If you are self-employed and are planning to file return of income, you should learn the income-tax provisions which will help you to file the return for Assessment Year 2018-19.
Every entrepreneur, India has ever produced, was once self-employed. The best thing about being self-employed is that you work with passion and are never worried about giving any explanation to anyone. This attitude needs a little re-thinking as the Income-Tax Department can legally ask you to give details of your income.
A self-employed person can be a trader, freelancer, doctor, lawyer, Chartered Accountant, website developer, artist, music composer, cab drivers, so on and so forth. A taxpayer is deemed to be self-employed if he doesn’t carry on his business or profession in any legal form of entity, i.e., Company, Partnership firm, LLP, etc. If you are self-employed, you should understand the basics of income tax so that you continue working for your goals without tax defaults as it can be very punitive.
Deadline for filing of income-tax return (ITR) is around the corner. It is advisable to file your return in time and not to wait for the last date. If you miss the deadline, it would become a costly affair. Late filing fee up to Rs 10,000 shall be levied on late-filers and they also lose the right to carry forward the losses of the current year.
Self-employed persons can file returns in Form ITR 3 or ITR 4. Form ITR 4 can be used by a taxpayer opting for presumptive taxation scheme. If return is to be filed in Form ITR 3, the filing process would be more tedious and complex. To prepare the income-tax return, one has to download the Java or Excel utility from e-filing portal https://incometaxindiaefiling.gov.in. After preparation of return, the utility shall generate an XML file which is to be uploaded on e-filing portal.
If you are self-employed and are planning to file return of income, you should learn the following important income-tax provisions which will help you to file the return for Assessment Year 2018-19.
1. Books of Account
Income earned by a self-employed person is taxable under the head ‘Profits and Gains of any Business or Profession’. To compute income under this head, the Income-Tax Act allows two options to a self-employed person — first option is to calculate the taxable income on presumptive basis without claiming deduction for any expense. Second option is to compute the real profit after claiming the expenses. If the second option is opted for, the taxpayer shall be required to maintain proper books of account and get them audited if gross turnover exceeds Rs 1 crore. The books of account shall be maintained in a format along with underlying evidences which would enable the Tax Officer to compute the taxable income.
2. Presumptive Taxation Scheme
As small and medium enterprises lack access to tax professionals, the Income-Tax Act allows them to opt for presumptive taxation scheme, wherein income is computed on presumptive basis and taxpayer is exempted from maintaining regular books of account. For a resident taxpayer, the Income-Tax Act has introduced three presumptive tax schemes. Income computed under these schemes shall be chargeable to tax as per the applicable tax rates.
A taxpayer engaged in a business (not profession) can opt for Section 44AD presumptive scheme, provided turnover from the business doesn’t exceed Rs 2 crore. Under this scheme, the income is presumed to be at 8% of gross turnover. If business receipts are in digital mode (cheque, bank transfer, credit cards, etc.) then income is presumed to be at 6% of such digital receipts.
For professionals, presumptive taxation scheme is available under section 44ADA, provided the gross receipts from the profession do not exceed Rs 50 lakh. In this case, the presumptive income shall be 50% of gross professional receipts. Doctors, lawyers, architects, engineers, or similar professionals can opt for this scheme.
The last presumptive taxation scheme under Section 44AE is for the transporters, engaged in the business of plying, hiring or leasing out of such goods carriages, who don’t own more than ten goods carriages at any time during the previous year.
3. Continue with Presumptive Taxation Scheme
If a taxpayer wishes to opt for presumptive taxation scheme under Section 44AD, then he can’t reverse his choice during the next 5 years. If he does so, he will be excluded from re-opting for the scheme during the next 5 years. Further, during these 5 years, he will also be liable to get his books of account audited if his total income exceeds the maximum amount which isn’t chargeable to tax.
4. Audit of books of account
An individual taxpayer, who isn’t entitled to opt for presumptive taxation scheme, shall get his accounts audited, if turnover from business exceeds Rs 1 crore during the Financial Year. For professionals, it shall be mandatory if gross professional receipts exceed Rs 50 lakh. When a taxpayer opts for presumptive taxation scheme during a financial year but he doesn’t opt for it for the next 5 years, he shall be required to get the accounts audited if income from business or profession exceeds the maximum exemption limit.
5. Applicable ITR Form
A taxpayer maintaining regular books of account is required to file
return in ITR-3 Form. Direct e-Filing facility isn’t available in case of ITR-3 and Excel /Java utility has to be used to prepare the return. When a taxpayer opts for presumptive taxation scheme, the return shall be filed in ITR-4. It can be done either through online facility at e-filing portal or through Excel/Java Utility.
6. Payment of Advance Tax
A taxpayer is required to pay advance tax if his estimated income tax liability during the year is Rs 10,000 or more. Advance tax is to be paid in 4 instalments: 15% of total estimated tax by June 15, 45% of estimated tax by September 15, 75% of estimated tax by December 15 and 100% of estimated tax by March 15 of the financial year. In case of any deficiency in payment of advance tax, in aggregate or in any instalment, he shall be liable to pay interest under section 234B and 234C.
However, if presumptive taxation scheme has been opted for, then the whole estimated tax liability has to be paid on or before March 15 of the financial year without any condition of payment of tax throughout the year in instalments.
7. Digital Signature mandatory in case of audit of Books of Account
After filing of the income tax return, it has to be verified by the authorized person, which is generally the taxpayer himself. Verification of income tax return can be done through Digital Signature Certificate (DSC), Aadhaar Based OTP or Net banking facility. Verification of return through DSC is mandatory if books of account are audited under income tax and taxpayer cannot choose EVC or any other mode for verifying ITR. Options shall be available to verify the return through DSC or through EVC if taxpayer opts for presumptive taxation scheme or when books of account aren’t audited.
(By Naveen Wadhwa, DGM, Taxmann.com; with inputs from Rahul Singh, Assistant Manager, Taxmann.com)