
• Tax paid and refund claims

ITR-3 is comprehensive and designed for those whose income is more complex than that of a salaried individual.

Suggested Read: How to File ITR-3 — A Step-by-Step Guide

ITR-1 vs ITR-3: Key Differences

To avoid any mistakes during filing ITR forms, it’s important to clearly understand the difference between ITR-1 vs ITR-3. The tabular format below will be easy to grasp.

Detailed, a little more complex than ITR-1	ITR-1	ITR-3
Who is eligible?	Resident individuals who earn up to INR 50 lakh, from salary, pension, single house property, and additional sources like savings accounts interest.	Individuals and HUFs with income from business, profession, multiple house properties, or capital gains
Is it complex to file?	Simple, easy to fill	Detailed, little more complex than ITR-1
Is business or professional income allowed?	No	Yes
Number of House Properties	Only 1	Multiple allowed
Are Capital Gains applicable?	No	Yes
Tax Filing for Partnership Income	Not applicable	Applicable
Suitable for?	Salaried individuals and pensioners	Freelancers, business owners, partners, and professionals

Key Differences Between ITR-1 and ITR-3

1. Eligibility:

• ITR-1: Only for resident individuals with income up to INR 50 lakh from salary, pension, a single house property, and other sources like savings account interest.
• ITR-3: For individuals and Hindu Undivided Families (HUFs) with income from business, profession, multiple house properties, or capital gains.

2. Complexity:

• ITR-1: Simple and easy to fill.
• ITR-3: More detailed and slightly complex due to additional income sources.

3. Business or Professional Income:

• ITR-1: Not allowed.
• ITR-3: Allowed.

4. House Properties:

• ITR-1: Only one house property can be reported.
• ITR-3: Multiple house properties can be included.

5. Capital Gains:

• ITR-1: Not applicable.
• ITR-3: Applicable for reporting capital gains.

6. Partnership Income:

• ITR-1: Not applicable.
• ITR-3: Applicable for partners in a business or profession.

7. Who Should Use It:

• ITR-1: Salaried individuals and pensioners.
• ITR-3: Freelancers, business owners, partners, and professionals.

How to Decide Between ITR-1 and ITR-3 Based on Income Type?

Let’s take, for example, there is a person named Shubham who is a software engineer and earns a salary of INR 12 lakh per annum. Apart from this, he earns INR 50,000 from his savings accounts’ interest. He has no business or capital gains.

So, he has to file ITR-1 and not ITR-3.

On the other hand, we have Aisha, who is a freelance graphic designer and earns around INR 15 lakh per annum. She also has a rental property, from which she makes INR 4 lakh, and also has some short-term capital gains from stocks.

Now, Aisha’s income is a little complex, so she has to file ITR-3.

ITR-1 vs ITR-3 – Which Income Tax Return Form is Right for You?

The choice of ITR-1 or ITR-3 lies in the type of income you have. Here’s a simple checklist:

• When you earn through a salary/pension, only one house property and other sources, use ITR-1.
• When your income is from a business or profession, you have more than one property or capital gains, select ITR-3.

You can file both of these forms through the official income tax e-portal or using any income tax software. Using software, you can save a little more time.

Note: In case you are in doubt, it is better to seek the advice of a chartered accountant (CA) to prevent mistakes.

The right form simplifies the processing, prevents delays, and eliminates the need to make amendments in the future.

Conclusion

Filing the correct ITR form from ITR-1 vs ITR-3 is not just to ensure compliance but also maintain financial transparency. The government has made filing easy for both simple and complex taxpayers with the introduction of forms such as ITR-1 and ITR-3.

You will save time, stress, and even penalties by selecting the right ITR form regardless of whether you are a salaried worker, freelancer, or business owner. You should always re-check the sources of income you have and, where needed, take help from a CA for filing.

FAQs