Pay Tax on 50% Income Only – ITR 4, High Tax Savings & Filing Guide

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by

Himanshu
in

Many small business owners, freelancers, and professionals want to reduce their taxable income legally. One of the easiest ways to do this is by filing ITR 4 under the presumptive taxation scheme, which allows you to pay tax on 50% of your income in certain cases, reducing your tax burden significantly.

This article explains how ITR 4 works, tax saving schemes you can use, and step-by-step filing guidance.

What is ITR 4?

FeatureDetails
Who can fileIndividuals, HUFs, and Firms (other than LLPs) with business or professional income under presumptive taxation.
Presumptive IncomeBusiness income is presumed at 50% of gross receipts for small businesses (turnover ≤ ₹2 crore).
Tax Filing SimplifiedLess documentation, no detailed profit & loss statement required.
Applicable SectionsSection 44AD (business) and Section 44ADA (professionals).

How ITR 4 Reduces Your Tax Liability

Under Section 44AD, eligible businesses are taxed on 50% of gross receipts instead of total income.

Example:

ParameterAmount (₹)
Annual Gross Receipts20,00,000
Presumptive Income (50%)10,00,000
Tax Payable (assuming 10%)1,00,000

Benefit: You save tax on the remaining 50% income, making it ideal for small businesses with moderate profits.

Tax Saving Schemes That Work With ITR 4

Even under presumptive taxation, you can reduce tax further using:

  1. Section 80C – Investments in PPF, ELSS, NSC, LIC premium (up to ₹1.5 lakh).
  2. Section 80D – Health insurance premium deduction.
  3. Section 80G – Donations to registered charities.
  4. Section 24(b) – Interest on home loan (if applicable).
  5. Other Sections – 80E (education loan interest), 80TTA/TTB (interest on savings).

Step-by-Step Guide to File ITR 4

  1. Collect Documents: PAN, Aadhaar, bank statements, receipts, TDS certificates.
  2. Login to Income Tax e-Filing Portal: www.incometax.gov.in
  3. Select ITR 4: Choose the correct financial year.
  4. Enter Presumptive Income: Enter 50% of gross receipts under business/professional income.
  5. Claim Deductions: Apply relevant sections like 80C, 80D, 80G.
  6. Verify Bank Details: Ensure correct bank account for refund.
  7. Submit & e-Verify: Submit online and complete e-verification via Aadhaar OTP or net banking.

FAQs

Q1: Who is eligible for ITR 4?
A1: Small business owners, freelancers, and professionals with turnover ≤ ₹2 crore can opt for presumptive taxation under ITR 4.

Q2: Can salaried income be combined with ITR 4?
A2: Yes. If you have both salary and business income, you can declare salary separately and business income under ITR 4.

Q3: Can deductions be claimed under ITR 4?
A3: Yes, sections like 80C, 80D, 80G are applicable even with presumptive taxation.

Q4: Is audit required for ITR 4?
A4: No audit is required if turnover is ≤ ₹2 crore and presumptive taxation rules are followed.

Q5: How much tax can I save?
A5: You effectively pay tax on 50% of your business income, plus additional savings via eligible deductions.

Q6: Can professionals file under ITR 4?
A6: Yes, professionals like doctors, lawyers, and consultants with income ≤ ₹50 lakh can file under Section 44ADA.

Conclusion

Filing ITR 4 under presumptive taxation allows small business owners and professionals to:

  • Pay tax on only 50% of business income
  • Avoid complex accounting and audits
  • Combine tax-saving schemes for additional deductions

This makes ITR 4 one of the most tax-efficient options for eligible taxpayers in 2025.