Income Tax Filing for Company/LLP/Firm
At the end of the year, businesses struggle to get their accounts in order. Reporting accurate business income during return filing is critical to avoid any tax non-compliance. This premium ITR filing plan is designed to provide you with professional help in preparing financial statements and filing business ITR. Further, our experts will assist you with paying advance taxes and guide you on critical business financial planning to help maximise tax savings.
Filing business tax returns is essentially the process by which a business has to report its income and expenditure to the Income Tax department. All businesses that are operating in India, whether small or big have to file Income Tax returns every year. The tax return for companies is more complicated than individual taxpayers.
A business tax return is nothing but a statement of income earned and expenditure of the business. If the business posts some profits, tax needs to be paid on the profits. Apart from filing taxes, a business may also be required to file TDS or pay advance tax as the need be. Tax returns filed by a business also will have details on assets and liabilities a business has. In this article, we will take a look at how to file business income tax returns and also specifically at filing small business tax returns.
Are you a freelancer or do you run your own business? Prepare your business accounts and file returns with TAXAJ.
It usually takes 3 to 5 working days.
- Account Summary - P&L and Balance Sheet (up to 250 entries per year)
- Advance Tax Payment (4 nos.)
- Expert Assisted Tax Filing for business and professionals
- Tax Savings & Planning Advice
- Documented follow up
- Excludes the Tax audit Fees
- Any business entity required to maintain books of accounts
- Small Businesses and Professionals requiring books of account
- Small businesses requiring Tax Audit including Derivative & intraday traders.
- Purchase of plan
- Upload documents
- Financial Statements Preparation
- Review computation sheet
- Return filed & acknowledgement generated
- KYC, Email, Phone No. of assessee
- Bank statements for the financial year
- Income and Expense statements
- Auditor reports
- Bank statement if interest received is above Rs. 10,000/-
What is a Business Tax Return?
A business tax return is basically an income tax return. The return is a statement of income and expenditure of the business. Also, any tax to be paid on the profits made by you is declared in this return. The return also contains details of the assets and liabilities held by the business. Items like fixed assets, debtors and creditors of business, loans taken and loans were given are declared here.
What are the legal structures that one can use to run a small business in India?
Small businesses in India are usually run as either proprietorship concerns, partnership firms, or small companies. Proprietorship concerns are business run by individuals. Partnership firms are established under the Indian Partnership Act, 1932. Companies are incorporated under the Companies Act. A special kind of partnership, namely Limited Liability Partnership (LLP), can be incorporated through the Ministry of Corporate Affairs. Special tax provisions are available for small companies and small businesses.
What tax benefits are available to small companies?
The corporate tax rate for companies with turnover less than (or equal to) Rs. 250 Crores is 25%. The corporate tax rate is 30% for companies with turnover above Rs. 250 Crores.
Are the LLPs required to file Income Tax Returns?
As LLPs are a separate legal entity formed under the Limited Liability Partnership Act, 2008, they are required to file Income Tax Return every year by 31st July, if tax audit u/s 44AB of Income Tax Act 1961 is not required; by 30th September; if accounts are to be audited and by 30th November, if it has entered into International transactions and is required to file Form 3CEB.
Are LLPs required to get accounts audited?
If the turnover exceeds Rs 40 Lakhs or if the contribution exceeds Rs 25 Lakhs, accounts of LLPs are required to be audited.
Are the LLPs entering into international transactions, required to file Form 3CEB?
If an LLP has international transactions with Associated enterprises or has entered into Specified Domestic Transactions, Form 3CEB, certified by CA, is required to be filed.
Are the LLPs taxed as “Firm”?
In terms of section 184 of the IT Act, LLP is assessed as “Partnership Firm” if LLP is evidenced by instruments and shares of partners are stated therein. If provision of sec 184 are not complied with, LLPs will not be eligible for deduction of partner salary and interest on capital.
In what form is an LLP required to file its Income Tax Return?
It is to be filed in Form ITR 5. It can be filed online using digital signature of the Designated Partner (DP).
Are the LLPs required to pay advance tax?
The due dates are as follows:
|ON OR BEFORE||UPTO|
What is the Rate of tax on LLPs?
For AY 2019-20 flat rate of 30% is applicable on the total income plus Surcharge of 12% if income is greater than Rs 1 Cores. Health and Education cess is also applicable on the amount of income tax and surcharge. However, LLPs are subjected to Alternate Minimum Tax (AMT) of 18.5% of adjusted total income (Sec 115JC). In case of conversion of a private company or unlisted public company into a limited liability partnership under the Limited Liability Partnership Act, 2008, the provisions of section 115JAA shall not apply to the successor LLP.
Are provisions of presumptive taxation applicable to LLPs?
No. Sec 44AD is not applicable to Resident LLPs.
What special provisions of IT Act are applicable to LLPs?
Subject to the conditions mentioned in Sec 80lAC, LLPs are allowed a deduction of 100% of profits and gains derived from “eligible business”.
Is capital gains taxable on transaction of transfer of asset or shares to LLP?
Subject to conditions in Sec 47, any transfer of a capital asset or intangible asset by a private company or unlisted public company to an LLP or any transfer of shares held in the company by a shareholder as a result of conversion of the company into an LLP, will not be treated as a “transfer”.
Who has to file a business tax return?
Filing of return mainly depends on the type of business structure. For example:
- If you are a sole proprietor your business income and your other personal income like salary, income from house property and interest income have to be stated on the same return.sole proprietor your business income and your other personal income like salary, income from house property and interest income have to be stated on the same return.
- If your total income before deductions is above the basic taxable limit you need to compulsorily file your income tax return irrespective of profit or loss in your business.
- The basic taxable limit is Rs. 2.5 lakh. So, if your income before deductions is above Rs 2.5 lakh you need to file your business tax return.
- For companies, firms and Limited Liability Partnership (LLP) a business tax return has to be filed irrespective of profit or loss. Even if there are no operations undertaken, a return has to be filed.Limited Liability Partnership (LLP) a business tax return has to be filed irrespective of profit or loss. Even if there are no operations undertaken, a return has to be filed.
- Companies, firms, and LLPs are taxed at a rate of 30%.
Income Tax Audit
Every taxpayer whose turnover is above Rs. 1 Crore in case of businesses and Rs. 50 Lakh in case of professionals is required to get a tax audit done. The taxpayer has to appoint a Chartered Accountant to audit their accounts.
Also, a tax audit is required if there has been a loss of your business and you want to carry forward the loss. A tax audit is necessary even when the profits declared by you is less than 8% (6% on Digital transactions) of the turnover in case of business and 50% of receipts in case of professionals.
Individuals, HUF, and Firms running businesses or providing services can offer their income to tax on a presumptive basis. Turnover up to which presumptive taxation is allowed for businesses is Rs. 2 Crore and for professionals is Rs. 50 Lakh.
Minimum of 8% of the turnover has to be offered as income under presumptive basis for businesses. For professionals, 50% of professional receipts have to be declared on the business tax return.
What are the due dates for filing of returns?
For the Individuals not liable to tax audit, the last date for the filing of the return is 31st August after the end of the financial year (Belated return can be filed up-to 31st March subject to penalty) For individuals liable to tax audit and all other assesses like company, LLP or partnership firm, the due date is 30th September after the end of the financial year. For the FY 2017-18, this due date has been extended from 30 September 2018 to 31 October 2018.
The penalty for non-filing of returns- Any loss incurred during the year cannot be carried forward if the return is filed after the due date of filing income tax return.
Also a fine of Rs. 5000 under the section 271F can be levied on the assessee.
The Requirement for Filing Business Tax Returns
Filing business tax returns will depend on the kind of business you are whether a proprietorship, partnership firm, limited liability partnership or a private limited company.
If you fulfil certain conditions, you have to maintain a book of accounts.
If as a business, you meet any of the following criteria, then maintaining the books of accounts is mandatory.
-Total sales, turnover or gross receipts are more than Rs. 10,00,000,
In any of the three immediately preceding previous years.
As we will see, in case of certain businesses, you would also require an external tax audit. Plus you have to be aware of due dates of filing your returns.
Businesses need to use Sugam ITR-4 for Income Tax return if they have opted for the presumptive income scheme as per section 44AD and Section 44AE of the Income Tax Act. Any business that has a turnover of less than Rs 2 crore can opt to be taxed presumptively by the Income Tax Department. Such businesses must declare profits of 8 percent for non-digital transactions or 6 percent for digital transactions, whichever one applies to their case.
When adopting a presumptive taxation scheme businesses can declare income at a prescribed rate and, in turn, does not need to do the tedious job of maintaining accounts. However, only a resident partnership firm (not limited liability partnership firm) can adopt the presumptive taxation scheme.
Is any scheme for presumptive taxation available to small businesses?
An ‘eligible assessee’ with gross receipts of less than Rs. 2 Crs in a year can avail of the scheme of presumptive taxation in India. Under presumptive taxation, the eligible assessee does not have to maintain any books of accounts and has to declare 8% (or 6% if receipts are through electronic clearing system or bank draft) of its gross receipts as taxable income. This scheme’s intention is to give relief to small businesses from bookkeeping and auditing requirements. This scheme can be availed only by resident individuals (i.e. proprietorship concerns), resident HUF, and partnership firms (but not LLPs).
What are the Tax Benefits for entrepreneurs in India?
1. Tax holiday for three years:
In order to give entrepreneurial ventures a much-needed boost, the government in the union budget 2016-17 has announced to provide a deduction of 100% tax exemptions during the first three years of operation. Only the companies that are registered as startups under the Department of Industrial Policy and Promotion (DIPP) that involve in innovation, deployment, development or commercialization of new products and services driven by technology would be eligible for the three year tax benefits. Moreover, in the first three years the eligible startups would not have to pay any tax for profits except MAT (Minimum Alternate Tax). MAT is calculated on `book profit'.
2. 20% exemption on Capital Gains:
Capital gains are the taxes charged on profits gained from sale of capital assets such as stocks and bonds. The government has recently made provision for an exemption of 20% capital gains tax. This provision was a long-pending demand by the startups. Before this provision, most investments in Indian startups were compelled to route their investment through Maurititius as the capital gain tax on investment from there waived following provisions in the Double Tax Avoidance Treaty.
3. Taxes on Turnover:
The government levy 25% tax plus cess and surcharge on new manufacturing firms. However, companies with a turnover of less than 50 crore per annum have to pay 29 percent tax. Medium and small companies with a turnover of less than Rs. 50 crore are taxed at a rate of 25 percent. Moreover, the period of claiming profit linked tax exemption is now increased from 5 years to 7 years. This step by the government would benefit approximately 6.67 lakh companies in the country.
4. Payment of EPF by the Government:
The government will now provide EPF (Employees' Provident Fund) contribution of 8.33% for the period of three years. Earlier, the percentage of the contribution was 12% of employees basic salary. This move will relieve many employers by cutting costs of startups by 12% for straight three years and will provide opportunities to hire competent candidates for their company as candidates will have job security. Many companies have started registering themselves with EFPO to avail the benefits.
5. Presumptive Tax:
It is mandatory for the entrepreneurs to maintain the books of account. However, under Presumptive taxation scheme, it is not required to maintain the books of account and hence will reduce the burden of the entrepreneur. Anyone whose income earned stands at 8% is eligible for this scheme. However, a person whose income earned is more than 8 %, higher rate can be declared. Moreover, all the small business man with a turnover of up to Rs 2 crore and professional with gross income of up to Rs 50 lakh can avail benefit of this scheme.
All these policies comes under "Startup India” campaign of the government and were proposed in the Union budget 2016-17. These policies were made with an objective to give a much-needed boost to the budding entrepreneurial ventures. It is a subsidiary of the `Make in India' scheme and aims to create more jobs within the country. This startup tax policy will definitely give the much-needed boost to the startups.
Tax Deductions and Benefits for the Business & Self-Employed
Throughout the years, legislators have written numerous lines into the tax code to soften the blow of the extra costs that self-employed persons must shoulder as they do business. The Tax Cuts and Jobs Act (TCJA), passed in December 2017 and effective as of the 2018 tax year, made several changes to self-employed tax deductions. Many of these changes are temporary and set to expire in 2025, but others are permanent
Some deductions that have been eliminated includes:
- Entertainment and fringe benefit deduction
- Employees' parking, mass transit, or commuting expenses deduction
- Domestic production activities deduction
- Local lobbying expenses deduction
- Deduction of settlement or legal fees in a sexual harassment case, when the settlement is subject to a nondisclosure
The home office deduction is one of the more complex of all. In short, the cost of any workspace you use regularly and exclusively for your business, regardless of whether you rent or own it, can be deducted as a home office expense.
You are basically on the honor system, but you should be prepared to defend your deduction in the event of an IRS audit. One way to do this is to prepare a diagram of your workspace, with accurate measurements, in case you are required to submit this information to substantiate your deduction, which uses the square footage of your workspace in its calculation.
In addition to the office space itself, the expenses you can deduct for your home office include the business percentage of deductible mortgage interest, home depreciation, utilities, homeowners insurance, and repairs that you pay during the year. If your home office occupies 15% of your home, for example, then 15% of your annual electricity bill becomes tax-deductible. Some of these deductions, such as mortgage interest and home depreciation, apply only to those who own rather than rent their home office space.
Internet & Phone Bills
Regardless of whether you claim the home office deduction, you can deduct the business portion of your phone, fax, and internet expenses. The key is to deduct only the expenses directly related to your business. For example, you could deduct the internet-related costs of running a website for your business.
If you have just one phone line, you shouldn't deduct your entire monthly bill, which includes both personal and business use. According to the IRS website, "You can’t deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home."
Health Insurance Premiums
If you are self-employed, pay for your own health insurance premiums, and are not eligible to participate in a plan through your spouse's employer, you can deduct all of your health, dental, and qualified long-term care (LTC) insurance premiums.
You can also deduct premiums that you paid to provide coverage for your spouse, your dependents, and your children who were younger than 27 at year-end, even if they aren't dependents on your taxes. Calculate the deduction using the Self-Employed Health Insurance Deduction Worksheet in Income Tax.
A meal is a tax-deductible business expense when you are traveling for business, at a business conference, or entertaining a client. The meal cannot be lavish or extravagant under the circumstances, and in the past, you could only deduct 50% of the meal's actual cost if you keep your receipts, or 50% of the standard meal allowance if you keep records of the time, place, and business purpose of your travel but not your actual meal receipts.
Temporary allowance of a full deduction for business meals. The bill temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant.
To qualify as a tax deduction, business travel must last longer than an ordinary workday, require you to get sleep or rest, and take place away from the general area of your tax home (usually, outside the city where your business is located).
Further, to be considered a business trip, you should have a specific business purpose planned before you leave home and you must actually engage in business activity—such as finding new customers, meeting with clients, or learning new skills directly related to your business—while you are on the road. Handing out business cards at a bar during your friend’s bachelor party won’t make your trip to Vegas tax-deductible.
Keep complete and accurate records and receipts for your business travel expenses and activities, as this deduction often draws scrutiny from the IRS. Deductible travel expenses include the cost of transportation to and from your destination (such as plane fare), the cost of transportation at your destination (such as car rental, Uber fare, or subway tickets), lodging, and meals.
You can’t deduct lavish or extravagant expenses, but you don’t have to choose the cheapest options available, either. Don't forget that you, not your fellow taxpayers, will be paying the bulk of your travel costs, so it's in your interest to keep them reasonable
When you use your car for business, your expenses for those drives are tax-deductible. Make sure to keep excellent records of the date, mileage, and purpose for each trip, and don't try to claim personal car trips as business car trips.
You can calculate your deduction using either the standard mileage rate determined annually by the IRS or your actual expenses.
Using the standard mileage rate is easiest because it requires minimal record-keeping and calculation. Just write down the business miles you drive and the dates you drive them. Then, multiply your total annual business miles by the standard mileage rate. This amount is your deductible expense.
To use the actual expense method, you must calculate the percentage of driving you did for business all year as well as the total cost of operating your car, including depreciation, gas, oil changes, registration fees, repairs, and car insurance. If you spent $3,000 on car operating expenses and used your car for business 10% of the time, your deduction would be $300.
If you want to use the standard mileage rate on a car you own, you need to use that method in the first year the car is available for use in your business. In later years, you can choose to use either the standard mileage rate or switch to actual expenses. If you are leasing a vehicle and wish to use the standard mileage rate, you must use the standard mileage rate in each year of the lease period.
As with the home office deduction, it may be worth calculating your deduction both ways so you can claim the larger amount.
Interest on a business loan from a bank is a tax-deductible business expense. If a loan is used for both business and personal purposes, the business portion of the loan's interest expense is allocated based on the allocation of the loan's proceeds.
You will need to track the disbursement of funds for various uses if the entire loan is not used for business-related activities. Credit card interest is not tax-deductible when you incur the interest for personal purchases, but when the interest applies to business purchases, it is tax-deductible.
That said, it's always cheaper to spend only the money you already have and not incur any interest expenses at all. A tax deduction only gives you some of your money back, not all of it, so try to avoid borrowing money. For some businesses, though, borrowing may be the only way to get up and running, to sustain the business through slow periods, or to ramp up for busy periods.
Publications & Subscriptions
The cost of specialized magazines, journals, and books directly related to your business is tax-deductible. A daily newspaper, for example, would not be specific enough to be considered a business expense. A subscription to "Nation's Restaurant News" would be tax-deductible if you are a restaurant owner, and Nathan Myhrvold's several-hundred-dollar "Modernist Cuisine" boxed set is a legitimate book purchase for a self-employed, high-end personal chef.
Any education expenses you want to deduct must be related to maintaining or improving your skills for your existing business. The cost of classes to prepare for a new line of work isn't deductible.
If you're a real estate consultant, taking a course called "Real Estate Investment Analysis" to brush up on your skills would be tax-deductible, but a class on how to teach yoga would not be.
Do you pay premiums for any type of insurance to protect your business, such as fire insurance, credit insurance, car insurance on a business vehicle, or business liability insurance? If so, you can deduct your premiums.
Some people don't like paying insurance premiums because they perceive them as a waste of money if they never have to file a claim. The business insurance tax deduction can help ease that dislike.
If you rent out an office space, you can deduct the amount you pay for rent. You can also deduct amounts paid for any equipment you rent. And if you have to pay a fee to cancel a business lease, that expense is deductible, too.
But you can't deduct rent expenses on any property that you own, even partially. Also, rent must be reasonable in amount. The need for a reasonableness test typically arises when you and the owner are related, but rent is considered reasonable if it is the same amount you would pay to a stranger
Start Up Costs
The IRS usually requires you to deduct major expenses over time as capital expenses rather than all at once. However, you can deduct up to $5,000 in business startup costs in the first year of active trade or business. Examples of tax-deductible startup costs include market research and travel-related costs for starting your business, scoping out potential business locations, advertising, attorney fees, and accountant fees.
The $5,000 deduction is reduced by the amount your total startup cost exceeds $50,000. If you set up a corporation or LLC for your business, you can deduct up to $5,000 more in organisational costs such as state filing fees and legal fees.
Professional fees to consultants, attorneys, accountants, and the like are also deductible at any time, even if they aren't startup costs.
Do you pay for ads on Facebook or Google ads, a billboard, a TV commercial, or mailed flyers? The costs you incur to advertise your business are tax-deductible.
You can even deduct the cost of advertising that encourages people to donate to charity while also putting your business' name before the public in the hope of gaining customers. A sign advertising "Holiday Toy Drive sponsored by Robert's Hot Dogs," for example, would be tax-deductible
Can I file a revised return to correct a mistake in original return filed?
Yes, the return can be revised within one year from the end of the relevant assessment year or before completion of the assessment, whichever is earlier.
Yes, under the Income-tax Act legal proceedings can be initiated up to 4 to 6 years (depending upon case to case) prior to the current financial year. However, in certain cases the proceedings can be initiated even after 6 years, hence, it is advised to preserve the copy of return for at least 6 years or maintain it as long as possible.
Prior to return filing, a summary consolidating all financial transactions is prepared. Day to day bookkeeping and audit does not form part of the plan. However on request TAXAJ team can assist with appointing a qualified Chartered Accountant eligible for providing audit services.
The assessment of income of an year can be made only after year has passed, advance tax is pre payment of your tax liability in the year it is earned. If the tax liability is more than Rs 10,000 in a financial year than advance tax needs to be paid by assessee. The due dates are
|15th June (15%)||15th Sept (45%)||15th Dec (75%)||15th March (100%)|
Under this plan TAXAJ experts will help you access your advance tax liability and assist you in its timely payment.