Details on Income Tax for Self Employed by Certicom

Income Tax for Self Employed

Each Indian resident is required to pay tax if they have an earning. A pay creating element is called an assessee which, under Section 2 (7) of the Income Tax Act, 1961, is characterized as an individual or element by whom any expense or some other whole of cash is payable under this Act. Assessee incorporates the following–

  • Salaried person
  • Independently employed individual or an owner of a sole-ownership business
  • Hindu Undivided Family
  • Organization firm
  • Constrained Liability Partnership (LLP)
  • An organization which has been enrolled with the Registrar of Companies

The tax filing process for various kinds of assessees is distinctive in light of the fact that their source of income is different. When filing returns under the Income Tax Act, there are five principle heads of pay under which the income is determined. These heads incorporate the accompanying –

  • Salary income
  • Income from house property
  • Capital additions
  • Earning from business or profession
  • Earning from different sources

While, if there should arise an occurrence of salaried people, the head ‘salary income’ is significant, for independently employed people or professionals, the greater part of the income is recorded and determined under the head ‘income from business or profession’. Thus, the tax filing procedure followed by salaried and independently employed people contrasts. Lets try to understand how tax is filed by self-employed assessees –

Who is an independently employed assessee?

An independently employed assessee would be a person who does not have a fixed pay or pay from an association. The individual either pitches his administrations to different organizations without having a long haul contract or is himself occupied with business of exchange, trade, fabricating or related exercises. In addition, if an individual seeks after an occupation where he/she practices, he would be known as an independently employed proficient like a doctor, lawyer, architects, and so on.

Tax Filing for independently employed

The income which is earned by self-employed individuals  is recorded under ‘income from business or profession’. Figuring of taxable income under this head should be possible in two different ways which are as per the following –

  • The tax can be determined based on hypothetical tax assessment wherein the income is determined without guaranteeing any deduction for the costs caused by the business or profession on producing its income
  • The assessment obligation can be determined on the genuine benefit which has been determined subsequent to guaranteeing the real costs brought about over the span of business or profession to produce income.

 

Tax Filing under hypothetical tax scheme

The idea of hypothetical tax assessment is generally new thus numerous self employed tax payers are not extremely familiar with the idea. In this way,  So, let’s understand the presumptive tax scheme in details – –

How the scheme functions

  • The plan of presumptive tax is relevant for independently employed assessees.
  • In the event that the assessee is an independently employed professional, the presumptive tax assessment plan would apply to him/her under Section 44DA of the Income Tax Act, if the gross receipts are underneath INR 50 lakhs in a financial year.
  • For  businesses, if the turnover of the business is INR 2 crore or underneath in a financial year, the plan of presumptive taxation would be relevant under Section 44AD of the Income Tax Act.
  • Under the presumptive taxation scheme, the minimum income from business is considered to be 8% of gross receipts. In the case of profession, the least benefit is considered to be 50% of gross receipts.
  • If the business keeps up its receipts in digital mode, i.e., as check, credit cards, net banking, and so on., the min. income for tax purposes would be determined @ 6% of the computerized receipts.
  • These rates are connected on the income generated and the taxable income from business or profession is determined.

Significant Points to know

The plan of  presumptive taxation is optional for independently employed businessmen or professionals

If the scheme isn’t picked, the books of records of the business or profession ought to be reviewed by a certified Chartered Accountant. The benefit from business or profession should then be determined dependent on actual incomes or expenses and after that the tax ought to be filed.

The plan of presumptive taxation is appropriate to Indian inhabitants who are individuals, Hindu Undivided Families (HUFs) or partnership firms.

If the assessee has chosen to file their return under the scheme of presumptive taxation in one financial year, the person choose to opt out of the scheme in the next five financial years. Similarly, if the assessee opts out of the scheme any time, the scheme would not be available to the person for the next five subsequent years. So, for instance, if the assessee has opted out of the presumptive taxation scheme in the financial year 2019-20, the scheme would not be available till the financial year 2024-25. Also, if the assessee has opted for the presumptive taxation scheme in the financial year 2019-20, looking out of the scheme would not be possible till the financial year 2024-25.

Reviewing of Accounts

  • In case of self-employed professionals, if the gross receipt in a financial year is INR 50 lakhs and more, their accounts should be audited by a certified Chartered Accountant. The tax audit report should then be submitted to the income tax department when filing the tax returns.
  • If the business has an income which is above INR 2 crore, the books of accounts of the business would have to be audited by certified Chartered Accountants. The auditing is required to be done in a unique format so that the taxable income can be easily calculated by a tax agent.
  • Moreover, if the business or profession does not opt for the scheme of presumptive taxation, the books of accounts would have to be audited irrespective of the income generated by them.

Tax Filing Date

The income tax return for presumptive taxation ought to be filed before 31st July every year. If independently employed assessees don’t record their returns within 31st July, they face a penalty of up to INR 10,000.

ITR Form

The ITR Form which supposed to be used by self-employed businessmen or professionals for filing their taxesduties relies upon the sort of tax that the assessees are filing. If tax is filed under the plan of possible tax assessment, ITR – 4 should be filled in and submitted. However, if the hypothetical tax collection plan isn’t being received by the assessee, ITR – 3 is required to be used for filing tax.

Advance Tax

15% of the estimated tax ought to be paid by fifteenth June

45% of the estimated tax ought to be paid by fifteenth September

75% of the estimated tax ought to be paid by fifteenth December

100% of the estimated tax ought to be paid by fifteenth March

 

 

If the individual is below 60 years of age or is a Hindu Undivided Family, Association of Persons, Body of Individual or an artificial judicial person

Taxable income level Rate of tax
Up to INR 250,000 Nil
INR 250,001 to INR 500,000 5% of the income exceeding INR 2.5 lakhs
INR 500,001 to INR 10,00,000 5% of the income exceeding INR 2.5 lakhs

+

20% of the income exceeding INR 5 lakhs

INR 10,00,001 and above 5% of the income exceeding INR 2.5 lakhs

+

20% of the income exceeding INR 5 lakhs

+

30% of the income exceeding INR 10 lakhs

 

If the individual is a Senior Citizen aged between 60 years and 80 years

Taxable income level Rate of tax
Up to INR 300,000 Nil
INR 300,001 to INR 500,000 5% of the income exceeding INR 2.5 lakhs
INR 500,001 to INR 10,00,000 5% of the income exceeding INR 2.5 lakhs

+

20% of the income exceeding INR 5 lakhs

INR 10,00,001 and above 5% of the income exceeding INR 2.5 lakhs

+

20% of the income exceeding INR 5 lakhs

+

30% of the income exceeding INR 10 lakhs

 

If the individual is a super senior citizen (Aged 80 years and more)

Taxable income level Rate of tax
Up to INR 500,000 Nil
INR 500,001 to INR 10,00,000 20% of the income exceeding INR 5 lakhs
INR 10,00,001 and above 20% of the income exceeding INR 5 lakhs

+

30% of the income exceeding INR 10 lakhs

 

Domestic companies are taxed @ 30% on their income. If the turnover or gross receipts of the organization is beneath INR 250 crores, the tax rate would be 25%.

Other than the tax determined utilizing the previously mentioned pieces, surcharge and cess is additionally payable. For further details, please contact Certicom – Best Chartered Accountants in Bangalore.

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Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.

Certicom Consulting

Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.

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