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How can Small Businesses File Income Tax Return?

Last Update Date : September 10, 2018

income tax filing for small businesses

Every business whether small or big has to pay Income Tax and file Income Tax Return. Tax compliance for businesses is much more complicated than it is for individuals like salaried taxpayers and pensioners. Generally, large businesses easily have the resources required to manage their tax-related matters but small businesses neither have the resources nor time to deal properly with their taxes. Therefore, we have a Presumptive Income Scheme or Presumptive Taxation Scheme, a simpler taxation system which imposes a reduced compliance burden on the small business taxpayers. In this guide by H&R Block India, we will tell you how you can file your taxes as a small business entity.

Why should Small Business Owners File Income Tax Return?

Small business houses with a turnover up to Rs 2 crores can opt for the presumptive scheme and avail several benefits. However, to make use of any tax benefit, they need to pay their taxes and file their tax return timely and accurately.

  • Small businesses under the presumptive income scheme need to file a simplified return called ITR-4 (Sugam).
  • They also do not require to pay Advance Tax 4 times in a year, instead, they can pay the whole amount in one go by 31st March of the relevant financial year.
  • No books of account and P&L Statement are compulsorily required to be maintained for by the businesses for tax purposes under this scheme. Also, they are relieved from the requirement of getting the books audited.

Due Dates to File Income Tax Return

The due date to file return varies depending upon whether you have to undergo tax audit or not.

  1. Due date in non-audit cases: 31st July of the assessment year
  2. Due date in audit cases: 30th September of the assessment year

Income Tax Rates

Businesses in India are taxed as per the given slabs. The slab rates for all domestic companies are the same except for a partnership firm. The latest slabs are given below:

Tax Slab Rates for a Domestic Company for AY 2019-20

Tax Rate Surcharge Health and Education Cess
25% for turnover up to Rs 250 crore 7% for income between Rs 1 crore & Rs 10 crore 4% of income tax plus surcharge
29% for turnover exceeding Rs 250 crore 7% for income between Rs 1 crore & Rs 10 crore and 12% if income exceeds Rs 10 crore
Add: Surcharge – A surcharge @ 7% or 12% of tax is applicable if income exceeds Rs 1 crore or 10 crore as the case may be. However, surcharge is subject to marginal relief.

  • If income lies between Rs 1 crore & Rs 10 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.
  • If income exceeds Rs 10 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 10 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” of 3% will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Tax Slab Rates for a Domestic Company for AY 2018-19

Tax Rate Surcharge Education Cess Secondary & Higher
Education Cess
25% if turnover of FY 2015-16 is up to Rs 50 crore 7% for income between Rs 1 crore & Rs. 10 crore 2% of income tax plus surcharge 1% of income tax plus surcharge
30% if the turnover of FY 2015-16 exceeds Rs 50 crore 7% for income between Rs 1 crore & Rs 10 crore and 12% if income exceeds Rs 10 crore

Add: Surcharge – A surcharge @ 7% or 12% of tax is applicable if income exceeds Rs 1 crore or 10 crore as the case may be. However, surcharge is subject to marginal relief.

  • If income lies between Rs 1 crore & Rs 10 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.
  • If income exceeds Rs 10 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 10 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” shall be levied at the rate of 2% and 1% respectively, on the amount of tax computed, inclusive of surcharge.

Tax Slab for Partnership Firm for AY 2019-20

Tax Rate Surcharge Health and Education Cess
30% 12% 4%

Add: Surcharge – A surcharge @ 12% of tax is applicable if income exceeds Rs 1 crore. However, surcharge is subject to marginal relief.

  • If income exceeds Rs 1 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Tax Slab for Partnership Firm for AY 2018-19

Tax Rate Surcharge Education Cess Secondary & Higher
Education Cess
30% 12% 2% 1%

Add: Surcharge – A surcharge @ 12% of tax is applicable if income exceeds Rs 1 crore. However, surcharge is subject to marginal relief.

  • If income exceeds Rs 1 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” shall be levied at the rate of 2% and 1% respectively, on the amount of tax computed, inclusive of surcharge.

When do Businesses need to maintain the Books of Account

Businesses need to maintain the following books of account if they are not paying taxes under the presumptive scheme and they satisfy the following conditions:

  • If your business income exceeds Rs 1,20,000 or the total sales or turnover or gross receipts exceed Rs 10 lakhs in any of the three preceding previous years.
  • In case of a new business or profession, if the income is expected to exceed Rs 1,20,000 or the total sales / turnover / gross receipts are expected to exceed Rs 10 lakhs during such previous year.
  • If your business is covered under the presumptive scheme as per the provisions of section 44AD or section 44AE but you have claimed your income in the income tax return to be lower than the profits or gains deemed under section 44AD or section 44AE or respectively.

Books of Accounts to be maintained

As per Section 44AA and Rule 6F, the following books of accounts should be maintained:

  • A Cash Book: It is a book of accounts where day to day cash transactions, i.e. cash payments and receipts are recorded.
  • A ledger should also be maintained by the taxpayers. Copies of bills or receipts whether machine numbered or serially numbered, wherever such bills are issued by the person except in cases where it does not exceed Rs 25.
  • Original bills of expenses issued to the person. In case the bills and receipts are not issued and the expenditure incurred does not exceed Rs 50, the payment vouchers made and prepared and signed by the person must be kept.

Note: All the books mentioned above need to be maintained at the Head Office or each of the offices.

Income Tax Return Forms for Small Businesses

Form ITR-3

Form ITR3 is to be filed by a business which has not opted for the presumptive income scheme.

Form ITR-4 (Sugam)

Form ITR4-Sugam is to be filed by a business which has opted to pay income tax under the presumptive taxation scheme.

Filing Income Tax Return

The Income Tax Return of small businesses can be filed in the Form ITR-3 or ITR-4 either offline or online.

Physical or Offline Filing

Only a small number of taxpayers are allowed to file their Income Tax Return on paper. They are:

  • Individuals with income below Rs 5 lakhs with no refund
  • Super senior citizens

Online or e-Filing

There are three ways of e-filing Income Tax Return. They are:

  • Filing the return electronically under digital signature
  • Transmitting the data electronically and then e-verifying the return
  • Transmitting the data electronically and then submitting a physical copy of ITR-V to CPC Bengaluru.

Note: You must get your return verified within 120 days of e-filing your return.

Penalties for Non-compliance

  • Monetary penalty for those who fail to maintain the books of accounts is Rs 25,000.
  • Penalty for not getting books of accounts audited is 0.5% of the turnover or Rs 1,50,000 whichever is lower.
  • Interest payable for deferment in Advance Tax payment is 1% per month of the amount due u/s 234C.
  • Interest payable for default in the payment of Advance Tax is also 1% per month of the amount due u/s 234B.
  • Similarly, u/s 234A interest is payable if you fail to file the return on time and you have some tax due. Interest is charged @ 1% of the amount due.
  • If you fail to file the tax return by the due date of 31st July or 30th September you will have to pay a compulsory late filing fee of Rs 5,000.
  • Further, if you delay filing the return beyond 31st December of the assessment year, you will be liable to pay a late filing fee of Rs 10,000. But in the case of small taxpayers with the income up to Rs 5 lakh, maximum fees shall not exceed Rs 1,000.

How can H&R Block help you?

Saving taxes and filing income tax return accurately becomes very easy when you have professional help. This is where we come into the picture. We have a team of in-house tax experts who can file your tax return accurately while giving you maximum tax benefits.

Not sure how to file your Business Tax Return? Let H&R Block help you file your taxes.
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