Filing business tax returns is essentially the process by which a business has to report its income and expenditure to the Income Tax department. All businesses that are operating in India, whether small or big have to file Income Tax returns every year. The tax return for companies is more complicated than individual taxpayers.
A business tax return is nothing but a statement of income earned and expenditure of the business. If the business posts some profits, tax needs to be paid on the profits. Apart from filing taxes, a business may also be required to file TDS or pay advance tax as the need be. Tax returns filed by a business also will have details on assets and liabilities a business has. In this article, we will take a look at how to file business income tax returns and also specifically at filing small business tax returns.
The requirement for Filing Business Tax Returns
Filing business tax returns will depend on the kind of business you are whether a proprietorship, partnership firm, limited liability partnership or a private limited company.
If you fulfil certain conditions, you have to maintain a book of accounts.
If as a business, you meet any of the following criteria, then maintaining the books of accounts is mandatory.
-Income is more the Rs. 1,20,000; or
-Total sales, turnover or gross receipts are more than Rs. 10,00,000,
In any of the three immediately preceding previous years.
As we will see, in case of certain businesses, you would also require an external tax audit. Plus you have to be aware of due dates of filing your returns.
Businesses need to use Sugam ITR-4 for Income Tax return if they have opted for the presumptive income scheme as per section 44AD and Section 44AE of the Income Tax Act. Any business that has a turnover of less than Rs 2 crore can opt to be taxed presumptively by the Income Tax Department. Such businesses must declare profits of 8 percent for non-digital transactions or 6 percent for digital transactions, whichever one applies to their case.
When adopting a presumptive taxation scheme businesses can declare income at a prescribed rate and, in turn, does not need to do the tedious job of maintaining accounts. However, only a resident partnership firm (not limited liability partnership firm) can adopt the presumptive taxation scheme.
Who has to file a business tax return?
Now we take a look at who has to file a business tax return.
If you are a sole proprietor, your business income and other personal income like income from house property and interest income has to be clubbed under the same return. If your total income before deductions is above the basic taxable limit of Rs 2.5 lakh, you have to mandatorily file ITR. All proprietors below the age of 60 years are required to file an income tax return if total income exceeds Rs. 2.5 lakh. In the case of proprietors over the age of 60 years but below 80 years, income tax filing is mandatory if total income exceeds Rs.3 lakh. Proprietors over the age of 80 years and above are required to file an income tax return if the total income exceeds Rs.5 lakh.
For companies, firms and Limited Liability Partnerships ( LLPs) business tax return needs to be filed irrespective of profit or loss. Even if such businesses have undertaken no operations, a return needs to be filed.
All partnership firms are required to file an income tax return each year, irrespective of income or loss. If there was no business activity, then a NIL income tax return must be filed before the due date for a partnership firm. Similarly, all LLPs are required to file an income tax return each year, irrespective of income or loss. If there was no business activity, then a NIL income tax return must be
filed before the due date. All companies registered in India are required to file income tax returns each year, irrespective of income, profit or loss. Hence, even dormant companies with no transactions are required to file an income tax return each year.
Income Tax Rate for Firms
When looking at how to file business tax returns, we need to take a look at income tax rates for firms. The applicable tax rate for partnership firms and limited liability partnerships is a flat rate of 30 percent. If income is more than Rs 1 crore then there is an additional surcharge of 12 percent. Health and education cess at the rate of 3 percent are charged on the amount of tax computed, including surcharge.
The tax rate applicable for any domestic company is flat 30 percent. However, if the gross receipt of the company does not cross Rs 250 crore in the previous year, the company has to pay taxes at a rate of 25 percent. A surcharge is also applicable based on certain conditions. In case income is between Rs 1 crore and Rs 10 crore, the surcharge is 7 percent of the income tax amount. However, if the amount exceeds Rs 10 crore, the surcharge is at a higher rate of 12 percent. The income tax department provides marginal relief to companies in special cases.
Income Tax Audit
The Income Tax Department has made provisions for tax audit under Section 44AB of the Income Tax Act 1961. The purpose of an income tax audit is that an individual or organisation’s taxes are examined by an external agency to check that all the information regarding income, expenditure and deduction has been filed correctly. Income Tax Audit has been made mandatory, and all taxpayers have to get the accounts of their business or organisation audited as per as the provisions of Section 44AB of the Income Tax Act.
An Income Tax audit has several objectives. It ensures that all businesses maintain a proper book of accounts and other expense and revenue records in a proper manner. A tax audit also ensures that the total income and claims for deduction are correctly entered when filing the returns. This brings down chances of fraud.
Income tax audit applies to certain classes of businesses. If a proprietor is running a business and sales turnover exceeds Rs 1 crore, a tax audit is mandatory. LLPs with an annual turnover of more than Rs 40 lakh or capital contribution of Rs 15 lakh needs to audit their accounts by a chartered accountant. All kinds of companies, whether it is a private limited company or one person company need to get tax audits done irrespective of annual turnover.
What are the due dates for filing of returns?
Now we will take a look at due dates for ITR filing for businesses.
For businesses requiring audits like LLP or partnership firm, the due date is 30th September after the end of the financial year or 30th September 2019. However, if an assessee is liable for transfer pricing audit, then the tax audit report has to be filed by 30th November of the relevant assessment year.
Any loss incurred during the year cannot be carried forward if the return is filed after the due date of filing income tax return.
We have seen how to file a business income tax return. We recommend that you consult a chartered accountant to help you file your business tax returns.