Business Tax Returns Filing : Types of Business Tax Returns, Business Taxes

Setting up a business and understanding the complexities involved in filing returns is an important aspect of running a business. 

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 the business, loans taken and loans given are declared here.

Who has to File a Business Tax Return?

Filing of returns mainly depends on the type of business structure. For example:

• If you are a sole proprietor, your business income and other personal income, such as salary, income from house property, and interest income, must 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 Partnerships (LLP), a business tax return has to be filed regardless of profit or loss. Even if no operations are undertaken, a return has to be filed.
• Companies, firms, and LLPs are taxed at a rate of 30%.

Types of Business Tax Return Filing

The different types of business tax return filing is named on the basis of business entities that are entitled to file these returns, i.e. different structure of businesses and their names accordingly.

• Sole proprietorship tax return filing: Under this type, a single owner operating the proprietorship firm has to file an income tax return annually. The firm is considered the same as the proprietor, and therefore the tax return filing procedures, are similar to that of the proprietor’s individual income tax return filing.
• Partnership firm tax return filing: Partnership firms are formed by two or more individuals to run a business. Hence, unlike Sole proprietorships, partnership firms under the Income Tax Act are taxed as individual legal entities. They are required to file income tax returns, irrespective of gain or loss.
• Limited Liability Partnership tax return filing: This is an alternative form of corporate business which includes the benefits of limited liability of a company and, at the same time the flexibility of being in a partnership form of business. For tax purposes, it is a flow-through entity. This basically means that partners of this firm obtain untaxed profits, but the tax is payable individually. 
• Company tax return filing: Business Income Tax Return filing for a company is of two categories, i.e. the domestic company or the foreign company. The companies that are registered with the Ministry of Corporate Affairs such as Private Limited companies, one person company/ company limited fall under domestic company. Whereas, a foreign company is formed under the laws of the foreign land.

Income Tax Audit

Tax audit is applicable for the following businesses and professionals:

• Businesses where the total sales, turnover, or gross receipts exceeds Rs.1 crore in the previous year. This limit has been increased to Rs.5 crores from AY 2021-22 and further to Rs.10 crore with effect from AY 2022-23 (FY 2021-22) provided - 
  • Cash receipts are below 5% of the gross receipts or turnover
  • Cash payments are below 5% of the aggregate payments
• Professionals whose gross receipts from profession exceed Rs.50 lakh in the previous year 

For more details on the applicability of tax audits for businesses opting for presumptive taxation, click here.

Also, a tax audit is required if there has been a loss of your business and you want to carry forward the loss. Tax Audit is necessary for assessees carrying on business eligible for presumptive taxation u/s 44AD, 44AE, 44BB, 44BBB and claiming income lower than the prescribed limit under the presumptive taxation scheme.

Presumptive Taxation

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.

For businesses, a minimum of 8% of turnover has to be offered as income on a presumptive basis. For professionals, 50% of professional receipts have to be declared on the business tax return.

What are the Due Dates for Filing of Returns?

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 the income tax return.

Also, a fine of Rs.5000 under the section 271F can be levied on the assessee.