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Tax filing for businesses and professionals have different rules, due dates and forms. Read this guide to know more about business tax filing.

Tax Filing for Businesses and Professionals

Last Update Date : July 10, 2018

Business tax filing

As per the various tax laws, the laws for business tax filing differ, as well as professionals such as doctors, lawyers, freelancers etc. Let’s look at how tax return filing is done by professionals and businesses.

What is a Business Tax Return?

Just as salaried individuals have to file their annual tax return, so do those who are deriving their income from a business or profession. The business tax return, filed using ITR 3, which, contains statement of income, expenses, profits, assets, liabilities, loans etc.

Who Has to File?

A sole proprietor, income from his business or profession, in addition to interest income, house property rental, capital gain, etc. has to declare his/her income on the same ITR form, provided it is above the taxable limit of Rs 2.5 lakh per annum. Even in case where the income is below the limit or 2.5 lakh and you have some losses to be carried forward then also you should compulsorily file your return before the due date applicable. However, companies, firms and LLP’s have to file their business tax return irrespective of whether profits are made. The tax rate for companies, firms and LLP’s is 30%.

How to File Return for Professionals?

If you are a salaried employee and earning extra income as a freelancer or holding tuition classes for example, then you would be a professional and a business tax return must be filed, using ITR 3, provided your total combined income is above the threshold limit of Rs 2.5 lakh per annum. To calculate the amount of taxes owed from your income as a professional, you need to:

Calculate turnover

From your bank statement, cross check the money received and add any money received in cash. This total amount will be your annual turnover/gross receipts. Next, deduct your business expenses, such as travel/transportation charges, food or entertainment bills, salaries paid to employees, if any, etc. However, ensure the deductions are all legitimate business expenses that can be explained if audited by tax authorities.

Depreciation

The Income tax department allows individuals to claim depreciation on certain assets such as car, furniture, computer etc. which are used for business purpose, at rates set by the Income Tax Department. . However, these assets need to be in his/her name or in the name of the business.

Books of Accounts

For every business owner or professional, it is always advisable to maintain a clear book of accounts, showing all the sales, receipts, assets, liabilities, etc. for the year. Professionals are required to maintain a cash book or ledger of all bills, which may need to be furnished when called for by the ITD.

TDS

Once the above steps have been followed, it’s time to calculate the taxes that has already been deducted by his/her clients. To view the TDS deducted, a professional can log into the income tax portal and view his/her From 26AS. If the details cannot be found then he/she must approach the client and ask them to update their accounts and ask them for a Form 16A as well.

When to Deduct Taxes

If a professional has hired employees and has paid salary above the annual threshold of Rs 2.5 lakh, then he/she would need to deduct tax from the employee and deposit it with the government. Also, if freelancers are hired and if the gross receipts exceed Rs 25 lakh, then TDS needs to be made for payments of more than Rs. 30,000. An individual or H.U.F. carrying on a business/profession where accounts are required to be audited u/s 44AB, in the immediately preceding financial year shall comply with the TDS provisions.

Tax Audit

When gross receipts of professionals is more than Rs 50 lakh in a financial year, then he/she may be subject to a tax audit. The total tax liability for the year can be determined by deducting taxes paid (TDS), expenses and depreciation from the gross receipts. A professional whose profits and gains from are lower than 50% of his/her gross professional receipts and whose earnings exceeds Rs 2, 50,000 lakh or Rs 3,00,000 lakh or Rs 5,00,00 lakh as the case may be, will need to keep and maintain prescribed books of and get them audited under section 44AB.

Due Dates for Filing Returns

The due date for filing returns is July 31st of every financial year. But if the taxpayer has to get his accounts audited u/s 44AB then the due date will be 30th September of the relevant assessment year. For non-filing by the due date, the option to carry forward losses to preceding years is waived.

Income Tax Audit for Business

For professionals if the gross receipts of the profession exceeds Rs. 50 lakh and for businesses whose turnover is above Rs. 1 crore (2 crore in case of presumptive taxation u/s44AD), a tax audit is required, which, must be done by a practicing Chartered Accountant. Even if the business is in a loss for the year, a tax audit must be conducted, including when profits are less than specified limits under section 44ADA (50%) or 44AD (8%/6%).

What is Presumptive Taxation?

Presumptive Tax Scheme allows individuals/businesses to ease the tax burden on small taxpayers who are involved in the carrying out of any kind of business or certain specified professions, with the exception of those businesses mentioned under section 44AE as long as the turnover of the business or gross receipts of profession is less than the prescribed amount. The ITD allows taxpayers to pay tax on a certain percentage instead of the entire income liable to taxes. This scheme is available to individuals, HUF’s and partnership firms who are resident in India. For professionals the threshold is Rs 50 lakh and Rs 2 crore for businesses. If this scheme is opted, then it must be opted for the next five years, else it becomes unavailable to the taxpayer for the next five years. Moreover, advance tax is payable in full by 31st March, compared to the quarterly installments as it is usually payable for other taxpayers.

Section 44AD: Presumptive Taxation for Business

The scheme can be opted by businesses u/s 44AD, whose annual turnover is less than Rs 2 crore and by professionals not covered u/s 44ADA. The benefits of opting for this scheme are:

  • Taxed only on 8% of turnover
  • ITR 4 is used to file return, which is simple
  • If receipts are in digital form only, then net income is calculated at only 6%
  • No need to maintain book of accounts or have records audited

Section 44ADA: Presumptive Taxation for Professionals

Professionals such as doctors, lawyers, architects etc. including freelancers can avail of the presumptive taxation scheme u/s 44ADA. Availing of this scheme is advantageous as only 50%of their total professional earnings is considered as their taxable income and no further deduction for any other expense is allowable. However, the main advantage of opting for this scheme of taxation is that small professionals are relieved of the cumbersome process of maintaining regular book of accounts

How H&R Block Can Help You?

Free yourself of the burden of complying to income tax laws and rules by letting professionals take care of your income tax filing. Enlist the aid of the expert tax professionals at H&R Block India to ensure your business tax returns are filed accurately and in a timely manner, thereby, allowing you the freedom to pursue your dreams.

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