Can I opt out of presumptive taxation scheme?
You can choose to opt out of presumptive taxation at any time. However, if you opt out, you are not eligible to file under presumptive tax for the next 5 years. For example, you file presumptive tax returns for FY16-17 and file under normal taxation for FY17-18. You are not eligible to file under presumptive tax upto FY 22-23. Read here
to know more
When should I opt to file returns under presumptive tax?
If you have not maintained any records of your income and expenses and you are eligible, then you may opt to file returns under presumptive tax.
What are the benefits of filing returns under presumptive tax?
There are three key benefits to file returns under presumptive tax
- Easy to File: The tax form is much shorter and simpler as compared to a complex 30 page form for filing
- Save Money: Professionals can now file tax returns on their own instead of paying a tax consultant. Typically, consultants charge anywhere from Rs. 5000 - 15000 for such filings
- Save tax: Usually professional do not have much expenses to declare. By declaring 50% of income as profit and balance 50% as expense, a lot of tax saving can be done.
What income tax slabs apply to professionals?
Professionals can be individuals, HUF or Partnership firm. For Individuals and HUF, Income tax will be payable on the income based on the tax slabs. Read More here
I heard that new tax forms were released. Can you tell me about it?
You are right. The Income Tax department has released new IT forms. Earlier, Professional needed to file under ITR-4 but now they can file under ITR-4 (Sugam) if they opt to file under presumptive taxation. Read here to know more
When do professionals have to file income tax returns?
Like salaried persons, Professionals opting for presumptive tax will now need to file their income tax returns by July 31, 2017
What is gross receipts?
Gross Receipts is the revenue earned by a professional from all professional services he provides.
What is Income?
Income is the amount on which professionals need to pay taxes on.
When do I need to maintain accounting records?
Professionals eligible under presumptive tax have the benefit of not maintaining any books of account. However, professionals are mandated to keep books of account if the income disclosed by Professionals is less than 50% of gross receipts and the total income exceeds Rs. 250,000. In this case, professionals will also be required to get their audit done.
What is GST?
Goods and Services Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of Goods and Services at national level and is expected to remove the cascading effect of tax (tax-on-tax) which is prevalent presently. It will replace all the taxes currently levied and collected by the Centre (such as Central Excise Duty, Service tax and CVD) and by the State (such as VAT and CST), on businesses and professionals. Click here to read more
Does GST apply to me?
GST will apply when turnover of the business or the gross receipts of the profession exceeds Rs 20 lakhs (Limit is Rs 10 lakhs for the North Eastern States).
Which business expenses can I claim benefits in my tax return?
The expenses which are directly or indirectly related to your business can be claimed in the income tax return against business income. Like, business promotion expenses, rent of the business premises, electricity, repair and maintenance of the premises and vehicle used for business purpose, salary and wages, depreciation on asset used for business,etc.
What is Assessment Year?
Assessment year (AY) is the year in which you assess your income and tax of the previous year. In this year, income tax return is required to be filed for the previous financial year. For example, AY for FY 16-17 will be AY 17-18.
What is Financial Year?
Financial year is the year in which you earn income from the month of April to the month of March.
Which ITR form do I need to file?
Till FY15-16 (AY16-17) the forms which are applicable, as per the sources of income one has, can be understood here
From FY16-17 (AY 17-18), ITR 2A and ITR 3 get subsumed in ITR 2. ITR 4 has become ITR 3 and ITR 4S has become ITR 4 (Sugam). For the business and profession opting for presumptive taxation, have to file ITR 4 (Sugam).
How can I file tax returns on my own?
For the business and profession opting for presumptive taxation, sum up your gross receipts/turnover and fill it in business and profession tab in your Clear tax account. It will automatically calculate your income, then fill the details of your section 80 deductions and taxes paid. That is how, you can proceed to file your return.
In case any tax due comes up, then pay the tax first via challan 280 online then fill the details of the challan in the tax paid tab under self tax payment sub tab to proceed to file your return.
What is Advance Tax?
Advance tax is the prepayment of tax to avoid lump sum tax payment with high interest while filing the income tax return.
Why do I need to pay advance tax?
Advance tax needs to be paid to avoid to pay lump sum amount of tax at once while filing return. If your tax liability is more than Rs. 10,000 and you do not pay advance tax on time then 1% per month interest will be levied under section 234B and 234C on your tax due till the date of payment.
When do I pay advance tax?
Being a professional, if your tax liability is more than Rs. 10,000 then you are required to pay advance tax in 4 installments, i.e., on 15 June (15%), 15th Sept (45%), 15th Dec (75%) amd 15th March (100%).
Being a businessman opting for presumptive taxation, 100% tax should be paid in advance by 15th March of the relevant Financial year.
How do I pay advance tax?
You can pay it online using your net banking or debit card through challan 280. You can pay it offline as well in any income tax listed banks along with the hard copy of filled challan 280.
Can I get a local CA to get my accounts prepared?
Yes, a local CA can be contacted to prepare your books of accounts. We can help you with the same as we have CAs in all major cities of India.
Why do I need to get books audited?
As per income tax laws, if gross receipts from profession exceeds Rs. 50 lakhs (from FY 16-17, earlier it was 25lakhs), then it is mandatory to get the books audited.
However, professionals are mandated to keep books of account and get it audited if the income disclosed by Professionals is less than 50% of gross receipts and the total income exceeds Rs. 250,000.
Do we need to provide any eligibility proof for a professional?
No proof is required to establish your eligibility to opt for presumptive taxation for professional. You just need to select your profession from the drop down of nature of business in your income tax return.
I am a professional also I am an NRI for this year as per income tax laws. Can I opt for presumptive taxation?
No, presumptive taxation is available for Indian residents only. NRI cannot opt for it.
How is tax computed for professionals under Presumptive Taxation?
Lets consider 3 scenarios for computation of presumptive tax for a professional for FY16-17
- Aditi is an architect and worked on several projects that gave her Rs. 40 Lakhs during the financial year. She does not have any other income. She is eligible to file returns under presumptive tax and her income and tax will computed as below
- Income = 50% x 40 = Rs. 20 Lakhs
- Her Tax will be computed as per the Tax Slabs for FY16-17
- Upto 2.5 Lakhs, Tax = 0
- Between 2.5 Lakhs and 5 Lakhs, Tax = 10% x 2.5 lakhs= Rs. 25,000
- Between 5 Lakhs and 10 Lakhs, Tax = 20% x 5 lakhs= Rs. 100,000
- Between 10 Lakhs and 20 Lakhs, Tax = 30% x 10 lakhs= Rs. 300,000
- Income Tax Payable = 300,000 + 100,000 + 25,000 = Rs. 4,25,000. Adding cess @3%, total income tax = Rs. 4,25,000 + Rs. 12,750 = Rs. 437,750
- Ram is a senior doctor who is employed in a government hospital. He also runs his own clinic. He draws a salary of Rs. 50,000 per month. He is also earning Rs. 20 Lakhs from services delivered in his clinic. He also earns a rental income of Rs. 5000 per month. Now, from all of Ram’s earnings, only the earnings from running his clinic will be considered for computation of presumptive tax. Since this value is lower than Rs. 50 Lakhs, Ram is eligible to file returns under presumptive tax and his income will be computed as below
- Total income = 10,00,000 + 6,00,000 + 60,000 = Rs. 16,60,000
- Income from Profession = 50% x 20 = Rs. 10 Lakhs
- Income from Salary = 50000 x 12 = Rs. 6 Lakhs
- Income from rent = 5000 x 12 = Rs. 60,000
- His Tax will be computed as per the Tax Slabs for FY16-17
- Upto 2.5 Lakhs, Tax = 0
- Between 2.5 Lakhs and 5 Lakhs, Tax = 10% x 2.5 = Rs. 25,000
- Between 5 Lakhs and 10 Lakhs, Tax = 20% x 5 = Rs. 100,000
- Between 10 Lakhs and 16.6 Lakhs, Tax = 30% x 6.6 = Rs. 198,000
- Income Tax Payable = 198,000 + 100,000 + 25,000 = Rs. 323,000. Adding cess @3%, total income tax = Rs. 3,23,000 + Rs. 9690= Rs. 332,690
- Matthew works as software consultant to leading manufacturing companies. Across all his projects, he earns Rs. 75 Lakhs annually. Now, although he is a professional, he cannot opt for presumptive taxation as his total earnings exceed Rs. 50 Lakhs