Business Tax Return

A business tax return functions as an income tax return, providing a comprehensive statement of the business’s income and expenses. It includes declarations of any taxes owed on the profits generated by the business. Moreover, the return outlines the assets and liabilities held by the business, encompassing items such as fixed assets, debtors, creditors, loans received, and loans disbursed.

Who is required to submit a business tax return?

The timing of filing a return primarily depends on the nature of the business structure. Here is how it works:

• If you operate as a sole proprietor, you are required to declare both your business income and other personal earnings, such as salary, income from property, and interest income, on the same tax return.
• Regardless of whether your business is profitable or not, if your total income before deductions surpasses the basic taxable threshold, which stands at Rs. 2.5 lakh, you must file your income tax return.
• For entities like companies, firms, and Limited Liability Partnerships (LLPs), it is mandatory to file a business tax return, irrespective of the business’s profitability. Even if there were no business activities during the period, a tax return still needs to be submitted.
• Companies, firms, and LLPs are subject to a flat tax rate of 30%.

Income Tax Return Filing

Both Indian citizens as well as companies are mandated to file income tax returns if their Gross Total Income (GTI) surpasses Rs. 3 lakhs; amounts below this threshold are exempt. The Income Tax Return (ITR) for business income must be submitted annually within the specified deadline. Various forms are provided for filing income tax returns, tailored to different criteria applicable to various groups of individuals and businesses. It’s crucial to determine the appropriate form and submit it to the Income Tax Department of India for processing.

Submitting ITR for business income presents several benefits, some of which are highlighted below:

• Refund Claims: Precise and punctual submission of tax filings can potentially result in refunds, enhancing cash flow within the business.
• Loss Carry-forward: Deficits incurred in one fiscal year can be carried over and offset against future earnings, reducing tax obligations.
• Loan Approval: Maintaining accurate and current income tax returns can serve as proof of financial stability, bolstering the likelihood of securing loans or credit from financial institutions.
• Transaction Validation: Filed tax returns offer concrete evidence of the business’s financial transactions and operations, valuable for legal or contractual purposes.
• Legal Compliance: Filing tax returns ensures adherence to tax laws, mitigating the risk of penalties or legal entanglements.
• Transparency: Clear financial records via tax returns can bolster the business’s integrity, fostering confidence among clients, partners, and stakeholders.
• Audit Readiness: Submitted returns lay the groundwork for precise financial statements, preparing the business for potential tax audits.
• Business Expansion: Accurate financial reporting through tax filings aids in informed decision-making, facilitating growth and expansion initiatives.
• Notice Avoidance: Timely and accurate filings diminish the chances of receiving notices or inquiries from tax authorities.
• Tax Benefit Utilization: On-time return submissions enable businesses to leverage various tax benefits and deductions legitimately, optimizing their tax responsibilities.

Who needs to submit a Business Income Tax Return?

Submitting a business income tax return is compulsory for all eligible businesses operating under Indian tax laws. The requirement to file a business tax return depends on the structure of the business, including:

• Sole Proprietorship
• Partnership Firm
• Limited Liability Partnership (LLP)
• Companies – One Person Company, or Private Limited Company

Income Tax Audit

Every taxpayer with a turnover exceeding Rs. 1 Crore for businesses or Rs. 50 Lakh for professionals is obligated to undergo a tax audit. This entails engaging a Chartered Accountant to scrutinize their financial records.

Moreover, a tax audit becomes essential if your business has incurred a loss and you aim to carry forward that loss for future assessment. Additionally, if the profits declared by your business are below 8% (6% for digital transactions) of the turnover for businesses or 50% of receipts for professionals, a tax audit is still required.

Presumptive Taxation

Individuals, firms, and HUFs engaged in business activities or rendering services have the option to declare their income based on presumptive taxation. This scheme is applicable for businesses with a turnover of up to Rs. 2 Crore and for professionals with a turnover of up to Rs. 50 Lakh.

Under this scheme, businesses are required to declare a minimum of 8% of their turnover as income on a presumptive basis. Similarly, professionals must declare 50% of their professional receipts as income on their tax return.

What are the deadlines for filing returns?

For individuals exempt from tax audits, the deadline for filing their returns is the 31st of August following the end of the financial year. However, they can submit a belated return until the 31st of March, albeit with a penalty. On the other hand, individuals subject to tax audits, as well as entities like companies, LLPs, or partnership firms, must file their returns by the 30th of September after the financial year ends. For the fiscal year 2017-18, this deadline was extended from September 30, 2018, to October 31, 2018.

Failure to file returns carries penalties. If the return is submitted after the due date, any losses incurred during the year cannot be carried forward for assessment. Additionally, under Section 271F, an assessee may face a fine of Rs. 5000.