What is a business tax return?

A business tax return refers to an income tax return for businesses. A business income tax return is a comprehensive report that outlines a business’s income, expenses, and pertinent tax details, all presented in a designated form. It entails the submission of income tax returns for businesses, with the added requirement of reporting Tax Deducted at Source (TDS). This process must be carried out annually.

This return serves as a financial statement detailing earnings. It outlays and is a documentation of additional financial components like fixed assets, loans obtained, loans extended, debtors, and creditors within the business.

Income Tax Return Filing in India

Both Indian citizens and companies are required to file income tax returns if their Gross Total Income (GTI) exceeds Rs. 3 lakhs (amounts below three lakhs are exempted). These ITR for business income must be submitted annually within the specified deadline. Various income tax return forms are available, tailored to different criteria applicable to multiple groups of individuals and businesses. It is essential to identify the appropriate arrangements and submit them to the Income Tax Department of India for processing.

Filing ITR for business income offers several advantages, some of which are outlined below:

• Refund Claims: Accurate and timely filing can lead to potential refunds, which can be beneficial for improving cash flow within the business.
• Carry-forward of Losses: Losses incurred in one financial year can be carried forward and adjusted against future profits, reducing tax liabilities.
• Loan Applications: Having proper and up-to-date income tax returns can serve as evidence of financial stability, increasing the chances of obtaining loans or credit from financial institutions.
• Evidence for Transactions: Filed tax returns can provide solid proof of the business’s financial transactions and activities, which can be helpful for legal or contractual purposes.
• Compliance with Law: Filing tax returns ensures compliance with tax regulations, helping businesses avoid penalties or legal issues.
• Transparency: Transparent financial records through tax returns can enhance the business’s credibility, fostering trust among customers, partners, and stakeholders.
• Audit Preparedness: Filed returns provide a basis for accurate financial statements, preparing the business for potential tax audits.
• Business Growth: Accurate financial reporting through tax returns can assist in making informed business decisions, aiding in growth and expansion strategies.
• Avoiding Notices: Timely and accurate filing reduces the likelihood of receiving notices or queries from tax authorities.
• Availing Tax Benefits: Filing returns on time enables businesses to avail themselves of various tax benefits and deductions legally, optimizing their tax liabilities.

Who should file a Business Income Tax Return?

Filing a business income tax return is mandatory for all eligible businesses operating within the framework of Indian tax regulations. The need to do a business tax filing is contingent upon the structure of the business:

• Sole Proprietorship
• Partnership Firm
• Limited Liability Partnership (LLP)
• Companies – Private Limited Company, One Person Company

Types of Business Income Tax Return Filing

The different categories for filing business income tax returns are determined based on the types of business entities allowed to submit them. These categories correspond to other business structures and their respective designations.

• Partnership Firm Tax Return Filing
• Proprietorship Tax Return Filing
• Limited Liability Partnership Tax Return Filing
• Company Tax Return Filing

Proprietorship Tax Return Filing

Any individual with business income is said to be operating a proprietorship firm. Proprietorships operating in India are required to file income tax returns each year. Since proprietorships are considered the same as proprietors, a proprietorship’s income tax return filing procedure is similar to individual income tax return filing.

Requirement for Filing Proprietorship Tax Return

All proprietors below 60 years are required to file income tax returns if total income exceeds Rs. 2.5 lakhs. For proprietors over 60 years but below 80 years, income tax filing is mandatory if total income exceeds Rs.3 lakhs. Proprietors over 80 years and above must file income tax returns if the total income exceeds Rs.5 lakhs.

Income Tax Rate for Proprietorship

The income tax rate for proprietorship is the same as the income tax rate for individuals. Unlike the income tax rate for LLP or Company, which are flat rates, proprietorships are taxed on slab rates. The following is the income tax rate applicable for proprietorships for the assessment year 2023-24, wherein the Proprietor’s age is less than 60.