Running an enterprise or professional set-up is considered difficult in India due to the complicated taxation rules and accounting procedures. This discourages many budding entrepreneurs from setting their sights higher. However, income tax rules allow some leeway to small taxpayers engaged in certain businesses and professions.
They can opt for the presumptive taxation scheme, which exempts taxpayers running small businesses from the tedious process of maintaining regular books of account. The person can declare income at a prescribed rate (6% if receipts are in form of e-payments or 8%) instead. They can file their returns in the much simpler ITR-4, instead of ITR-3, which individual businesspersons otherwise have to use. Here’s a guide on filing returns using form ITR-4.
The first step in the exercise, like in case of other forms, is to ascertain the applicability of the form. Form ITR-4 is to be used by resident individuals, Hindu Undivided Families (HUF) or partnership firms who draw income from any business or profession, barring certain specified ones like speculative or agency businesses or income in the form of commission or brokerage. If you are a salaried employee or a pensioner and are also drawing additional income from business or profession, you will need to use ITR-4. Other conditions include income from one house property and income from other sources. “The income computed shall be presumed to have been computed after giving full effect to every loss, allowance, depreciation or deduction under the I-T Act,” says Chetan Chandak, Head, Tax Research, H&R Block India. You also need to be careful about the applicability of this form where the income of another person like spouse or minor child is being clubbed with yours. “This form can be used only if the income being clubbed falls into the above categories,” he adds.
The presumptive taxation scheme cannot be availed of by non-residents, limited liability partnerships firms or corporates. You cannot use the form if you are drawing income from the business of plying, hiring or leasing goods carriages, running an agency business, or earning income in commission or brokerage. Assessees whose total turnover or gross receipts exceed Rs 2 crore, too, are not eligible for the relief under this scheme. The list of exceptions is long. “The form cannot be used if there is income from more than one house property or where there is brought forward loss or loss to be carried forward under this head,” adds Chandak. Those who have made short-term or long-term capital gains from the sale of house, plot or shares cannot use this form, neither can those who have netted winnings from lottery or horse-racing. Other exceptions include those with unexplained cash credit, investments, gold or money. Agricultural income of over Rs 5,000, income from any source outside India, assets located abroad and claim for relief on foreign tax under Sections 90, 90A or 91 will also be disqualifiers.
ITR-4 has seen several changes this year, including requirement for furnishing detailed information related to income from salary and property and a field for providing details on late-filing fees paid, if any. “There is an additional requirement to quote GSTR No. and turnover/gross receipts. This is as per GST return filed under Schedule BP of the form in respect of details of business and profession computed on presumptive basis under Sections 44 AD or 44AE or 44ADA,” says Chandak. The requirement of additional details is a challenge you have to overcome this year. “Several businesses are unsure about Schedule BP where ‘financial particulars of the business’ are required to be submitted. This is a challenge for some, as presumptive businesses are not required to maintain detailed books of accounts,” says Archit Gupta, Founder and CEO, Cleartax.in.
THE REFURBISHED FORM ITR-4
If ITR-4 is the relevant form for you, you could find it easier to file your returns online. “Those filing return in ITR-1 or ITR-4 have the option of directly preparing and submitting the return on an e-filing portal. While submitting returns, they will need to select ‘Prepare and Submit Online’, fill all the details and submit the return. Then it is to be verified using DSC (digital signature), EVC (electronic verification code) or Aadhaar OTP,” explains Sandeep Sehgal, Director, Tax & Regulatory, Ashok Maheshwary & Associates LLP. The other option is to download the excel utility and follow the steps applicable to other forms to complete the process.