It goes without saying that businesses need to remain tax compliant. Therefore, a comprehensive understanding of Business Tax Returns and filing ITR is quintessential to any business owner.
We’re going to cover these topics in this blog:
- What does a business tax return mean?
- Who has to file Income tax returns
- Income tax rates and business tax rates
- Filing Income Tax Returns
What do Business Tax Returns mean?
When we say Business tax returns, we’re talking about a business’s income tax returns. It stands for a statement of the income and expenditure of the corporation declared to the Income Tax Department. As per Indian law, every company or firm operating in India has to file tax returns annually.
It also includes details of assets and liabilities of your business and details like fixed assets, loans, and other debtors and credits of the company.
If your firm is making a profit, you must declare the tax paid on that profit in your tax returns.
Who Has To File Business Tax Returns?
Different types of businesses have different requirements. Let’s look at each of them.
Sole Proprietors have to club together their personal income and business income while filing tax returns. Personal income includes salary, income from property, interest income, etc.
According to the World Bank, the percentage of firms with the legal status of Sole Proprietorship in India was reported at 62.5 % in 2014.
The requirement for Sole Proprietors for filing tax returns and the respective business tax rates are as follows:
- Your total income before the deductions is above the basic taxable limit. The basic taxable limit is 2.5 lakhs. So, if your total income is above 2.5 lakhs, you need to file tax returns.
- The slab rate is 2.5 lakhs for sole proprietors below 60 years. The tax rate starts at 5%.
- For sole proprietors above 60 years but below 80 years, the slab rate is 3 lakhs. The tax rate starts at 5%.
- For sole proprietors above 80 years, the slab rate is 5 lakhs. The tax rate starts at 20%.
- If there are losses, they will be allowed to be carried forward if the IT returns are filed before the due date.
The requirement for companies, firms, and Limited Liability Partnerships (LLPs).-These three types of businesses have to file Income Tax returns irrespective of profit or loss. All companies registered in India have to file tax returns annually. If there was no income or profit, it should be reflected in the statement. If there was no business activity, a NIL tax return should be filed before the due date.
The Intricacies of Filing Business Tax Returns
There are certain factors to consider while filing Business Tax Returns. These can be used to your advantage, but more importantly, you should be aware of them.
Book Of Accounts And Business Tax Audit
The Book of accounts is a document containing all the company’s transactions. “Books or books of account include ledgers, day-books, cash books, account books, and other books, whether kept in the written form or as print-outs of data stored in floppy, disc, tape, or any other form of electromagnetic data storage device.” – Finance Act, 2001.
Certain types of companies have to maintain a book of accounts. The conditions are, if in any of the three preceding years:
- The company had an income of more than Rs. 1.2 lakhs
- Total sales, turnover, or gross receipts are more than 10 lakhs.
Business Tax Audits are to be conducted by businesses if total sales, turnover, or gross receipt from the business during the previous year exceeds Rs. 1 crore. For professionals, a tax audit is mandatory if the gross receipts from the profession during the relevant last year exceeds Rs. 50 lakhs.
For LLPs, a tax audit is mandatory if the annual turnover is more than Rs 40 lakh or the capital contribution is Rs 15 lakh. The concerned taxpayers must appoint a chartered accountant to conduct the audit.
Presumptive Taxation Scheme for Business Tax Returns
Businesses can opt for the Presumptive Tax Scheme according to the Income Tax Act, Section 44AD, and Section 44AE. A presumptive taxation scheme was introduced to simplify tax filing for small business owners and professionals. That is guaranteed by exempting firms, individuals, and Hindu Undivided Families (HUFs) from keeping books of accounts if they are under a prescribed limit of income. Besides, their income will be calculated on a presumptive basis, and they have to pay taxes according to that. Understanding this Scheme is important for Startups, Small businesses, and professionals.
Requirements For Presumptive Taxation
Any business with a turnover or gross receipts of not more than 2 crores in the given financial year can opt for the Presumptive Taxation Scheme. For any individual or partnerships (other than LLPs) engaging in professions, such as architecture, legal, accounting, and so on, the turnover limit is 50 lakhs.
The income for a business on a presumptive basis is calculated at the rate of 8% of total turnover or gross receipts for the year. This is for non-digital transactions. For turnover or receipts of digital transactions, the rate is at 6%. If a professional is opting for the Presumptive Taxation Scheme, their income will be calculated at the rate of 50% of the total gross receipts of the profession.
Income Tax Rates For Domestic Companies
We looked at the requirements for filing tax returns and tax rates for Sole proprietors, professionals, and small enterprises. Now, let’s look at the Income-tax rates for companies.
For domestic companies with income up to 1 crore is 30%. There is an additional surcharge of 7% for companies with revenue between 1 to 10 crores and 12% for companies above 10 crores.
For partnership firms and Limited Liability Partnerships, the tax rate is a flat 30% for income, not more than 1 crore. There is an additional 12% surcharge if the income is above 1 crore.
Due Dates For Filing Business Tax Returns
Before proceeding with filing income tax returns, let’s take a look at the due dates for it.
For the Financial year 2021-22, the due dates for each type of business are as follows:
- Individuals, HUFs, small businesses, professionals: 31st July 2022
- Firm or LLPs: 31st October 2022
- All companies: 31st October 2022
There is a penalty of up to Rs. 5,000 for not filing income tax returns before the due date. Also, if any losses are incurred in the business, they will not be carried forward if the income tax return is not filed on time.
Filing Income Tax Returns
According to the eligibility criteria, you can file your returns either through offline or online modes.
The income tax return can be filed through the offline mode in these cases:
- Individuals who are 80 years of age or above
- If the income is not above 5 lakhs
- Individuals who don’t want to claim an ITR refund.
Download the relevant Income Tax Returns form, and fill in all the necessary details. Then, convert the document to XML format and upload the file to the IT portal. Also, follow the required verification procedure while uploading the file.
Filing income tax returns through online mode:
Now, the Income Tax Department has an e-filing portal for filing income tax returns.
First, calculate your income tax liability according to the Income Tax laws.
- Go on to the e-filing portal of the income tax department at the e-Filing Homepage, Income Tax Department, Government of India.
- Register if you are a new user or log in.
- Find the appropriate ITR form.
- Furnish the necessary details and verify the returns.
You can find the detailed procedure for filing ITR online here.
Hence To Conclude
These are the essential things you need to know about Business tax returns and filing Income tax returns. It is a process that requires expertise and a careful accounting of your business assets and liabilities. Seeking the help of Chartered Accountants will make this process easy and accurate, especially if you’re new to the field or you’re having trouble with filing.
In any way, make sure that you furnish the correct details when filing Income Tax Returns and do it on time, according to the Income Tax Act, 1961.
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