Difference Between ITR1 and ITR3 – A Complete Guide

Introduction

Every year during the income tax return time, there is confusion regarding the form that one must fill out. Different ITR forms are available and are classified according to individuals, professions, and income. Choosing the right form is imperative since if a taxpayer fills out the wrong form, they must redo the entire process.

There are seven forms listed by the income tax department, but let’s discuss the two most commonly used – ITR 1 and ITR 3. Through this article, you will learn the core difference between the two ITR forms and which one to use while e filing of income tax return.

What is ITR1?

The individual residents of India and HUFs fill ITR1 or the Sahaj form. Let’s look at the criteria that one must fulfill to use this form:

1. Only individuals whose income is either through salary or pension can use this form.
2. If it’s a rented income, there can only be one property.
3. If the income is through agriculture, it is not exceeding Rs. 5000.
4. The overall income of the financial year cannot exceed Rs. 50 Lakhs.
5. When there is income generated from other sources, such as a lottery

In the case of the below things, the person cannot opt for the ITR1 form for their ITR tax filing:

1. If the taxpayer’s total income is less than Rs. 50000 in a financial year.
2. If the taxpayer has income from capital gains which is taxable.
3. If the rented income is from more than one property.
4. If there were any unlisted equity share investments in the financial year.
5. If the individual is NRI or RNOR – Resident, not ordinary resident.
6. If the total agricultural income is more than Rs. 5000.
7. If there is any other income generated through a profession or business.
8. If the taxpayer is also a director of any other company.
9. If there is a property outside of India, income is generated through it.
10. If the taxpayer has any other foreign income or assets.
11. If the taxpayer’s tax is deducted as per section 194N.
12. If there is any deduction or payment of tax which has been deferred on ESOP.

What is ITR3?

ITR3 is another form available for the e filing of income tax returns. Individuals and HUFs also fill out this form, but those who make income from profession or business. It can be overwhelming sometimes to remember which form to go with between ITR 1 and ITR 3; discuss it with an online tax consultant if needed to remove your doubts. Below are the criteria that an individual must fulfill for filing ITR 3 form:

1. If the taxpayer’s income source is either through a business or profession.
2. If, during the financial year, any unlisted equity shares were present as investments.
3. If the taxpayer is a partner for a firm
4. If the taxpayer is a company’s director
5. If the taxpayer’s income is generated through salary, pension, house property rent, or any other source of income.
6. If the taxpayer’s business turnover is more than Rs. 2 Crores.
7. If the taxpayer has rented income from more than one property.
8. If the taxpayer has also earned any crypto income, they may have reported it as business income.

Steps to Download the Forms

After carefully deciding which ITR form to use, the taxpayers must download the right form to fill out. Below are the required steps that you can follow and download the required form:

1. You will have to go to the official website of the income tax department.
2. Click on the forms/download option.
3. Now select the Income tax returns option from the drop-down.
4. Select the form that you need to download. The forms will be in PDF format with all the necessary instructions.

Final Thoughts

Income tax returns are a mandate for every individual, irrespective of whether they are salaried or not. The income tax (IT) department has different forms for different income and purposes, and a taxpayer should carefully choose the form before filing their ITRs. If they choose the wrong form, they may have to redo the entire process again.

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