The Income Tax Department's ITR-4 (Sugam) form offers significant tax planning opportunities for small business owners, freelancers, and consultants. According to the latest guidance, Section 123 provides up to ₹1.5 lakh deduction for eligible investments and payments including life insurance premiums, provident fund contributions, and housing loan principal repayments. Section 124 covers NPS contributions with additional deductions for both employer and individual contributions, while Section 126 addresses health insurance premiums and medical expenses. The framework also includes Section 127 for disability-related expenses (₹75,000 to ₹1.25 lakh) and Section 128 for specified medical treatments (₹40,000 to ₹1 lakh for senior citizens).
The most critical factor before claiming ITR-4 deductions is choosing the appropriate tax regime. As reported by the guidance, Section 123 deductions are only available under the old tax regime, making it essential to determine eligibility before collecting supporting documents. Under the new tax regime, most Chapter VIII deductions are not available, with notable exceptions including employer NPS contributions under Section 124 and certain specified medical treatments. The department emphasizes that taxpayers must first choose their regime, then identify available deductions, and only then collect supporting documentation for eligible claims.
The comprehensive deduction guide identifies specific documentation needs for each section. For Section 123 investments, taxpayers must maintain life insurance premium receipts, policy documents, PF contribution statements, and investment certificates. Section 124 NPS claims require PRAN ID, contribution statements, and transaction receipts, while health insurance deductions need premium receipts, policy details, and medical bills. Section 127 disability claims necessitate disability certificates, UDID details, and medical records, and Section 128 medical treatments require prescription details and hospital bills. The guidance emphasizes that Form 31 must be completed for rent deductions under Section 134, replacing the earlier Form 10BA.
According to the guidance, the most common mistake is claiming deductions under the wrong tax regime, particularly with Section 123 which is not available under the new regime. Taxpayers must avoid claiming the same payment twice across different sections and ensure proper eligibility verification before entering amounts in ITR-4. The department warns against using payment receipts without checking eligibility conditions and ignoring information requirements such as policy details for Section 123 claims. Form-specific compliance is crucial, as failing to complete prescribed forms like Form 31 can prevent legitimate claims from being processed.
