Understanding ITR-1 (Sahaj) vs ITR-4 (Sugam)

When you file your income tax return in India, you must choose the right ITR form. Two common forms for small taxpayers are ITR-1 (Sahaj) and ITR-4 (Sugam). At first glance they look similar, but there are key differences in who can use them, what income they cover, and how business income is handled. We’ll break down the latest rules so you can pick the correct form.

Who can use ITR-1 (Sahaj) vs ITR-4 (Sugam)

• ITR-1 (Sahaj) is for resident individuals (not HUFs or companies) with a simple income. You can use ITR-1 if your total income does not exceed ₹50 lakh and it comes only from:
  
  - Salary or pension
  
  - One house property (no carried-forward loss)
  
  - Other sources like interest or family pension (no lottery or racehorse income)
  
  - Agricultural income up to ₹5,000

You cannot use ITR-1 if you are a non-resident (or not ordinarily resident), if you own more than one house, or if you earn business/professional income, capital gains, or foreign income. Also, if you are a company director, hold unlisted shares, or have any overseas asset, ITR-1 is not allowed. 

• ITR-4 (Sugam) is more flexible. It’s meant for resident individuals, Hindu Undivided Families (HUFs), and firms (other than LLPs) who have business or professional income under presumptive taxation. For the Assessment Year (AY) 2025-26, ITR-4 can be filed by a Resident Individual, Hindu Undivided Family (HUF), or a Firm (other than LLP) provided they meet certain conditions. These conditions include having an income not exceeding ₹50 lakh during the financial year. The income must be from Business and Profession, which is computed on a presumptive basis under sections 44AD, 44ADA, or 44AE. Additionally, individuals with long-term capital gains under section 112A that do not exceed ₹1.25 lakh, and income from Salary/Pension, one House Property, and Agricultural Income (up to ₹5000) are eligible. Income from other sources such as interest from Savings Accounts, deposits (Bank/Post Office/Cooperative Society), Income Tax Refund, Family Pension, interest on enhanced compensation, or any other interest income (e.g., from unsecured loans) can also be included.

However, there are several conditions that make an individual, HUF, or Firm ineligible to file ITR-4 for AY 2025-26. Those who are a Resident but Not Ordinarily Resident (RNOR) or a Non-Resident Indian are excluded. Similarly, individuals whose total income exceeds ₹50 lakh, or those with short-term capital gains, or long-term capital gains under section 112A exceeding ₹1.25 lakh, are not eligible. In addition, individuals with agricultural income exceeding ₹5,000, or those who are directors in a company, cannot file ITR-4. Income from more than one House Property, winnings from lottery, or activities involving owning and maintaining race horses also disqualify individuals. Those with income taxable under special rates under sections 115BBDA or 115BBE, those who have held unlisted equity shares during the previous year, or those with deferred income tax on ESOP from an eligible start-up are ineligible. Any individual who does not meet the prescribed eligibility conditions for ITR-4 also cannot file this form.

In short, ITR-1 is for “only salary/pension + simple income”, while ITR-4 is for small business owners or freelancers who opt for presumptive tax. A salaried person with no other sources will usually file ITR-1, whereas a small shop owner or a freelancer can use ITR-4 if they meet the conditions. Both forms have the same ₹50 lakh income ceiling.

Income Sources and Limits

Here’s a quick comparison of allowed incomes in each form:

• Salary/Pension: Allowed in both ITR-1 and ITR-4. If you have a salary or pension, you can use either form as long as other conditions are met.
• Business/Professional income: Not allowed in ITR-1 at all. In ITR-4 it’s allowed only on a presumptive basis. This means you declare a fixed percentage of turnover as income (see below). If you choose normal accounting instead of presumptive, you must use ITR-3, not ITR-4.
• House property: One self-occupied or let-out house is allowed in both forms. Losses from house property cannot be carried forward in either ITR-1 or ITR-4.
• Other sources: Interest, dividends, family pension etc. are allowed in both forms. (Income from lottery, betting or racehorses is not allowed in either form.)
• Agricultural income: Up to ₹5,000 per year is allowed in both ITR-1 and ITR-4. If your agriculture income is higher, you must file ITR-2 or ITR-3.
• Capital gains: As a new update for AY 2025-26, long-term capital gains (LTCG) on listed equity shares or equity funds up to ₹1.25 lakh can be included in both ITR-1 and ITR-4. This relaxation means if your only capital gain is small (≤₹1.25L), you can still use these simpler forms. However, short-term capital gains or larger LTCGs are not allowed in these forms.
• Total income limit: Both ITR-1 and ITR-4 cap your income at ₹50 lakh. If you cross that limit, you cannot use Sahaj or Sugam – you must choose ITR-2 or ITR-3 depending on your income sources.

Presumptive Taxation in ITR-4

A standout feature of ITR-4 is presumptive taxation. This is a simplified tax scheme for small businesses and professionals:

• Business (Section 44AD): If you run a business (proprietorship or eligible partnership) with turnover up to ₹2 crore (₹3 crore if 95% sales are digital), you can declare a fixed percentage of your turnover as income (8% of turnover normally, 6% if digital-only sales). No detailed books or audit needed. If your turnover exceeds ₹2 crore, you cannot use presumptive scheme or ITR-4; you must switch to ITR-3 with audited accounts.
• Professionals (Section 44ADA): If you’re a professional (doctor, engineer, lawyer, architect, etc.) with gross receipts up to ₹50 lakh, you can declare 50% of receipts as income. You don’t have to maintain full books of accounts or get an audit. This lets freelancers and consultants report a flat 50% income under ITR-4.
• Transporters (Section 44AE): A special rule for transporters owning up to 10 goods vehicles; income is computed on a per-vehicle rate.

If you opt for presumptive taxation, you must use ITR-4. Conversely, if you decide not to use presumptive scheme (or you don’t meet its conditions), you cannot file ITR-4 and need to use ITR-3. For example, a freelancer earning ₹40 lakh who chooses presumptive (44ADA) can file ITR-4. But if their receipts are ₹60 lakh, or they want to show actual profits and expenses instead of 50%, they must file ITR-3.

Choosing between Sahaj and Sugam

• If your only income is salary (or pension) plus interest/dividends and one property, and it’s all below ₹50 lakh, ITR-1 (Sahaj) is your simplest choice. It’s a one-page form meant for just salary/interest/pension and a bit of house property income.
• If you have any business or professional income and choose presumptive tax, then ITR-4 (Sugam) is right for you. This includes freelancers or small shop owners who meet the presumptive criteria incometax.gov.intaxbuddy.com.
• If your situation is more complex (capital gains, multiple assets, high turnover, foreign income, etc.), you’ll need ITR-2 or ITR-3 instead – even if part of your income looks simple. Using the wrong form can lead to your return being invalid.