It’s that time of the year when individual taxpayers are rushing to file their annual income-tax return (ITR). Filing of ITR requires a lot of documentation and preparation and thus limited time is left in hand, specifically for those individuals who earn income from business or profession. But to their relief, the process is much simpler for the small businessmen and professionals who opt for presumptive taxation scheme.
Let us understand who can claim the beneficial provisions of presumptive taxation and what are the compliances for those who don’t wish to be taxed under presumptive scheme.
When to file Sugam?
Identifying the different categories of taxpayers and their sources of income, Central Board of Direct Taxes (CBDT) has notified seven types of ITR forms for each class of taxpayer. Of these, ITR 4, commonly known as ‘Sugam’ has to be filed by individuals, Hindu Undivided Families (HUFs) or firms who have opted to pay tax under the Presumptive Taxation Scheme.
In addition to presumptive business income, this ITR Form allows declaration of income from salary/ pension, income from one house property and income from other sources. Whereas, the individual or HUFs who do not opt for presumptive taxation scheme and have income from business or profession shall use ITR 3.
The deadline to file ITR for the financial year 2017-18 has been extended to August 31, 2018. The ITR must be filed on time before the due date in order to avoid last-minute rush and late filing penalty. Filing of ITR after the due date would entail levy of maximum penalty of `10,000 unlike previous years when filing of return after due date attracted only interest on the tax payable.
Carry forward business losses
Carry forward of business losses is dependent on the date of filing ITR. The Act levies a condition on the taxpayer to carry forward business losses incurred during the year. The taxpayer can carry forward its business losses only if it furnishes its ITR on or before the due date. Thus, to avoid any lapse in carrying forward the losses, one must ensure the timely filing of ITR.
What is presumptive taxation?
With a view to provide relief to the small taxpayers from the tedious compliance procedures and maintenance of books of accounts, the Act stipulates the Presumptive Taxation Scheme. A taxpayer, being a professional or a businessman can opt to declare his income under this Scheme if it meets the gross receipts/turnover threshold specified in this behalf. Those engaged in the business of goods transportation can also avail the benefit of the scheme. The taxpayers opting for this scheme are required to pay taxes only on the lump-sum income computed by applying a specified rate on total income. The scheme reduces the disclosure and compliance requirement as it does not involve maintenance of books of accounts and other detailed disclosures in the ITR form.
Option of using simpler ITR form, i.e., ITR 4, is only for those choosing presumptive taxation scheme. In furtherance of the aim of providing simpler compliance to the small taxpayers paying tax on presumed income, ITR 4 was introduced. As the name suggests, it is ‘Sugam’ or simpler unlike other returns which require detailed information.
However, option of using ITR 4 or Sugam is not available to the taxpayer who maintains books of accounts in respect of his business or profession to claim deduction of actual expenses incurred while computing taxable business income. In such a case, ITR 3 or ITR 5 as the case may be, will have to be filed. Also, once this scheme is opted by the businessman, he shall follow this scheme for the next five years. Failure of adoption of this scheme in any of the next five years would take the taxpayer out of this scheme for another period of five years following the default.
Mistakes to avoid
While filing the ITR one must remember to fill all the personal details carefully. All incomes must be placed under the correct head to avoid any mismatch errors. It is also essential to disclose all income, after thoroughly examining bank statements and TDS certificates. Form 26AS should only be used as a reference to cross-verify payment of TDS by the deductor and should not be the basis for computation of income.
The writer is partner Nangia Advisors LLP. Wth inputs Vasudha Arora