ITR Filing FY2022-23 – How To File ITR For A Small Business

Being an entrepreneur is no easy feat. It takes a lot of effort to set up a business from the ground up, look after every aspect of it, and make difficult decisions about running it.

One of the most important aspects of starting and maintaining a legitimate business is filing your taxes. As an entrepreneur or small business owner, filing your ITR accurately and on time is crucial to ensure compliance with tax laws and avoid penalties.

In this blog, we will walk you through the step-by-step process of how to file ITR for your business, which form to choose, and key deadlines. Whether you are a sole proprietor/freelancer, or run a small company, understanding the ITR filing requirements will empower you to manage your taxes efficiently and focus on growing your business. Let’s start your journey to stress-free tax compliance!

What are Business Tax Returns?

Business tax returns are official documents filed with the tax authorities by businesses to report their financial information and calculate the amount of tax they owe to the government. These returns provide a comprehensive overview of the business’s income, expenses, deductions, and other financial transactions for a specific period, typically a fiscal year.

The content and format of business tax returns vary depending on the legal structure of the business. Sole proprietors, partnerships, limited liability partnerships (LLPs), and companies all have different forms and requirements for tax return filing.

Business tax returns play a crucial role in ensuring compliance with tax laws, determining tax liabilities, and facilitating the government’s assessment of the business’s financial health. Because of how complex tax laws can be, businesses often seek the assistance of tax professionals or accountants to navigate them and ensure proper compliance.

Why businesses need to file their tax returns:

Report Income and Financial Details:

Businesses need to report their total income earned from various sources, such as sales, services, interest, and other revenue streams. They also have to disclose expenses, deductions, and tax-saving investments to calculate their taxable income accurately.

Compliance and Penalties:

Timely and accurate filing of ITR is crucial to comply with business tax regulations. Failing to do so may result in penalties and legal consequences. Non-compliance can lead to penalties under Section 234F of the Income Tax Act, and the business may face other tax-related repercussions.

Carry Forward of Losses:

Filing ITR is also essential to carry forward any business losses. By filing ITR within the due date, businesses can carry forward losses to set them off against future profits, reducing their tax liability in subsequent years.

Audit Requirements:

In some cases, businesses need to get their accounts audited by a chartered accountant under the Income Tax Act. They submit audited financial statements along with the ITR to validate the accuracy of financial records.

Maintaining Transparency:

Filing business ITR helps maintain transparency and accountability in a business’s financial affairs. It demonstrates the business’s compliance with tax laws and builds trust with stakeholders, including investors, creditors, and customers.

It is also important to note that as per the Income Tax Act, all types of businesses, including sole proprietorships, partnership firms, limited liability partnerships (LLPs), and companies, are obligated to file their income tax returns. Filing ITR is essential to declare their total income, expenses, profits, losses, and other financial details to the Income Tax Department.

Choosing the right ITR form

Different types of forms are applicable for different kinds of taxpayers. The form applicable to individual taxpayers may not apply to businesses.

In India, businesses need to file their tax returns with the Income Tax Department. The type of business tax return a business needs to file depends on the legal structure of the business:

1. Sole Proprietorship: A sole proprietorship is taxed under the personal income tax regime. The business owner files their tax return using ITR-3 or ITR-4 form, depending on the income and nature of the business.
2. Partnership Firm: Partnership firms incur taxes as separate entities. They file their tax return using Form ITR-5.
3. Limited Liability Partnership (LLP): LLPs also file their tax return using Form ITR-5.
4. Private Limited Company or Public Limited Company: Companies incur taxes under the corporate tax regime. They file their tax return using Form ITR-6. However, ITR-6 applies to companies that do not qualify as small companies under the Companies Act, 2013.

Businesses must maintain proper accounting records, including profit and loss statements, balance sheets, and other financial documents, to accurately report their income and expenses in the tax return. The tax return filing deadline for businesses in India is usually July 31st of the assessment year, but authorities may extend it if required. Businesses need to comply with tax laws/ regulations and seek professional advice from chartered accountants or tax consultants to ensure accurate and timely filing of their business tax returns in India. The two ITR forms most used by businesses in India are ITR-3 and ITR-4.

Presumptive Taxation Scheme for small businesses

The presumptive taxation scheme is a simplified tax scheme introduced by the Income Tax Act to reduce the compliance burden for certain eligible taxpayers. Under this scheme, eligible taxpayers can calculate their taxable income based on a presumptive percentage of their total receipts, and they do not need to maintain detailed books of accounts. The scheme applies to certain businesses and professions with a turnover below a specified threshold.

Features of presumptive tax scheme:

• Presumptive income: Under the scheme, your income is presumed to be a certain percentage of your total turnover or gross receipts. For eligible businesses, the presumptive income is generally 8% of the total turnover, while for professionals, it is 50% of the total gross receipts.
• Tax payment: Taxpayers opting for the presumptive taxation scheme need to pay tax on the presumed income, and they do not need to maintain detailed books of accounts or get their accounts audited.
• Non-applicability: The scheme does not apply to companies, Limited Liability Partnerships (LLPs), and taxpayers who have opted for the regular tax regime. It is also not applicable to businesses involved in business activities other than those specified.
• Benefit of lower tax compliance: The scheme is beneficial for small businesses and professionals as it reduces the compliance burden, simplifies tax calculations, and makes tax filing easier.

Taxpayers eligible for the presumptive taxation scheme can choose to opt for this simplified tax regime to streamline their tax filing process and reduce the administrative burden associated with maintaining detailed books of accounts. However, it is crucial to assess whether the scheme is suitable for your specific business or professional activities before opting for it.

Eligibility for presumptive tax scheme:

The presumptive taxation scheme under Sections 44AD, 44ADA and 44AE of the Income Tax Act is available for certain eligible taxpayers engaged in specified businesses and professions. Here are the eligibility criteria for each category of taxpayers:

Eligibility for Section 44AD (for businesses):

• Individuals, HUFs, or partnership firms engaged in a business other than the business of plying, hiring, or leasing goods carriages.
• Total turnover or gross receipts from the business should not exceed ₹2 crores in the financial year.

Eligibility for Section 44ADA (for professionals):

• Individuals, HUFs or partnership firms engaged in specified professions, including legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, or other notified professions.
• Gross receipts from the profession should not exceed ₹50 lakhs in the financial year.

Eligibility for Section 44AE (for goods carriages):

• Individuals, HUFs or partnership firms engaged in the business of plying, hiring, or leasing goods carriages.
• You should not own more than 10 goods carriages during the financial year.

It is essential to carefully evaluate whether you meet the eligibility criteria for the presumptive taxation scheme before opting for it. Once you choose the presumptive taxation scheme for a particular financial year, you must continue under the scheme for the next five assessment years, unless you cease to be eligible or voluntarily opt out.

It’s also important to note that taxpayers opting for the presumptive taxation scheme are subject to a higher tax rate as prescribed under the respective sections. However, they do not need to maintain detailed books of accounts and undergo tax audits, which makes tax compliance more straightforward and less burdensome.

Based on the status of your business, you can decide whether you are eligible for the presumptive tax scheme. If you have applied for taxation under Sections 44AD, 44ADA, or 44AE, you must use the ITR 4 form for business tax filing.

ITR Form 4

ITR 4, also known as Sugam, is an income tax return form specifically designed for individuals and HUFs who have opted for the presumptive taxation scheme under Section 44AD, Section 44ADA, or Section 44AE of the Income Tax Act. It applies to taxpayers engaged in business or profession, excluding those with income from speculative business and capital gains.

Features of ITR 4 Form:

• Presumptive taxation: ITR 4 is meant for taxpayers with income calculated on a presumptive basis, where a predetermined percentage of gross receipts is considered taxable income.
• Multiple schedules: The form comprises various schedules to report details like business turnover, income from professions, salary income, house property income, and income from other sources.

It is essential for you to carefully fill out the ITR 4 form, ensuring accurate reporting of income and deductions to comply with tax regulations and avoid any penalties. Always seek professional advice if you have any doubts while filing your tax return.

Eligibility for ITR Form 4:

The ITR-4 form, also known as the Sugam form, is applicable for individuals, HUFs, and partnerships who have income from a presumptive business and/or profession. Here are the eligibility criteria for filing ITR-4:

Individuals:

a. Resident or non-resident individuals who are eligible to use the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE of the Income Tax Act, 1961.

b. Individuals with income from a business or profession and who have opted for the presumptive taxation scheme.

HUFs: HUFs who have income from a presumptive business and/or profession and have opted for the presumptive taxation scheme.

Partnerships: Partnerships engaged in a business or profession and who have opted for the presumptive taxation scheme. It is essential to correctly assess the income sources and eligibility criteria to determine if ITR-4 is the appropriate form for filing income tax returns. If your income falls under different categories or sources, you should use the relevant ITR form that corresponds to your specific income profile.

Documents required for filing ITR 4:

The documents necessary for filing the ITR-4 form can vary based on your unique financial circumstances and sources of income. Commonly required documents include:

• PAN card
• Aadhaar card
• Bank statements and passbook
• Form 16 (if employed)
• Business / professional income details
• Presumptive income computation details (if applicable)
• TDS certificates (if applicable)
• Details of investments and deductions (e.g., 80C, 80D, etc.)

Steps on how to file ITR as a small business:

1. Determine the applicable ITR form: You should first identify the appropriate ITR form based on your income sources and the type of business structure. For example, ITR 3 or ITR 4 is commonly used for small businesses.
2. Gather financial information: Collect all financial documents, including income statements, profit and loss statements, balance sheets, bank statements, and other relevant financial records.
3. Calculate income and tax liability: Calculate the total income earned during the financial year and the applicable tax liability based on the applicable tax rates.
4. Claim deductions: You can claim deductions on eligible expenses and investments, such as business expenses, depreciation, employee benefits, etc.
5. File ITR online: You can file your ITR online through the Income Tax Department’s e-filing portal. Create an account, select the relevant ITR form, and fill in the required details.
6. Verify and submit: Review all the information provided, and verify the ITR using Aadhaar OTP, EVC, or by sending a signed physical copy to the Centralised Processing Centre (CPC).
7. Pay taxes due: If any taxes are payable, make the payment online through the Income Tax Department’s website or through authorised banks.
8. Keep records: Maintain copies of all the documents and receipts related to ITR filing, as you may need them for future reference or tax assessments.
9. Seek professional help if needed: If you find the ITR filing process complex or need assistance in calculating taxes and deductions, consider consulting a tax professional or chartered accountant.

ITR filing deadlines 2023:

Before we look at the ITR filing deadlines for the year 2023, let’s quickly understand the difference between the Financial Year (FY) and Assessment Year (AY).

Financial year

The financial year is a period of twelve months that begins on April 1st and ends on March 31st of the following year. It is the period during which companies or individuals record all financial transactions, income, and expenses.

For example, the financial year 2022-2023 starts on April 1, 2022, and ends on March 31, 2023.

Assessment year

The assessment year follows the financial year and is the year in which income earned during the previous financial year is assessed for income tax purposes. It begins on April 1st and ends on March 31st of the subsequent year.

For example, the assessment year 2023-2024 assesses the income earned during the financial year 2022-2023.

In summary, the financial year is the period in which a taxpayer records financial transactions, and the assessment year is the year following it when the income earned during the financial year is assessed for tax purposes.

Deadlines 2023:

Here is a list of the due dates for filing ITR for FY2022-23.

Category of taxpayer	The due date for tax filing – FY2022-23 (unless extended)
Individual / HUF/ AOP/ BOI     (no audit requirement)	July 31st, 2023
Businesses (requiring audit)	October 31st, 2023
Businesses requiring transfer pricing reports   (in case of international / specified domestic transactions)	November 30th, 2023
Revised return	December 31st, 2023
Late/belated return	December 31st, 2023

Consequences of not filing ITR on time

1. Penalty: Late filing of ITR attracts a penalty under Section 234F of the Income Tax Act. The penalty amount varies based on the delay, and the longer the delay, the higher the penalty imposed.
2. Interest: In case of delayed tax payment, authorities levy interest on the outstanding tax amount under Section 234A.
3. Loss of Carry-Forward Benefits: Timely ITR filing is essential for businesses to carry forward losses and claim deductions in subsequent years. Delayed filing may result in the loss of these benefits.
4. Prosecution: In severe cases of non-compliance, the Income Tax Department may initiate prosecution proceedings against the defaulter, leading to legal consequences.
5. Disqualification from Certain Benefits: Late ITR filing may result in the disqualification of businesses from certain benefits or concessions offered by the government or regulatory authorities.
6. Impact on Credit Rating: Filing the ITR late can negatively impact the credit rating of the business, making it difficult to access loans or credit facilities in the future.
7. Increased Scrutiny: Businesses that file ITR late are more likely to face scrutiny from tax authorities, leading to potential audits and investigations.

To conclude:

Income tax filing is a crucial responsibility for small businesses, ensuring compliance with tax laws and maintaining financial transparency. By choosing the appropriate ITR form based on your eligibility, you can accurately report your business income and claim deductions to optimise your tax liability.

The process might seem daunting, but with careful record-keeping and the support of tax professionals or online resources, you can navigate the complexities of ITR filing efficiently. Embracing ITR filing as an integral part of your financial management will foster trust with the tax authorities and contribute to the growth and success of your business in the long run.

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FAQs

Q1. Do I have to file an ITR as a small business owner?

Ans: If you run a business as a proprietorship or partnership firm, you may need to file ITR 3 or ITR 4, depending on the nature and turnover of your business. ITR 3 is for individuals and HUFs with income from a business or profession, while ITR 4 is for taxpayers opting for the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE.

Q2. Which ITR forms can I use to file my business income?

Ans: You can choose between the ITR 3 and ITR 4 forms based on your eligibility and the annual turnover from your business.

Q3. What is a financial year in ITR?

Ans: The financial year is a 12-month period used by businesses and governments for accounting and financial reporting purposes. It typically runs from April 1st to March 31st of the year. During this period, businesses record their income, expenses, and financial transactions to prepare financial statements and reports. The financial year serves as a basis for calculating taxes, setting budgets, and evaluating the financial performance of an organisation.

Q4. What is an Assessment year in ITR?

Ans: The assessment year follows the financial year and is the period in which taxpayers’ income and financial transactions for the previous financial year are evaluated for tax purposes. It starts on April 1st and ends on March 31st of the subsequent year. During the assessment year, individuals and businesses file their income tax returns based on their earnings and deductions from the financial year. Tax authorities assess and determine the tax liability for the specific assessment year.

Q5. What is the due date for filing ITR 4 for FY2022-23?

Ans: For FY2022-23 (AY2023-24), the due date of filing ITR 4 is July 31st, 2023.