1. What is the ITR 4?
The ITR-4 Form is the Income Tax Return form for those taxpayers, who have opted for the presumptive income scheme as per Section 44AD, Section 44ADA and Section 44AE of the Income Tax Act. However, if the turnover of the business mentioned above exceeds Rs 2 crores, the taxpayer will have to file ITR-3.
Click here to download ITR-4 for Assessment Year 2018-19
2. Who is required to file ITR 4?
ITR 4 is to be filed by the individuals/HUF/ partnership firm whose total income of AY 2018-19 includes :
a. Business income under section 44AD or 44AE
b. Income from profession calculated under section 44ADA
d. Income from One House Property (excluding the brought forward loss or loss to be carried forward cases under this head);
e. Income from Other Sources (Excluding winning from lottery and income from horse races).
1. Freelancers engaged in the above profession can also opt for this scheme if their gross receipts don’t exceed Rs 50 lakhs.
3. What is the Structure of ITR 4?
ITR-4 is divided into:
*(For AY 2018-19, the form has been modified to include GST details along with detailed financial information which will be furnished under Schedule BP)
- Part A: General Information
- Part B: Gross total income from the five heads of income
- Part C: Deduction and total taxable income
- Part D: Tax computation and tax status
- Verification & signatures on the return
- Schedule BP: Details of income from Business
Here are a few general guidelines to keep in mind while filling your ITR-4 form:
- Schedule AL: Asset and liability at the end of the year(applicable in the case where the total income exceeds Rs 50 lakhs)
- Schedule IT: Statement of payment of advance-tax and tax on self-assessment.
- Schedule-TCS: Statement of tax collected at source.
- Schedule TDS1: Statement of tax deducted at source on salary.
- Schedule TDS2: Statement of tax deducted at source on income other than salary.
- Supplementary schedule TDS1
- Supplementary schedule TDS2
- Supplementary schedule IT
- Supplementary schedule TCS
- If any schedule is not applicable to you, strike it out and write —NA— across it
- If any item is not applicable to you, write NA against it
- Indicate nil figures by “Nil”
- Put a “-” sign before negative figures
- All figures are to be rounded off to the nearest one rupee except figures for total income/loss and tax payable. Those are to be rounded off to the nearest multiple of ten.
- If you are an individual, under the Employer Category you should tick Government if you are a Central/State Government employee. You should tick PSU if you work in a public sector company of the Central/State Government.
3. How do I file my ITR-4 Form?
You can submit your ITR-4 Form either online or offline.
The ITR form can be filed offline only in any of the following case:
a. Individual is of the age of 80 years or more.
b. The income of the individual is less than Rs 5 lakhs and who do not have to claim a refund in the income tax return
The return can be filed offline:
a. By furnishing a return in a physical paper form
b. By furnishing a bar-coded return
The Income Tax Department will issue you an acknowledgement at the time of submission of your physical paper return.
a. By furnishing the return electronically under digital signature
b. By transmitting the data electronically and then submitting the verification of the return in Return Form ITR-V
If you submit your ITR-4 Form electronically under digital signature, the acknowledgement will be sent to your registered email id. You can also choose to download it manually from the income tax website. You are then required to sign it and send it to the Income Tax Department’s CPC office in Bangalore within 120 days of e-filing.
Remember that ITR-4 is an annexure-less form i.e. you do not have to attach any documents when you send it.
4. Presumptive Income & its Taxation – under section 44AD
When you are running a small business, you may not have enough resources to maintain proper accounting information and calculate your profit or loss. This makes it difficult to keep track of your income and taxes from such a business. With this in mind, the Income Tax Department has laid out some simple provisions, where your income is assumed based on the gross receipts of your business. This method is called the presumptive method, where tax is paid on an estimated basis.
Features of this Scheme
a. Your Net Income is estimated to be 8% of the gross receipts of your business. But From FY 2016-17 onwards, if gross receipts are received through a digital mode of payment, then Net Income is estimated at 6% of such gross receipts and for cash receipts. However, the rate is the same at 8% of such cash receipts.
b. You don’t have to maintain books of accounts of this business.
c. You have to pay 100% Advance Tax by 15
th March for such a business. No need to comply with the requirement of quarterly instalments due dates (June, sep, Dec) of advance tax.
d. You are not allowed to deduct any business expenses against the income.
If you are running more than 1 business, the scheme has to be chosen for each business. For example, if you run 3 businesses where only 1 is assessed under section 44AD. The relief of not maintaining accounting records & no requirement of an audit is only applicable to the business to which this scheme applies. For other 2 businesses which are not covered under this section – the accounting records have to be maintained and audit is also required.
Similarly, in case of Advance Tax, the benefit of paying the advance tax in one instalment by 15th March is only granted for the business for which this scheme has been opted for. If the taxpayer has income which is other than from such business, where his tax liability exceeds Rs 10,000 in a year, he has to pay advance tax on such other income.
Eligibility Criteria for this Scheme
a. Your gross receipts or turnover of the business for which you want to avail this scheme should be less than Rs 2 crore.
b. You must be a Resident in India.
c. This scheme is allowed to an individual, a HUF or a partnership firm. It is not available to a Company.
d. The scheme cannot be adopted by the taxpayer, if he has claimed deduction under section 10, 10A, 10B, Section 10BA, or Section 80HH to 80RRB in the relevant year.
Not sure which ITR form you need to use? Read our guide for help.
The taxpayer may be in any business – retail trading or wholesale trading or civil construction or any other business to avail this scheme. But this method of income computation is NOT applicable to:
a. Income from commission or brokerage
b. Agency business
c. Business of plying, hiring or leasing goods carriage (see section 44AE)
d. Professionals – who are carrying on a profession of legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, an authorized representative, film artist, company secretary and information technology.
Authorized representative means – any person, who represents someone, for a fee or remuneration, before any Tribunal or authority under any law. Film Artist includes a producer, actor, cameraman, director, music director, art director, dance director, editor, singer, lyricist, story writer, screenplay writer, dialogue writer, dress designer – basically any person who is involved in his professional capacity in the production of a film.(see Sec 44ADA).
These are the professions listed under section 44AA(1).
Devesh runs a medical shop in his colony. The receipts of his business are Rs 1,50,00,000 in the financial year 2018-19. Can Devesh take benefit of the scheme under section 44AD?
Devesh is a resident and his receipts from this business are less than Rs 2 crore. His business is not listed under the non-eligible businesses list and therefore he can avail this scheme under section 44AD.
Deduction for Business Expenses
No business expenses are allowed to be deducted from the net income. Depreciation is also not deductible. However, in case of a partnership firm, a separate deduction for remuneration of partners and interest paid to partners is allowed. This must be within the limit specified under section 40(b). Even though depreciation is not allowed as a deduction, written down value (WDV) of the assets shall be considered as if depreciation has been allowed.
For example, Rohit runs a Kirana shop and his gross receipts are Rs 75,12,260 from this business. He decided to opt for the scheme under section 44AD. He also wants to claim depreciation for 1 large refrigerator and a computer with billing system he purchased for Rs 2,50,500. He also spent Rs 1,50,000 buying new racks for displaying his goods.
Since Rohit has opted for the presumptive scheme under section 44AD, his net income is computed as 8%(assuming all cash receipts) of Rs 75,12,260 = Rs 6,00,981. Under this scheme, no deductions are allowed from income. Rohit will not be allowed to deduct depreciation from this income. He cannot deduct expenses for the purchase of the new rack.
Can the taxpayer declare higher or lower income than 8% of gross receipts?
The taxpayer can voluntarily declare a higher income and pay tax on it. In case the taxpayer chooses to declare lower income than 8% of gross receipts – he shall have to maintain books of accounts and get them audited.
Click here to read more about bookkeeping and audit requirements.
For example, Ritesh runs a stationary shop and his turnover from this business are Rs 85,20,000. He wants to opt for the scheme under section 44AD and therefore his income shall be Rs 6,81,600 (at 8% of gross receipts, assuming all cash receipts).
However, Ritesh’s actual income from the business works out to Rs 5,74,000. Ritesh decides to not opt for the scheme under section 44AD and pay tax on the actual income of his business. However, since he’s not opting for this scheme he has to maintain proper accounting records and also get his records audited.
Computing Turnover or Gross Receipts : Gross receipts or Turnover mean the total collections of the business. The receipts shall be inclusive of GST. The receipts shall also include delivery charges as well as receipts from the sale of scrap.
Discounts given, advances received and money received on sale of assets should be excluded.
5. Presumptive taxation under Section 44AE
For those who are in the business of plying, leasing or hiring of trucks a scheme similar to presumptive income scheme under section 44AD is available.
Features of this scheme:
- You should be in the business of plying, leasing or hiring goods carriages.
- You should not own more than 10 goods carriages at any time during the year. Include carriages taken on hire purchase or on instalments.
- You may be an individual, HUF, Company or partnership firm – scheme is allowed to all taxpayers.
Part of a month shall be rounded off to the next month. For example, if a goods carriage is owned for 9 months and 3 days, the net income shall be calculated as if the carriage was owned for 10 months.
Deduction for Business Expenses:
No business expenses are allowed to be deducted from the net income. Depreciation is also not deductible. However, in case of a partnership firm, a separate deduction for remuneration of partners and interest paid to partners is allowed. This must be within the limit specified under section 40(b). Even though depreciation is not allowed as a deduction written down value (WDV) of the assets shall be considered as if depreciation has been allowed.
Let’s see the calculation with an example,
Rohan is engaged in the business of plying, hiring or leasing goods carriages, and owns 5 trucks and another 2 trucks which have been taken on installments. Rohan wants to know what will be his income from this business.
Rohan can opt for the scheme under section 44AE since he earns less than 10 trucks. He owns 7 trucks in total, include trucks which have been purchased on installments even if some installments are unpaid. Rohan’s income from this business shall be Rs 7 trucks x Rs 7,500 x 12 months = Rs 6,30,000 shall be Rohan’s net income from this business. No business expenses can be claimed from this income.
Can the taxpayer declare higher or lower income?
The taxpayer can voluntarily declare a higher income and pay tax on it. In case the taxpayer chooses to declare lower income than as mentioned above – he shall have to maintain books of accounts under section 44AA and get them audited.
- Net taxable income from a goods vehicle (including any goods carriage) will be calculated as Rs 7,500 per month for each vehicle per month or part thereof during the FY in which vehicle is owned by the assessee.
- The above calculation will be irrespective of heavy goods vehicle (more than 12000 kgs) and light goods vehicle(less than or equal to 12000 kgs).
- The assessee is not required to maintain books of accounts under this business
- The advance tax has to be paid 100% by 15th March for such businesses.
- No need to comply with the requirement of quarterly instalments due dates (June, Sep, Dec) of advance tax.
- You are not allowed to deduct any business expenses against the income.
6. Presumptive taxation under Section 44ADA
The benefit of Presumptive tax rates was only available to businesses. But now this benefit has been extended to professionals also. It will be applicable to the professionals, whose total gross receipts does not exceed Rs 50 lakhs in a financial year.
Presumptive Tax Rate: The income of the professionals opting for this scheme would be assumed at 50% of the total gross receipts for the year.
Applicability of the scheme: The persons engaged in the following profession can opt for this presumptive Income scheme:
d. Architectural Profession
e. Accountancy Profession
f. Technical Consultancy
g. Interior Decoration
The scheme is applicable only to a resident assessee, who is an individual, HUF or Partnership and not LLP (Limited Liability Partnership Firm).
No requirement of Maintenance of books of Account: Professionals opting for this scheme need not maintain books of account required under section 44AA. They also need not get the books of account get audited under section 44AB.
Deduction for Business Expenses: No business expense is allowed to be deducted from the net income. Depreciation is also not deductible. Even though depreciation is not allowed as a deduction. Written down value (WDV) of the assets shall be considered as if depreciation has been allowed.
Can the taxpayer declare higher or lower income? The taxpayer can voluntarily declare a higher income and pay tax on it. In case the taxpayer chooses to declare lower income than 50 % of the total gross receipts- he shall have to maintain books of accounts under 44AA and get them audited.
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If you have missed the due date to file your return, you can still file it before 31 Dec 2018 by paying a fee of Rs 5,000. If you are filing after 31 December 2018, you will have to pay a fee of Rs 10,000. Also to note that the time limit for filing a return late for FY 2017-18 expires on 31 March 2019.