If any individual has business income in India, it's important to understand the tax filing requirements in order to ensure compliance and avoid interest and penal consequences.
Income Tax Return (ITR) Form: You must file your income tax return using the ITR-3 or ITR-4 (Presumptive Taxation Scheme) form based on your type of business entity and turnover.
Maintenance Of Books Of Accounts: “Professionals (say for example – legal, medical, engineering, etc.) and businesses must maintain books of account for income assessment. Maintenance of books of account is mandatory if business income exceeds Rs 1.2 lakh or turnover exceeds Rs 10 lakh in any of the preceding three years. For individuals, these thresholds are increased to Rs 2.5 lakh and Rs 25 lakh, respectively,” says Poorva Prakash, Partner, Deloitte India.
Tax Audit Requirement: You are required to undergo a tax audit by a Chartered Accountant if your turnover from business exceeds Rs 1 crore and this limit increases to Rs 10 cr if cash receipts and payments are less than five per cent of respective transactions. For professionals, a tax audit would be required if the gross receipts exceed Rs 50 lakh.
Individuals Liable For Audit Can Verify ITR Using Electronic Verification Code (EVC): “Individuals liable for tax audit under section 44AB can now verify ITR using EVC. Earlier, they were required to verify ITR only through a digital signature,” says Rahul Singh, senior manager, Taxmann, tax and corporate advisor.
Presumptive Taxation: “Under the presumptive taxation regime, in case an individual qualifies as an eligible assessee in eligible businesses, their profit and gains from business and profession shall be deemed to be eight per cent of gross receipts/ turnover (six per cent in case of digital receipts),” adds Prakash.
The Income-tax Act allows small and medium enterprises to pay tax on a presumptive basis to reduce compliance burdens. Under section 44AD, resident individuals, Hindu Undivided Families (HUFs), and partnership firms excluding limited liability partnerships (LLPs) can use this scheme if their business turnover or gross receipts do not exceed Rs 2 crore or Rs 3 crore if cash receipts do not exceed five per cent of the total.
“Under this scheme, eight per cent of total turnover or gross receipts from business is deemed presumptive income. However, in respect of turnover or receipts, which is received by an account payee cheque or bank draft or use of an electronic clearing system through a bank account during the year, the presumptive income on that portion shall be six per cent,” adds Singh. Opting for the presumptive taxation scheme exempts you from maintaining books of account and conducting an audit under section 44AB.
Also read : Profession Tax: Check Exemptions, Deductions, And Refunds Explained
File Timely Returns: The due date for filing income tax returns for businesses subject to audit is October 31 of the year following the tax year. In the case of individuals who are not subject to tax audits, the due date for filing the tax return is July 31.
File ITR Within Due Date If You Have Losses: “It should be noted that the business losses incurred by an assessee can be carried forward for set-off against the income of subsequent years, only if the return of income is filed on or before the due date. In case, the assessee files the return belatedly, the losses of that year cannot be carried forward to subsequent years,” adds Singh.
File Form 10-IEA To Opt For Old Tax Regime: The new tax regime under section 115BAC is the default for all taxpayers. Therefore, an assessee with business income who wants to switch to the old tax regime must submit Form No. 10-IEA by the ITR due date. This option, once exercised, can only be withdrawn once in a subsequent year.
