Business Tax Filing

In India, both individuals and businesses must file their income tax returns if their Gross Total Income (GTI) exceeds Rs. 3 lakhs (income below this threshold is not required to file). For businesses, these returns must be filed annually within the specified deadlines. There are various income tax return forms designed for different types of individuals and businesses, so it's crucial to choose the correct form and submit it to the Income Tax Department of India for processing.

Here are some benefits of filing business income tax returns:

• Refund Possibilities: Proper and timely filing can lead to refunds, which can enhance your business's cash flow.
• Loss Carry-Forward: Losses from one fiscal year can be carried forward and used to offset future profits, reducing overall tax liabilities.
• Loan Approval: Up-to-date and accurate tax returns can serve as proof of financial stability, increasing your chances of securing loans or credit from financial institutions.
• Transaction Proof: Filed returns offer solid documentation of your business's financial activities, which can be useful for legal or contractual needs.
• Legal Compliance: Regularly filing returns ensures adherence to tax regulations, helping to avoid penalties or legal complications.
• Enhanced Credibility: Transparent financial records can boost your business's reputation, fostering trust with customers, partners, and stakeholders.
• Audit Readiness: Properly filed returns provide a solid foundation for financial statements, preparing your business for potential tax audits.
• Informed Decision-Making: Accurate financial reporting can support better business decisions and assist in growth and expansion strategies.
• Avoiding Notices: Timely and accurate filing decreases the chances of receiving notices or queries from tax authorities.
• Maximizing Tax Benefits: Filing returns on time allows businesses to take advantage of various legal tax benefits and deductions, optimizing tax liabilities.

Business income tax returns are categorized based on the type of business entity that needs to file them. Each category aligns with different business structures and their classifications.

Partnership Firm Tax Return Filing

Sole Proprietorship Tax Return Filing

Limited Liability Partnership (LLP) Tax Return Filing

Company Tax Return Filing

Sole Proprietorship Tax Return Filing

For individuals running a sole proprietorship, income tax returns must be filed annually. In India, the process for filing tax returns for a sole proprietorship is similar to that for individual taxpayers since the two are considered equivalent in the eyes of tax regulations.

Filing Requirements for Sole Proprietorship

• For individuals below 60 years of age: Tax returns must be filed if the total income exceeds ₹2.5 lakhs.
• For individuals aged between 60 and 80 years: Filing is required if the total income exceeds ₹3 lakhs.
• For individuals aged 80 years and above: Returns must be filed if the total income exceeds ₹5 lakhs.

Income Tax Rates for Sole Proprietorship

The tax rates for sole proprietorships mirror those applicable to individual taxpayers. Unlike the flat tax rates for LLPs or companies, sole proprietorships are subject to slab rates. For the assessment year 2023-24, the following slab rates apply to individuals under 60 years of age.

For Proprietors Under 60 Years of Age

• Income up to ₹2,50,000: No tax
• Income from ₹2,50,001 to ₹5,00,000: 5%
• Income from ₹5,00,001 to ₹10,00,000: 20%
• Income above ₹10,00,000: 30%

For Proprietors Aged Between 60 and 80 Years

If a proprietor turns 60 during the previous year but is under 80 on the last day of the previous year:

• Income up to ₹3,00,000: No tax
• Income from ₹3,00,001 to ₹5,00,000: 5%
• Income from ₹5,00,001 to ₹10,00,000: 20%
• Income above ₹10,00,000: 30%

For Proprietors Above 80 Years of Age

• Income up to ₹5,00,000: No tax
• Income from ₹5,00,001 to ₹10,00,000: 20%
• Income above ₹10,00,000: 30%

Surcharge Rates for FY 2023-24

The following surcharge rates apply based on the income range:

• Income between ₹50 Lakhs and ₹1 Crore: 10%
• Income between ₹1 Crore and ₹2 Crores: 15%
• Income between ₹2 Crores and ₹5 Crores: 25%
• Income above ₹5 Crores: 37%

For the Assessment Year 2023-24, if a proprietor chooses the alternate tax regime under section 115BAC, the surcharge rate will be 25%, a reduction from the previous 37% rate.

Tax Audit Requirements for Proprietorships

A proprietorship must undergo a tax audit if its annual sales turnover exceeds ₹1 crore. For professionals, an audit is necessary if gross receipts surpass ₹50 lakhs within the financial year.

Filing Deadlines for Proprietorship Tax Returns

• Non-Audit Returns: The deadline for filing tax returns for proprietorships not requiring an audit is July 31.
• Audit Returns: If a tax audit is mandatory, the return must be filed by September 30.

ITR Forms for Proprietorship Returns

• ITR-3: To be filed by proprietors or Hindu Undivided Families engaged in a proprietary business or profession.
• ITR-4-Sugam: Suitable for proprietors opting to pay taxes under the presumptive taxation scheme.

Partnership Firm Tax Return Filing

All partnership firms must file income tax returns annually, irrespective of their income or losses. Partnership firms are treated as separate legal entities under the Income Tax Act, thus, they are taxed similarly to LLPs and Companies.

Filing Requirements for Partnership Firms

Every partnership firm must submit its income tax return each year, regardless of its income status. Even if there is no business activity, a NIL return should be filed by the due date.

Income Tax Rates for Partnership Firms

• Standard Rate: Partnership firms are taxed at 30% of their total income.
• Surcharge: An additional 12% surcharge applies if the total income exceeds ₹1 crore.
• Health and Education Cess: A 4% cess on the income tax and surcharge is applicable.

Minimum Alternate Tax (MAT) for Partnership Firms

Partnership firms are subject to a Minimum Alternate Tax (MAT) of 18.5% on their adjusted total income. This ensures that the tax payable cannot be less than 18.5%, plus any applicable surcharges, health, and education cess.

Tax Audit for Partnership Firms

Partnership firms with total sales exceeding ₹1 crore or gross receipts over ₹50 lakhs in a profession must undergo a tax audit. Additional conditions may also necessitate an audit.

Filing Deadlines for Partnership Firm Tax Returns

• General Deadline: The typical deadline for filing tax returns is July 31.
• Audit Returns: Firms requiring an audit must file their returns by September 30.

ITR Form for Partnership Firm Returns

Partnership firms should file their tax returns using Form ITR-5. This form does not require attachments, but firms must retain all business records and provide them to tax authorities upon request.

Filing Requirements for LLPs

All Limited Liability Partnerships (LLPs) must submit an income tax return annually, regardless of their profit or loss status. As distinct legal entities, LLPs are taxed separately from their partners. The tax rate for LLPs aligns with that of companies in the country.

Filing Necessities

Every LLP is mandated to file an income tax return each year, regardless of financial performance. In cases where there was no business activity, a NIL return must be submitted before the due date.

Tax Rate for LLPs

The income tax rate for LLPs stands at 30% of their total income. An additional 12% surcharge applies if the total income exceeds ₹1 crore. Moreover, a 4% Health and Education Cess is levied on both the income tax and the surcharge.

Minimum Alternate Tax

LLPs are subject to a Minimum Alternate Tax (MAT) similar to that of companies. The MAT rate is 18.5% on adjusted total income. This means that the income tax liability of an LLP cannot fall below 18.5%, plus applicable surcharges and cess.

Tax Audit Requirements

LLPs with a turnover surpassing ₹40 lakh or a contribution exceeding ₹25 lakh must undergo an audit by a certified Chartered Accountant. LLPs involved in international transactions with associated enterprises or certain specified domestic transactions must also submit Form 3CEB, certified by a Chartered Accountant. The deadline for filing Form 3CEB is November 30.

Filing Deadlines

The general deadline for LLP tax return filing is July 31. LLPs required to undergo a tax audit must file by September 30.

ITR Form for LLPs

LLPs are required to file their income tax returns using Form ITR 5. This form must be submitted online with the digital signature of one of the LLP’s designated partners.

In India, every company is obligated to submit annual income tax returns. According to the Income Tax Act, there are two primary categories for tax return filing: domestic and foreign companies. Entities registered with the Ministry of Corporate Affairs, such as Private Limited, Personal, or Limited Companies, are categorized as domestic companies.

Filing Requirements for Corporate Tax Returns

All Indian-registered companies must file their income tax returns annually, regardless of their income, profit, or losses. This includes companies with no active transactions, often referred to as dormant companies.

Corporate Income Tax Rates

For the Assessment Year 2024-25, domestic companies with a turnover of less than ₹400 crores during the fiscal year 2020-21 are subject to a tax rate of 25% on their total income. Companies exceeding this turnover threshold are taxed at a rate of 30%. Additionally, companies are required to pay a surcharge and Health and Education Cess at a rate of 7% on the total income tax and surcharge.

Minimum Alternate Tax (MAT)

Companies are mandated to pay a Minimum Alternate Tax (MAT) at a rate of 15% on book profits, plus surcharge and education cess, if their tax liability is less than 15% of their book profit.

Tax Audit Requirements

Each year, a Chartered Accountant must audit a company's financial accounts, irrespective of its turnover or profit/loss status.

Filing Deadlines

All Indian companies must file their income tax returns by September 30 each year. Companies established between January and March have a different timeline for MCA annual return filings, but this does not affect the income tax return deadline. Therefore, even companies incorporated between January and March must comply with the September 30 deadline for income tax returns.

ITR Form for Corporate Tax Returns

Companies operating for profit in India need to file Form ITR 6. This includes Private Limited Companies, Limited Companies, and One-Person Companies.

Important Considerations for Business Tax Filing

• Income Assessment: Businesses must calculate their total income irrespective of profit or loss. If the total income exceeds the basic taxable threshold before any deductions, an income tax return must be filed.
• Gross Total Income Criteria: For business tax purposes, a Gross Total Income exceeding ₹2.5 lakhs indicates crossing the basic taxable threshold. Income before deductions that exceeds ₹3 lakhs is used for tax filing.
• Uniform Taxation: LLPs, companies, and firms are all subject to a tax rate of 30%, requiring them to file tax returns irrespective of their financial outcomes or operations.