ITR-3 Return

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ITR-3 Return

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  • Audit Requirements for ITR-3​
  • Components of ITR-3​
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Who should file ITR-3?

ITR-3 is applicable to:

  1. Individuals and HUFs who have income from proprietary businesses or professions.
  2. Those who earn income from:
    • Salary/Pension
    • House Property
    • Capital Gains
    • Other Sources (like interest, dividends)
    • Business/Profession (under proprietorship or partnership)
    It’s NOT applicable for those opting for the Presumptive Income Scheme under Section 44AD, 44ADA, or 44AE (they should use ITR-4).

Documents required to file ITR-3

  1. PAN Card
  2. Aadhaar Card
  3. Bank account details (with IFSC code)
  4. Details of income (including Form 16 for salary, details of business income, etc.)
  5. Tax deduction details (TDS certificates, Form 26AS)
  6. Audit Report (if your business turnover exceeds the prescribed limits and is subject to audit under Section 44AB)
  7. Financial Statements (Profit & Loss Account, Balance Sheet)

Components of ITR-3

Part A – General Information:

    • Basic personal information like name, PAN, Aadhaar, address, and filing status.

Part B – Gross Total Income:

    • Income from Salary/Pension
    • Income from House Property
    • Income from Business/Profession:
      • Net profit or loss from business.
      • Adjustments to profits based on audit reports.
      • Maintenance of books of accounts.
      • Reporting of depreciation.
    • Capital Gains (if any)
    • Other Sources of income.

Schedule BP (Details of income from Business or Profession):

    • Includes both speculative and non-speculative business income.
    • Adjustments as per audit reports, etc.

Schedule DPM, DOA, and DEP (Depreciation schedules):

    • For claiming depreciation on assets used in business/profession.

Schedule CG (Capital Gains):

    • Reporting short-term and long-term capital gains on sale of assets.

Schedule 80G (Donations):

    • Section 80G details for claiming deductions on donations.

Schedule TDS:

    • TDS on income from salary, interest, etc.

Filing Process of ITR-3

  • Gather Documents: Collect necessary details such as salary slips, bank statements, profit and loss statement, etc.
  • Fill the ITR-3 Form: Use the Income Tax e-filing portal or offline utilities to fill in details.
  • Compute Total Income: Sum up all heads of income and compute total income.
  • Calculate Tax Liability: Based on your total income, compute the tax payable or refundable using the tax slabs.
  • Pay Taxes (if applicable): If there is any outstanding tax liability, pay it through challans.
  • E-Verify the Return: After filing, ensure that you e-verify your return within the stipulated period to complete the process.

Due Dates

  • 31st July of the assessment year for non-audit cases.
  • 30th September for cases requiring a tax audit under Section 44AB

Important Sections to Know

  1. Section 44AB: Mandatory audit for businesses with turnover exceeding ₹1 crore (or ₹10 crore for digital payments) and professionals earning more than ₹50 lakhs.
  2. Section 44AD: Presumptive taxation for businesses (not applicable if ITR-3 is being filed).
  3. Section 44ADA: Presumptive taxation for professionals (not applicable if ITR-3 is being filed).

Steps to File ITR-3 Online (on Income Tax E-filing Portal)

  1. Login: Visit the Income Tax E-filing website and log in using your PAN and password.
  2. Select ITR-3: Choose the option to file income tax return and select ITR-3.
  3. Fill in Details: Enter personal information, income details, deductions, tax paid, and other necessary information.
  4. Verify the Summary: Before submission, verify the income, tax deductions, and payable tax.
  5. Submit: After reviewing the details, submit the return.
  6. E-Verification: Use Aadhaar OTP, bank account, or other options to e-verify the return.

Understanding Tax Computation in ITR-3

Once all the income sources are aggregated, the following steps are used to compute tax liability:

  1. Gross Total Income: Sum of income from all heads:

    • Salary
    • House Property
    • Business or Profession
    • Capital Gains
    • Other Sources

  2. Deductions under Chapter VI-A: These include common deductions like:

    • Section 80C: Investments in PPF, EPF, life insurance, NSC, etc. (up to ₹1.5 lakhs).
    • Section 80D: Health insurance premiums (up to ₹25,000, or ₹50,000 for senior citizens).
    • Section 80E: Interest on education loans.
    • Section 80G: Donations to eligible charities.
    • Other deductions like 80TTA (interest on savings), 80U (for disability), etc.

  3. Taxable Income: After subtracting deductions from the gross total income, you arrive at the taxable income.

  4. Apply Tax Slabs: Based on the taxable income, apply the tax rates as per the relevant tax slabs (old or new regime).

  5. Add Surcharge and Cess: Depending on the income level, a surcharge and health and education cess (4%) are added to the tax amount.

  6. TDS and Advance Tax Adjustments: Finally, adjust the calculated tax with any advance tax paid or TDS deducted during the year.

Audit Requirements for ITR-3

When is an audit mandatory?

    • If your business turnover exceeds ₹1 crore (or ₹10 crores for businesses with a digital transaction ratio of more than 95%), or if you’re a professional with receipts exceeding ₹50 lakhs, a tax audit under Section 44AB is mandatory.
    • Additionally, if you’ve declared profits lower than 8% (or 6% for digital receipts) of turnover under Section 44AD (and you are not using presumptive taxation), you must get your accounts audited.

Audit Report Filing:

    • The audit report must be obtained from a Chartered Accountant and submitted in Form 3CB/3CD along with the ITR.
    • Ensure that the audit is completed and the report is filed well before the due date to avoid penalties.

Penalties for Non-Filing or Incorrect Filing of ITR-3

  • Late Filing Penalty: A penalty of up to ₹10,000 may be levied under Section 234F if the return is filed after the due date (₹1,000 for those with income below ₹5 lakhs).

  • Interest on Late Payment of Taxes: Under Section 234A (delay in filing), 234B (delay in advance tax payment), and 234C (delay in quarterly installments), interest is levied at 1% per month.

  • Penalty for Underreporting Income: If the taxpayer fails to report income correctly, penalties ranging from 50% to 200% of the tax due can be imposed.

Key Tips for Filing ITR-3

  • Maintain Proper Records: Keep proper books of accounts, particularly for business income, and ensure that all income is accounted for.

  • Reconcile with Form 26AS: Ensure that all the TDS amounts match with the amounts reflected in Form 26AS before filing the return.

  • Use Digital Payments: Businesses with higher digital payment adoption benefit from a relaxed audit threshold (₹10 crore turnover instead of ₹1 crore).

  • Claim All Deductions: Maximize the use of available deductions under Chapter VI-A (like 80C, 80D, etc.).

  • E-Verify on Time: After filing the return, e-verification is crucial. Without e-verification, the return will not be processed.

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