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Income Tax efiling in India for FY 2023-24 (AY 2024-25)

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Income Tax For Business/self-employed - Everything you must know

All individuals are required to pay an income tax if individuals are earning any income by providing services to employers. An income-generating individual is called an assessee under Section 2(7) of the Income Tax Act, 1961, and is defined as a person or entity by whom any tax or any amount of the money is payable under the Act. The following are particulars included in the assessee-

Income Tax For Business/self-employed - Everything you must know

All individuals are required to pay an income tax if individuals are earning any income by providing services to employers. An income-generating individual is called an assessee under Section 2(7) of the Income Tax Act, 1961, and is defined as a person or entity by whom any tax or any amount of the money is payable under the Act. The following are particulars included in the assessee- Salaried individual Self-employed individual A proprietor of a sole-proprietorship business Hindu Undivided Family (HUF) Partnership firm Limited Liability Partnership (LLP) Registered company with the registrar of companies There are five various types of the tax filing process for different assessees. There are five major heads of income introduced while filing income tax returns as per the income tax act. The income is calculated under the following heads- Salary income Income from house property Capital gains Most of the income is calculated under the head “income from business and profession” in case of salaried individuals or professionals. The process can be distinct and depends on the taxpayer whether s/he is a salaried person or self-employed. Therefore, let's try to understand how can a salaried person file their income tax returns.

Who is considered Self-Employed?

A self-employed person provides his/her services to different employers without a long-term contract with any of them. The income Tax Act, of 1961, is applicable to the tax on the income of Self-employed persons under the fine line “Profit and gain from Business or Profession”. In simple words, self-employment is considered a professional and the business has been defined in the Act as, “any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture”. The profession also includes vocation as given in the Act. Thus, a painter, a sculptor, an author, an auditor, a lawyer, a doctor, an architect, or an astrologer comes under profession or Vocation. The gains and profit must be evaluated after the deduction of all losses and expenses incurred for earning the income in the regular course of business, profession or vocation. Professional Income earners have to get their accounts audited by Chartered Accountant and submit tax audit reports if their gross receipt is Rs. 50 lakhs or more in a financial year.

Tax Filing For self-employed

While filing income tax returns, self-employed earners, have to file Income Tax Return through the ITR-4 Form. They can reduce their tax outgo by claiming all the expenses incurred (such as office rent, travel expenses or entertainment pertinent to business) to earn revenue from the profession. These expenses are deductible subject to proof in the record. Under the presumptive scheme, it is deemed to have been permitted the deduction of incurred expenses and depreciation to reach a profit from the business.

What is a Presumptive Scheme?

The presumptive scheme is a scheme the government has oriented for the professional or business whose total gross receipts are less than Rs. 50 lakhs and businesses whose turnover are less than Rs 2 crore in a financial year. That Professionals who do not have this scheme, are required to maintain all such records, books of accounts, etc. Under this scheme, the eligible professionals can calculate their net income at the rate of 6% of the total turnover, if gross receipts are received through the digital mode of payments or at the rate of 8% in the case of cash receipts. However, the assessee is entitled to willingly declare income at a higher rate than the minimum of 6-8% of the total turnover.

How do file IT returns for the self-employed?

There are 7 ITR forms to file the tax returns introduced by the income tax department. Being self-employed, you will be required to file the ITR-4 form. In ITR 4, a percentage of the receipts are counted as gross income, and tax will be paid on that, instead of claiming business costs against those receipts and paying tax on the balance. The income earned by the individuals is assessed based on the ‘income from business or profession and it covers the income tax for business and IT returns for businessmen. Below are a few things that will simplify your ITR filing process. Selecting the Right ITR form - The foremost thing for a taxpayer is to understand the applicable ITR form to file his/her returns. ITR-3 or ITR-4 are relevant IT returns forms for self-employed individuals. Choosing the right ITR is an essential step for e-filing your income tax returns. TDS (Tax Deducted At The Source) - Whenever any employer credits the net amount of an employee that time he/she deducts the TDS at the rate of 10% from the earned income. You must know that Section 194J of the IT Act mandates TDS from payments made to employees. However, just like salaried individuals, self-employed individuals can also claim a refund on the TDS deduction on your behalf through the process of e-filing. Know the tax treatment - There are various types of tax treatment as per the taxpayer's categories. A self-employed individual believed someone who does not earn a fixed salary or income from a company. Their working period can be contractual or assignment-based. However, the income is ‘Profit & Gains of Business & Profession’ from a tax viewpoint. Therefore, they will be required to pay taxes on the combined income earned in a financial year. Verification of the Tax returns - This is a crucial step to take by the taxpayer after the returns filing process. When your income tax returns are filed, you will be required to verify the returns. This verification can be done through net banking, Aadhaar-based OTP DSC or (Digital Signature Certificate). In case the taxpayer is not able to verify the IT returns through the EVC (Electronic Verification Code) then s/he can go with the DSC option to verify the returns.

However, if the turnover or gross receipts of the company is less than Rs. 250 cr. then the tax rate will be levied at 25%. Apart from the tax evaluation based on the slabs, surcharge and cess are also payable as follows –

If the gross income is more than Rs. 1 crore, the surcharge would be applied to 15% of the evaluated tax liability. Therefore, the surcharge would be Rs. 1500 and the total tax liability would become Rs. 11,500. In the case of firms and limited liability partnerships, if the taxable income is up to Rs. 1 crore the surcharge will be levied at 30%. If income surpasses the limit of Rs. 1 crore, the surcharge would be at 12%. The surcharge is levied at 7% in case the income is more than Rs.1 crore. If the income is more than Rs. 10 crores, the surcharge would be 12%.

Frequently asked questions

Form ITR-3 is to be filed by self-employed taxpayers who do not have the presumptive tax scheme.

The surcharge is basically calculated on the amount of the payable tax. This calculated surcharge will be added to the tax liability and the taxpayers would have to pay the net amount including the surcharge.

Yes. The income received by the professionals is paid after the deduction TDS ( tax deducted at source) at the rate of 10% as per section 197J of the income tax act.

You can reduce your tax liability using the provided advantages by the IT department such as exemptions and deductions.

Rent paid for office space, travelling costs, depreciation on equipment, client meeting and entertainment expenses, etc.

No. There is not always the same case. It differs from one to another as self-employed and salaried individuals are given ample ways of saving the taxes such as exemptions and deductions.

Self-employed individuals are required to fill out the ITR form-4 to file their income tax returns.

Krishna Gopal Varshney

Krishna Gopal Varshney co-founder & CEO of Myitronline is amongst the top emerging startups of Asia and authorized ERI by the Income Tax Department. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. ”

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