Business Income Tax Return For FY 2023-24

Filing an Income Tax Return(ITR) for businesses is an intricate and extensive process involving many important aspects that the entity should consider.

• Business and Profession: Business is generally understood to encompass activities carried out with the intent of making a profit. Business activities may involve manufacturing, trading, rendering services, or any other commercial or industrial endeavour. Profession is defined under Section 2(36) of the Income Tax Act. A profession includes the provision of services that require specialized knowledge and skills. Professions often involve intellectual or manual work performed by an individual or a group of individuals with specialized expertise. Professions can include, but are not limited to, those of accountants, doctors, lawyers, architects, engineers, and other skilled professionals. Any income or profits derived from these activities are chargeable to tax under the head ‘Profits and Gains from Business or Profession(PGBP)’.
• Business Structure: An entity doing business has to ascertain its business structure and apply the tax laws accordingly. Different structures have their own tax implications and such things should be studied carefully. The different types of structures can be:

1. Sole Proprietorship - The income of the business is treated as the owner's personal income. Tax is computed at individual tax rates.
2. Partnership - Profits are distributed among partners, and each partner is taxed individually on their share of income.
3. Limited Liability Partnership - While the LLP itself is taxed, the partners are not taxed on the income they receive from the LLP. Instead, the LLP's income is distributed among the partners, and they are individually taxed on their share of the LLP's profits or remuneration received.
4. Company - Both Private and Public Limited Companies, are separate legal entities, taxed at the corporate tax rate. Shareholders pay tax on dividends received.

• Maintain Financial Records: Business entities need to document all financial records like assets, liabilities, incomes and expenses. These should be kept accurate and up-to-date. Having all the information is necessary to prepare Financial Statements which can be audited and used to compute income tax and file ITR. Moreover, Section 44AA of the Income Tax Act requires compulsory maintenance of books of accounts under certain circumstances and even stipulates a minimum maintenance period.
• Choose the right ITR Form: Businesses need to choose the appropriate ITR form based on their structure and income. For instance, a sole proprietor might use ITR-3, while a company might use ITR-6.

• Compute Taxable Income: Calculate the taxable income by adjusting allowable expenses and deductions from the gross income. At this juncture, the entity should reach out to CAs, qualified tax practitioners or any other experts as the laws applicable to businesses are substantial and might require a practised eye as they undergo frequent changes and updates.
• Prepare Financial Statements: Prepare the necessary financial statements, such as the Profit and Loss Statement, Balance Sheet, and Cash Flow Statement. All this information is required by the ITR form and stakeholders. If an entity is opting for Presumptive Income under Section 44AD, 44ADA or 44AE, they are not required to maintain books of accounts as per the Income Tax Act or submit a detailed Balance Sheet. It is recommended to consult with an expert on this topic.
• Auditing (if required): Section 44AB of the Income Tax Act specifies the instances where Tax Audit is applicable. Click here - for a detailed article on Tax Audit.
• Filing of ITR: ITR is to be accurately filled and submitted by the stipulated due date.

• Payment of Taxes: Entities should ensure compliance with advance tax provisions. Income Tax can be paid on filing of return or a ‘Pay Later’ option. The latter comes with some conditions that should be considered before opting.
• Verify ITR: The ITR form is to be verified within 30 days of submission and this can be done through Aadhaar OTP, EVC, Digital Signature etc. This is a crucial step and must not be forgotten. Once verification is complete, an Acknowledgement is generated and is recommended to keep a copy of the same.

In the case of businesses, filing Income Tax Returns is a multi-faceted process. It is imperative to stay informed about updates and to seek professional advice. This can help the entities fulfil statutory compliances and encourage fiscal responsibility and efficiency