ITR-4 or ITR-3 If a Freelancer Sells Shares or Funds

You bill clients on 44ADA, and last year you also sold some shares or redeemed a mutual fund. Now you are staring at the filing page wondering which ITR form to pick, ITR-4 or ITR-3. Most freelancers guess ITR-4 because that is what they filed last time, and some only find out the form was wrong after the return is in.

The short answer for assessment year 2026-27 (financial year 2025-26): ITR-4 still works if your only gains are long-term gains on listed shares or equity mutual funds up to ₹1.25 lakh. Any short-term gain, or long-term gains above that limit, means ITR-3. This post walks through each trigger, what to check before you file, and why ITR-2 is never the answer for a freelancer with professional income.

ITR-4 works only if your gains are small, long-term and on listed equity

You can stay on ITR-4 if your total income is up to ₹50 lakh, your professional income is taxed under the presumptive scheme (44ADA), and your capital gains are long-term gains under section 112A of up to ₹1.25 lakh. Section 112A covers listed equity shares and equity-oriented mutual funds held for more than 12 months. The conditions come from the ITR-4 FAQ on the income tax portal, which lists who can use the form for AY 2026-27. Our guide to filing ITR-4 as a freelancer covers the rest of the form.

Gains up to ₹1.25 lakh in a year from these assets are exempt, and the part above it is taxed at 12.5 percent. So a small SIP redemption or a one-off sale of a few shares usually fits inside ITR-4 without trouble.

Any short-term gain moves you to ITR-3

If you sold listed shares or equity funds within 12 months of buying, that profit is a short-term capital gain, and ITR-4 does not allow any of it. Even a gain of ₹1 rules the form out. Short-term gains on listed equity and equity funds are taxed at 20 percent.

Illustration for AY 2026-27: you made a ₹40,000 profit selling shares after five months. The tax on that gain is ₹8,000 before cess, and the return has to go on ITR-3 even though your freelance income is otherwise simple. The ITR-3 versus ITR-4 comparison explains how the rest of your return changes when you move.

Gains above ₹1.25 lakh also move you to ITR-3

ITR-4 allows long-term gains under 112A only up to ₹1.25 lakh. Go above that figure and you need ITR-3, and the amount above ₹1.25 lakh is taxed at 12.5 percent.

Illustration for AY 2026-27: you sold equity fund units for a long-term gain of ₹1,80,000. The first ₹1,25,000 is exempt and the remaining ₹55,000 is taxed at 12.5 percent, which is ₹6,875 before cess. Because the gain is over ₹1.25 lakh, the return goes on ITR-3. Add up the gains from every sale in the year before you decide, not just the biggest one, because the limit applies to the total.

Other things that block ITR-4

Capital gains are not the only trigger. The portal FAQ also rules out ITR-4 if you were a company director, held unlisted equity shares at any time in the year, had agricultural income above ₹5,000, or are a not ordinarily resident or non-resident person. Any one of these is enough to move you to ITR-3.

Capital losses are the unclear case. The portal FAQ does not list carried-forward losses as a blocker, but other filing guides treat them as one. If you have capital losses from earlier years, file on ITR-3 or ask a CA first.

Exempt gains still get reported: check AIS and your broker statement first

A gain that falls inside the ₹1.25 lakh exemption is still income you have to report in the return. Your brokers and fund houses report your transactions to the tax department, so they show up in your Annual Information Statement (AIS) and Form 26AS. If the return does not match, you can get a mismatch notice.

Before filing, download your broker's capital gains statement and compare it with AIS. Check the dates, because a sale one day short of 12 months changes a long-term gain into a short-term one and the form with it. If your freelance receipts also look different between your records and 26AS, the guide to TDS missing from 26AS covers that side.

Why a freelancer picks ITR-3 and not ITR-2

ITR-2 is meant for people with capital gains, including short-term gains, large long-term gains or losses, but it cannot report business or professional income. As a freelancer you have professional income, so ITR-3 is the form when ITR-4 does not fit. ITR-3 is also the form when you report your freelance income on regular books with actual expenses instead of the presumptive scheme.

Scrip-wise details of your gains go in the capital gains schedule on ITR-3, so keep your broker statement handy. If you are not sure whether your work qualifies for 44ADA at all, read which freelance work is eligible for 44ADA before you decide on the form.

Due dates by form

For AY 2026-27, the due date for non-audit ITR-3 and ITR-4 returns is 31 August 2026. Audit cases have until 31 October 2026, and a belated return can be filed up to 31 December 2026. Check the date for your return on the income tax portal's due-dates page before you file.

If the 31 August date has already gone by for you, the post on what to do after missing the ITR deadline explains your options. Picking the right form still matters on a belated return.

Keep your freelance records ready for either form

Keep your professional receipts and, for ITR-3, your actual expenses in one place before you file, whichever form you pick. Rinto lets you mark invoices paid and always know who owes you what, and it keeps expenses with receipts, categories and monthly and yearly totals for tax time. Rinto does not file returns, give tax advice or work out your final tax. For a rough number, try the free freelance tax estimator. This post is general information, not tax advice.

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