In March, most people would be busy with getting ready their income-tax returns. While it is quite easy for individuals to file returns, small businesses have to look at various factors before filing returns.
The journey of entrepreneurship does not start or end with setting up your business and managing your products. It is an ever growing process. Just as sales are an intrinsic part of every business, taxation is another important aspect.
Many businesspersons, especially small business owners, often overlook the significance of taxation when it comes to managing their business and its associated finances. If you are a business owner, make use of this ready reckoner to ensure that you file your taxes the right way.
Taxation and business type
Unlike individual tax filing, where all you have to worry about is your total annual income to see which tax bracket is applicable, tax for business owners depends on the type of business you have.
Most small business owners work and operate under a proprietorship company. For such a business entity, you do not need to file a dedicated income-tax return for the business. You can easily declare all earnings and income from business in your personal income tax return form.
When your business expands or you operate either as a partnership company, limited liability partnership (LLP), or private limited company, then you need to file a dedicated income-tax return for your business as a separate financial entity.
Make sure to choose the correct ITR form
Many small business owners end up choosing the wrong income-tax return form unintentionally. Failing to make use of the proper form can invite scrutiny proceedings from the income-tax department including possible fines.
ITR-4 or ITR-4S: The most common mistake people make while choosing the desired income tax form for small business owners is the selection between Form ITR-4 and Form ITR-4S or Sugam. Whie ITR Form 4 is a detailed form having multiple pages with a compulsory statement of accounts and a provision to attach audit reports, Form4S is a simple three-page form. Sometimes business owners in their attempt to file their income-tax returns quickly use the Sugam form, which is not for those who have business income.
Having more than one business?
ITR-4S uses the presumptive method whereby the net income of the business is estimated to be eight per cent of gross receipts. This is why ITR-4S does not require you to submit statement of accounts and other detailed account and audit reports for the business.
Now, if you have more than one business, but if only one of your businesses qualifies under the presumptive method, you will need to file ITR-4, and are not eligible under the Sugam scheme.
Every person or company can file only one income tax return, so if you have one business that comes under the presumptive method but the other does not, you still have to use Form 4 instead of Form 4S.
Tax deductions you can make use
Apart from using the right form, there are various deductions that you as a small business owner should not overlook.
While small business owners claim deduction on business expenses like rent, telephones, travelling etc, assets like computers, furniture, vehicles are liable for deprecation. Buying a car in your company’s name can actually become more beneficial as you can claim depreciation which is not possible as an individual car owner.
If your business is a startup, you may get a three-year tax holiday as per the newly announced Startup Action Plan and Union Budget announcements. Apt taxation for your business is just as essential as day-to-day running and functioning of your business. Understand the nature of your business and file your taxes the right way to avoid unnecessary penalties and hassles.