ITR 4 vs ITR 5 – Clear Guide for Businesses, Firms & Professionals

Filing taxes but stuck between ITR-4 vs ITR-5? One wrong pick could mean penalties, notices, and hours of unnecessary hassle. Using reliable Income Tax Software can simplify the process. ITR-4 is built for small businesses and professionals under presumptive taxation, while ITR-5 opens the gate for firms, LLPs, and organizations with detailed income records.

Not sure where you fit in? This blog post discusses in detail about:

• What is ITR-4 and for whom is it applicable?
• What is ITR-5 and its applicability?
• What are the major differences between ITR-4 and ITR-5?

Let’s untangle the confusion.

What is ITR 4?

ITR-4, or Sugam as it is commonly referred to, is meant to be used by small taxpayers who choose to use the presumptive taxation scheme in Section 44AD, 44ADA, or 44AE of the Income Tax Act. In presumptive taxation, income is reported at a constant rate instead of having detailed books of accounts. This makes it easier to file taxes among small businesses and professionals.

ITR-4 is for whom?

• Resident Individuals
• Hindu Undivided Families (HUFs)
• Partnership Firms (other than LLPs)

They can file ITR-4 if their income falls under the presumptive taxation scheme.

Who cannot file ITR-4?

• LLPs (Limited Liability Partnerships)
• Companies
• Non-residents
• Individuals earning income above INR 50 lakh
• Businesses with turnover above INR 2 crore (for 44AD) or professionals with receipts above INR 50 lakh (for 44ADA)

Sources of income allowed in ITR-4

• Business income under presumptive scheme (44AD, 44AE)
• Professional income under presumptive scheme (44ADA)
• Salary/Pension
• One house property
• Income from other sources (like interest)

In short, ITR-4 is best suited for small businesses, transport operators, and professionals like doctors, lawyers, or consultants who prefer the simplicity of presumptive taxation.

What is ITR 5?

ITR-5 is more comprehensive form of return, which is used by firms and other entities that are not eligible for filing ITR-4 or ITR-6. It applies to partnerships, LLPs, and other organizations that are required to report detailed accounts of income

ITR 5 is for whom?

• Partnership Firms
• LLPs (Limited Liability Partnerships)
• Association of Persons (AOPs)
• Body of Individuals (BOIs)
• Cooperative Societies
• Local Authorities
• Artificial Juridical Persons (AJPs)

Who cannot file ITR-5?

• Individuals
• HUFs
• Companies filing ITR-6
• Persons filing ITR-7 (trusts, charitable organizations)
• Sources of income allowed in ITR-5

ITR-5 accommodates income from:

• Business or profession (regular books of accounts required)
• Capital gains
• Income from house property
• Income from other sources
• In short, ITR-5 is for partnerships, LLPs, and other entities with diverse or larger income sources requiring detailed reporting.

Key Differences: ITR 4 vs ITR 5

Feature	ITR-4 (Sugam)	ITR-5
Who can file?	Resident individuals, HUFs, and partnership firms (not LLPs) under presumptive taxation	Partnership firms, LLPs, AOPs, BOIs, cooperative societies, local authorities
Presumptive taxation	Yes (44AD, 44ADA, 44AE)	Not applicable
Complexity	Simple, less data required	Detailed, requires full financial reporting
What’s the income limit?	Up to INR 50 lakh for professionals, up to INR 2 crore (business turnover)	No specific turnover limit
Capital gains	Not allowed	Allowed
Foreign income/assets	Not allowed	Allowed
Who cannot use it?	LLPs, companies, individuals with income > INR 50 lakh	Individuals, HUFs, companies filing ITR-6, trusts filing ITR-7

ITR 4 vs ITR 5 – Which One to Choose for Your Business?

To choose in between ITR-4 and ITR-5, you have to start by defining your business structure and income type.

In case you are an individual or a small firm that comes under presumptive taxation, you need to file ITR-4. For example: The owner of a small retail shop whose turnover is INR 60 lakh needs to submit ITR-4 under 44AD by reporting 8% of turnover as profit.

In case you are an LLP or a partnership firm with detailed books, you need to file ITR-5. For example, an LLP with a turnover of 5 crore offering consultancy services should submit ITR-5 since ITR-4 does not apply to LLPs.

In case you have capital gains, foreign assets, or income that exceed presumptive taxation limits → Fill ITR-5.

Thus, ITR-4 is meant for simplicity, while ITR-5 is for detailed reporting.

How to File ITR-4 and ITR-5 Online?

ITR filing is easy if you have a proper guide for the whole process. Below is a gist of how you can file ITR-4 and ITR-5. You can check out a detailed guide on filing ITR-4 and ITR-5 in our blog.

Filing ITR-4

• Firstly, you need to sign in to the Income Tax e-filing portal.
• ITR-4 can be easily filed online using pre-filled forms. You can also verify the information and update it if anything needs to be updated.
• Verification can be done via Aadhaar OTP, EVC, or digital signature.

Suggested Read: How to File ITR-4: Step-by-Step Guide for Small Businesses & Professionals

Filing ITR-5

• ITR-5 can also be filed online using a DSC (Digital Signature Certificate).
• This type of ITR is more detailed than ITR-4.
• You need to submit audited financial statements (if applicable).

Suggested Read: How to File ITR-5: Complete Guide for Firms, LLPs & Organizations

Common Mistakes to Avoid While Filing ITR-4 vs. ITR-5

• Wrong Form Filing – A lot of taxpayers end up filing ITR-4 when they are to file ITR-5.
• Neglect of turnover/profit limits – In case your business turnover is above INR 2 crore, you cannot file ITR-4.
• Missing audit requirements – In the case of ITR-5, once the turnover exceeds the audit limit, your books need to be audited in accordance with Section 44AB.
• Failure to report exempt income – Even tax-free income is to be reported.
• Skipping verification – ITR cannot be filed without being verified within 30 days.

Conclusion

The decision between ITR-4 vs ITR-5 is simply a matter of knowing your business type, income structure, and compliance requirements.

ITR-4 is the most appropriate for individuals, HUFs, and small firms that are subject to presumptive tax.

ITR-5- It is formulated to be used by partnership firms, LLPs, and organizations that require reporting detailed sources of income and financial statements.

You can eliminate mistakes, fines, and compliance burdens by choosing your type of eligibility and income correctly. Always keep in mind, consideration of the proper ITR form will guarantee you a smooth ride in tax processing.

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