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Filing an Income Tax Return (ITR) is a legal and civic duty under the Income Tax Act, 1961. The specific form, ITR-3, is necessary for individuals and Hindu Undivided Families (HUFs) who earn income from a business or a profession.

The fundamental necessity for filing ITR-3 arises from the complex nature of a business or professional income, which requires detailed reporting of financial statements, expenses, and asset ownership.

 

Who is Eligible to File ITR-3 ?

ITR-3 is a comprehensive return form that must be used by an Individual or a Hindu Undivided Family (HUF) if their total income includes income under the head "Profits or Gains of Business or Profession" and they are not eligible for the simplified presumptive taxation scheme (ITR-4).

This typically includes:

• Proprietary Business Owners: Individuals running a business in their own name (sole proprietorships).

• Professionals/Freelancers: Self-employed individuals like Doctors, Lawyers, Consultants, Architects, etc., who do not opt for the presumptive taxation scheme.

• Partners in a Firm: An individual who is a partner in a partnership firm and receives salary, bonus, commission, or interest from that firm.

• Individuals with Complex Income Sources:

  • Those who are a Director in a company.

  • Those who have held Unlisted Equity Shares at any time during the financial year.

  • Those who have income from Futures & Options (F&O), Intraday Trading, or Speculative Business (which is treated as business income).

  • Individuals with income from Capital Gains along with business/profession income.

  • Individuals with assets (including financial interest in any entity) located outside India, or signing authority in any account located outside India.

Note: If you are eligible for the simplified ITR-4 (Presumptive Taxation Scheme, typically with turnover/receipts up to a certain limit), you generally do not file ITR-3. ITR-3 is for those who maintain and report full books of accounts.

 

The Structure of ITR-3 Form

The ITR-3 form is extensive to capture the detailed financial position of a business/profession. It is generally divided into several parts and schedules:

 

1. Part A: General Information and Financial Statements

This section captures fundamental and financial data:

• Part A-GEN: Basic personal details (PAN, Aadhaar, address) and filing status.

• Part A-BS (Balance Sheet): Detailed statement of Assets (e.g., Fixed Assets, Investments, Current Assets) and Liabilities/Funds (e.g., Proprietor's Funds, Secured/Unsecured Loans, Current Liabilities) of the business as of March 31st.

• Part A-P&L (Profit & Loss Account): Comprehensive reporting of the business's or profession's revenue, cost of goods sold, administrative and other expenses to arrive at the net profit.

• Part A-OI (Other Information): Required disclosures regarding certain allowances/disallowances under the Income Tax Act.

• Part A-QD (Quantitative Details): Required for manufacturing and trading concerns, detailing opening stock, purchases, sales, and closing stock of principal items. (Often not applicable if not liable for Tax Audit).

 

2. Income Computation Schedules (Capturing All 5 Heads of Income)

ITR-3 is unique because it includes all possible heads of income:

• Schedule S: Computation of Income from Salary.

• Schedule HP: Computation of Income from House Property (from one or multiple properties).

• Schedule BP: Computation of Profits and Gains from Business or Profession. This is the core schedule, which takes the net profit from Part A-P&L and makes adjustments (additions and deductions) as per Income Tax laws.

• Schedule CG: Computation of Income from Capital Gains (Short-Term, Long-Term from sale of assets like shares, property, etc.).

• Schedule OS: Computation of Income from Other Sources (e.g., Interest, Dividends, Lottery Winnings).

 

3. Other Key Schedules

• Schedule DPM/DOA/DEP: Details and summary of Depreciation on Plant & Machinery and other assets.

• Schedule CYLA/BFLA/CFL: Statement for Set-off of Current Year Losses, Set-off of Brought Forward Losses, and Statement of Losses to be Carried Forward.

• Schedule VIA: Statement of Deductions under Chapter VI-A (e.g., Section 80C, 80D, 80G).

• Schedule AL: Statement of Assets and Liabilities if your total income exceeds a specified limit (currently $50$ Lakhs or $1$ Crore depending on the Assessment Year).

• Schedule FSI & FA: Reporting of Foreign Source Income and Foreign Assets.

 

4. Part B: Total Income and Tax Computation

• Part B-TI: Computation of Total Income after aggregating all heads of income and claiming Chapter VI-A deductions.

• Part B-TTI: Computation of Tax Liability on the total income, considering tax paid (Advance Tax, TDS, TCS), and determining the final tax payable or refund due.

 

Step-by-Step ITR-3 Filing Process

The process is mandatory to be filed electronically through the Income Tax e-filing portal:

1. Preparation and Document Gathering: Collect all necessary documents, including:

   • PAN and Aadhaar.

   • Bank Statements and details of business/professional income and expenditure.

   • Complete Profit & Loss Account and Balance Sheet for the financial year.

   • Form 26AS/Annual Information Statement (AIS) for TDS/TCS details.

   • Proof for all deductions (e.g., 80C, 80D).

   • Details of all other income (Salary, Rent, Capital Gains).

2. Login to the e-Filing Portal: Log in using your user ID (PAN) and password on the official Income Tax e-filing website.

3. Select ITR Form: Select ITR-3 and the relevant Assessment Year.

4. Fill in Details: Carefully fill in the various sections and schedules, starting with Personal Information and moving through the complex schedules like Part A-BS, Part A-P&L, Schedule BP, and all other applicable income and deduction schedules.

5. Validate and Compute: The portal auto-calculates the Total Income and Tax Liability. You must cross-check and Validate the data to ensure accuracy and resolve any errors flagged by the system.

6. Tax Payment (if applicable): If there is a tax liability remaining (after adjusting TDS and Advance Tax), you must pay it using a challan (Challan 280) before final submission.

7. Submission: Submit the ITR-3 form electronically.

8. Verification (e-Verify): This is the mandatory final step. You can verify your return in one of the following ways:

   • Aadhaar OTP: (Most common and easiest).

   • Electronic Verification Code (EVC) through Net Banking or Bank ATM.

   • Digital Signature Certificate (DSC): Mandatory if your accounts are subject to a Tax Audit under Section 44AB.

   • Sending a physically signed ITR-V (Acknowledgement Form) to the Centralised Processing Centre (CPC), Bengaluru, by ordinary or speed post (though less common now).