It is not only salaried individuals who have to contend with changes in the Income Tax Return (ITR) forms this tax paying season. Those running small businesses and professionals also need to take cognisance of tweaks — both in the ITR forms and in provisions related to reporting their income and its taxation.
Presumptive scheme
Taxation of presumptive income under Section 44AD is a popular provision for those running certain small businesses.
Under this, persons, including individuals, whose total turnover or gross receipts in a year does not exceed a particular threshold limit can declare their profit/gains at a 8 per cent of the total turnover or gross receipts, pay tax on it and be done. This saves them the headache of maintaining different books of accounts specified by the tax department and/or getting it audited.
For those filing their returns under the presumptive income scheme, there are four changes to make note of, for the assessment year 2017-18 (AY 2017-18) before they file their returns:
One, the threshold limit for the eligible turnover which was ₹1 crore until last year, has been revised to ₹2 crore from this year onwards. So, those having a turnover of up to ₹2 crore in financial year ( FY) 2016-17 from eligible businesses can now choose to offer their income to tax under the presumptive income scheme and ease their compliance burden.
Two, the move to discourage cash transactions following the demonetisation exercise has found a voice in the tax rate under this scheme. So, from AY 2017-18 onwards, the presumptive income will be 6 per cent of the total turnover or gross receipts received through cheques, drafts or electronic means. For the portion of the turnover/receipts received by cash, the presumptive income will be 8 per cent.
Three, there is a change related to applicability of advance tax provisions. Advance tax is usually payable in four tranches — by June 15, September 15, December 15 and March 15 of the financial year — by those assessees whose tax liability for that year is likely to exceed ₹10,000 after tax deduction at source under various heads.
To keep the compliance burden minimum in the case of those filing returns under the presumptive taxation scheme, rules have been relaxed a bit. From AY 2017-18, it is enough if the whole amount of advance tax by such assessees is paid once by March 15 of the financial year. While this is a definitely a breather, keep in mind that if you fall under the advance tax net and haven’t complied with the rules for payment, penal interest provisions on the advance tax due may be applicable.
Four, from AY 2017-18 onwards, you are not free to opt in and out of the presumptive income scheme for businesses every year at your whim and fancy.
If you don’t declare income under this scheme for five consecutive assessment years after assessment year 2017-18 (that is, 2017-18 to 2021-22), you will not be eligible to fall under this scheme for the next five assessment years (that is, 2021-22 to 2025-26).
Extended to professionals
AY 2017-18 has also made life easier for professionals, by bringing them under the presumptive taxation net (Sec 44ADA). Assessees, including individuals who are engaged in specified professions such as legal, medical, engineering, architecture, accounting, technical consultancy or interior decoration and whose gross receipts do not exceed ₹50 lakh in FY 2016-17, can now pay tax on 50 per cent of the gross receipts under this scheme, without having to maintain accounts or auditing them. As is the case with businesses, advance tax needs to be paid only once by March 15 of the financial year.
What’s new in ITR?
Until last year, ITR 4S Sugam was the one to be filed by those eligible under the presumptive income scheme. The same form is called ITR 4 Sugam this year.
Note that there is no separate form for businessmen and professionals; hence, both need to use the same ITR 4 Sugam. Like in the other return forms for this year, quoting of Aadhaar number or Aadhaar enrolment id has been made mandatory for ITR 4 Sugam too.
Similarly, in case your total income under all heads put together exceeds ₹50 lakh, more disclosures have been sought on the assets and liabilities.
Description and address of immovable properties are also required. Besides, bank deposits, shares, insurance policies, loans, cash in hand, and investments in partnership firms have to be reported additionally this year.
Unlike some other ITR forms, details relating to cash deposits aggregating to over ₹2 lakh during the demonetisation period, are not required here.
(The article first appeared in The Hindu BusinessLine.)