ITR-4S – As a small business owner, are you checking all the right boxes?

ITR-4S - As a small business owner, are you checking all the right boxes?

So what’s the small business man doing about his taxes? Let’s take a look. Over the years there has been a steady rise in the number or ITR forms filed. While we see a consistent increase in the forms across different categories there has been a sharp and steep increase in the number of ITR-4S Sugam forms.

While we peek into those reasons a little later, let us first understand who are the individuals or businesses who file the ITR -4? An ITR-4 can be used by individuals or HUFs (Hindu Undivided Family) who receive income by way of running a proprietary business or engaged in a profession. So it’s clear that the ITR-4S is not applicable for salaried professionals.

When we say there is a sharp increase in the ITR forms filed, it clearly means that the country has more thriving small business individuals or the government is able to get more of these businessmen to file their taxes. Positive signs that point economic growth, it must be noted. The government also goes that extra mile to make tax filing a little friendlier for the small businessman by way of the Sugam ITR-4S form. However, it is important for the small entrepreneur to understand conditions under which the form can be used to file the ITR. Filing tax under the Sugam ITR-4S must always be a well-informed choice or decision.

What’s the big deal about the Sugam ITR- 4S form?

The Sugam ITR-4S form is a presumptive income tax form. We’ll cut to the chase without boring you about the sections.

  • You don’t have to maintain any books of accounts. That is a relief for the small businessman, isn’t it?
  • You pay a tax of 8% on your total receipts
  • There is no need to pay advance tax.

….So far so good….

  • A business expense cannot be deducted from the income. The 8% is calculated on the gross income or turnover…. The last one may be spoiler but the features still sound solid.

So, who can file the Sugam ITR-4S?

  • A resident of India (that’s a no brainer).
  • The gross receipts of your business cannot be more than a crore.
  • It can be filed only by an individual, HUF or partnership firm and not any company listed under the companies act. (Now that’s a major eliminator).
  • No business expense will be treated as a deduction. It is an 8% on the gross receipts or turnover.

Who cannot file Sugam ITR-4S?

However, the Sugam ITR-4S cannot be filed by a few individuals and businesses. Here’s the list.

  • Individuals with income from brokerage or commission. (That excludes real estate agents, wealth advisors, stock brokers etc.)
  • Individuals who have taken up an agency from a brand. The franchise owners.
  • If the individual is involved in the business of leasing or hiring. Basically anyone who earns a rent by loaning a product or place. (There are a whole lot of small businessmen who rent manufacturing equipment, construction equipment, music instruments and lease property. Let’s strike them of the list too)
  • Here comes the biggie – Professionals who earn through the delivery of their knowledge, work or art. Eg: Legal, medical, engineering, acting, accounting, interior decoration, freelancers, anyone who is representing another person or firm and all artists.
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Are you murmuring “Well who’s left?” After the exclusions in businesses and profession it is not surprising. The Sugam ITR 4S is a boon for the small time retail entrepreneur the typical one – man show enterprise. The indigenous seller or small entrepreneur who eke a living out of the business.

Ravichandran is a pharmacist and runs a medical store after he converted a front portion of his home to accommodate the store. His annual billing is 15,00,000 /- This is Ravi’s own store and he has no branches.  Now can pay a presumptive tax of 8% of the gross receipts or opt for the ITR- 4 if he feels that his tax payment will be lower, but this will require him to maintain books of accounts.

Ravi bought a refrigerator for his shop. It was a business expense or an investment as he would call it because the business was in need of one, and it costed close to 55000/- . If Ravi opts to file the Sugam ITR-4S,  he will only be allowed depreciation and not a deduction of the expense.

What’s the catch?

The individual can always choose the ITR form to go with depending upon receipts and expenses. It is not mandatory for all Sugam ITR-4S eligible business owners to file under the form. Filing for tax under Section 44AD and Sec 44AE comes with a whole lot of exceptions and inclusions and has different taxation rules depending upon the type of business.

It is wise to take the advice of a tax consultant before you file for taxes. Moreover, your tax planning on whether you must maintain books of accounts must be decided before the onset of the assessment year.

This article has been contributed by Right Horizons

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