ITR-4 and Presumptive Taxation: A Practical Guide

An essential component of the Indian tax system is the filing of income tax returns (ITRs), on which taxpayers report their earnings, allowable expenses, and taxes paid to the government. It allows people and companies to comply with legal requirements and make a valuable contribution to the country's income collection.

Filing an ITR makes it easier for the government to assess and collect taxes while ensuring transparency and accountability in taxpayers' financial dealings. In accordance with the legislation, it also enables taxpayers to maximise their tax obligations by claiming deductions and exemptions.

With an emphasis on its applicability and consequences for taxpayers, we shall examine the nuances of filing Income Tax Return Form ITR-4 under the presumptive taxation scheme in this article. We will examine the requirements for filing ITR-4 under the presumptive taxation scheme, as well as the limitations and issues surrounding it, using a case study of Mr. Anupam, a salaried employee involved in derivative trading. Through our analysis of Mr. Anupam's financial situation, we hope to offer a thorough perspective that will assist taxpayers in navigating the complexity of tax compliance and efficiently maximising their tax planning methods.

Understanding ITR 4:

Income Tax Return Form ITR-4, also known as Sugam, is specifically designed for individuals and Hindu Undivided Families (HUFs) who have income from business or profession.

It is one of the several forms prescribed by the Income Tax Department of India for filing tax returns.

Eligibility to file ITR-4:

Resident Individuals: Resident individuals who are not eligible to file ITR-1 (Sahaj) and ITR-2, and who have income from business or profession, are eligible to file ITR-4.

Hindu Undivided Families (HUFs): HUFs that are not required to furnish a report under sections 92E (Transfer Pricing) and 10AA (Special Economic Zone) and have income from business or profession are also eligible to file ITR-4.

Suitability for presumptive taxation: ITR-4 is particularly suitable for individuals and HUFs whose income from business or profession can be computed on a presumptive basis under sections 44AD, 44ADA, or 44AE of the Income Tax Act, 1961. These sections provide for simplified methods of computing income, relieving taxpayers from the requirement of maintaining detailed books of accounts.

Section 44AD: This section allows certain eligible businesses to declare their income at a prescribed rate of 8% of the total turnover or gross receipts. It is applicable to businesses with turnover up to Rs. 2 crores, provided they fulfill the specified conditions.

Section 44ADA: This section provides for presumptive taxation for professionals, such as doctors, lawyers, engineers, architects, etc., allowing them to declare their income at 50% of the gross receipts.

Section 44AE: This section applies to taxpayers engaged in the business of plying, hiring, or leasing goods carriages, allowing them to declare their income based on the number of vehicles owned or hired.

By filing ITR-4 under the presumptive taxation scheme, eligible taxpayers can simplify their tax compliance process, reduce the burden of maintaining detailed books of accounts, and streamline their tax planning strategies effectively. However, it is essential to ensure that all conditions and requirements specified under the respective sections are met to avail the benefits of presumptive taxation accurately.Qualifications and Assumed Taxes

Qualifications for Filing ITR 4:

1. Eligible Residents Concept of Presumptive Taxation: Residents who are employed or have other sources of income are eligible to file ITR-4.
2. Hindu Undivided Families (HUFs): HUFs are also eligible to file ITR-4 if they are employed or have other sources of income and are exempt from filing reports under sections 92E (Transfer Pricing) and 10AA (Special Economic Zone).

Concept of Presumptive Taxation Section 44AD:

1. Under Section 44AD, up to 8% of total turnover or gross revenues, as specified, may be declared by qualified firms as their income.
2. Businesses with a yearly revenue of up to Rs. 2 crores are eligible for this section.
3. The need to keep thorough books of accounts is waived for taxpayers who take use of Section 44AD advantages.
4. Section 44ADA: This section establishes presumed taxation for professionals, including physicians, attorneys, engineers, architects, and so forth.
5. Professionals who fall within this section's purview may report earning up to 50% of gross receipts.
6. Section 44ADA exempts taxpayers from keeping comprehensive books of accounts, just like Section 44AD does.
7. Section 44AE: Taxpayers who are in the business of leasing, hiring, or plying goods carriages are subject to Section 44AE.
8. Taxpayers who fall under this category are able to report their income according to the number of cars they own or rent.
9. Recent changes increasing the 3 crore rupee requirement for turnover:
10. The turnover threshold limit for presumptive taxation under Section 44AD was raised from Rs. 2 crores to Rs. 3 crores by the Finance Act 2023.
11. This modification is subject to some restrictions, one of which is that cash receipts cannot be more than 5% of the gross turnover for the preceding year.
12. This amendment intends to ensure compliance with anti-tax evasion measures while extending the benefits of presumptive taxation to a greater percentage of taxpayers, thereby offering relief to professionals and small enterprises.
13. Through a comprehension of the qualifying requirements and the notion of presumptive taxation as outlined in sections 44AD, 44ADA, and 44AE, taxpayers can efficiently employ the features of ITR-4 to streamline their tax compliance procedures and maximise their tax optimisation tactics.

ITR-4 Filing Procedure:

1. Open the e-Filing Portal and log in:

Go to https://www.incometax.gov.in/, the Income Tax Department of India's official e-Filing webpage.

1. Enter your login information, which includes your password, captcha code, and User ID (PAN).
2. Choose the Assessment Year and the Filing Mode:
3. Choose the appropriate Assessment Year (AY), which is AY 2024-25 for FY 2023–24, after logging in.
4. Select the online filing option.
5. Choose an ITR Form:
6. Select "Income Tax Return" under the "Filing" option, then select the relevant ITR form (ITR-4 for individuals and HUFs with income from business or profession).
7. Move on to ITR-4:
8. After you've chosen ITR-4, choose the relevant option to continue the filing process.
9. Initiate the Filing procedure:
10. You will be prompted to initiate the filing procedure after choosing ITR-4.
11. Verify the filing cause, such as having higher taxable income than the basic exemption level.
12. Check the accuracy of any pre-filled return data, if any.
13. Choose Tax Regime:
14. You may need to file Form 10IEA before the return filing deadline if you earn income from a business or profession and would like to opt out of the default new tax regime that will take effect on April 1, 2023.
15. Enter Your Income Information
16. Provide information about all of your sources of income, including your salary, profits from your business or profession (for presumed taxes), interest and dividends, and any other pertinent data that may be needed.
17. Decide on the tax regime and the tax computation:
18. Select the proper tax regime, either the old or the new one. If you have chosen to use presumptive taxation, enter the presumptive income and gross turnover amounts in accordance with the relevant sections (44AD/44ADA/44AE).
19. Determine your tax liability using the details you have provided.
20. Pay Tax, Validate, and Submit: If necessary, pay the tax after determining your tax liability.
21. Verify the accuracy of all the information entered in the return by validating it.
22. After verification, send in the refund.
23. Verification and Acknowledgment: Upon submission, you will get a confirmation that the return was successfully filed.
24. Check that the information in the acknowledgment matches the data in the return by double-checking the specifics.
25. Follow the supplied directions to complete the verification procedure.
26. Get and Save Recognition:
27. After filing successfully, download the acknowledgment receipt that was created.
28. Save the acknowledgment for your records and future reference.

Taxpayers can effectively file their Income Tax Return Form ITR-4 online and ensure compliance with the rules and regulations of the Income Tax Department by following these easy-to-follow instructions.

Limitations and Points to Remember

1. Presumptive Taxation Requires Compliance for Five Years: Selecting presumptive taxation means adhering to this plan for the ensuing five years.
2. Before choosing to use presumed taxation, taxpayers must carefully review their long-term company goals and financial projections.
3. Once selected, taxpayers cannot change their mind and must adhere to the plan for the entire allotted time before returning to the standard taxes structure.
4. Restrictions on Opting Out: If you choose to forego presumed taxes within the first five years, you won't be able to participate in the programme for the next five.
5. The ramifications of opting out should be taken into account by taxpayers, including any possible compliance obligations like keeping thorough books of accounts and submitting to tax audits.
6. The choice to forego presumptive taxes ought to be in line with the taxpayer's financial situation, business goals, and tax preparation techniques.
7. Comparison of Tax due: In order to choose the most advantageous course of action, taxpayers should assess the tax due under the standard scheme and under presumptive taxation.
8. Presumptive taxation calculates tax liability regardless of actual profits or losses using a fixed percentage of turnover or gross receipts.
9. Under the standard plan, tax liability is determined by taking into account set-offs, exemptions, and real earnings or losses.
10. To make an informed choice, taxpayers must evaluate how both schemes would affect their entire tax liability and financial situation.
11. Individual Circumstances and Goals: Before choosing presumed taxes, taxpayers should assess their unique situations, company dynamics, and long-term goals.
12. It is important to consider factors including compliance preferences, development potential, revenue fluctuation, and the type of business or profession.
13. Getting advice from a tax advisor or chartered accountant can be very helpful in determining if presumptive taxation is appropriate and in helping you make the best tax planning decisions.

Through careful evaluation of these limitations and factors, taxpayers can make informed decisions about whether to opt for presumptive taxation or the normal scheme, thereby guaranteeing adherence to tax regulations and financial objectives.

Conclusion

This article has given a thorough explanation of how to file an Income Tax Return Form ITR-4 under the framework of presumed taxation. Unlike other forms, ITR-4 enables simpler tax filing procedures for individuals and Hindu Undivided Families (HUFs) having income from company or profession. Sections 44AD, 44ADA, and 44AE govern presumed taxation, which offers qualifying taxpayers an expedited way to calculate income and relieves them of the need to keep thorough books of accounts. But choosing presumed taxation has drawbacks as well, such as having to adhere to the plan for the next five years in a row and having limited options for opting out. Before choosing presumed taxation, taxpayers should carefully consider their long-term business objectives and tax planning methods. The post included a detailed how-to for completing ITR-4 and emphasised the significance of comprehending the ramifications of selecting between the regular plan and presumed taxation. In order to make well-informed decisions that are in line with personal circumstances and financial objectives, it is necessary to compare the tax responsibilities under both systems. In order to efficiently negotiate the complexity of tax filing, ensure appropriate tax planning, and comply with tax rules, readers are therefore recommended to obtain expert guidance.

FAQ’S

What is ITR-4, and who can file it?

ITR-4 is an Income Tax Return form designed for individuals and Hindu Undivided Families (HUFs) with income from business or profession.

What are the eligibility criteria for filing ITR-4?

Residents individuals and HUFs with income from business or profession can file ITR-4.

What is presumptive taxation?

Presumptive taxation is a simplified method for computing income for eligible taxpayers, allowing them to declare income at a prescribed rate without the need for detailed bookkeeping.

Under which sections is presumptive taxation governed?

Presumptive taxation is governed by Sections 44AD, 44ADA, and 44AE of the Income Tax Act, 1961.

What are the benefits of presumptive taxation?

Benefits include simplified tax filing procedures, relief from maintaining detailed books of accounts, and reduced compliance burden for eligible taxpayers.

Can I opt for presumptive taxation if my turnover exceeds Rs. 2 crores?

Yes, recent amendments have raised the turnover threshold limit to Rs. 3 crores for presumptive taxation, subject to certain conditions.

What are the obligations associated with opting for presumptive taxation?

Taxpayers opting for presumptive taxation must follow the scheme for the next 5 consecutive years and may face limitations on opting out during this period.

Can I switch back to the regular scheme after opting for presumptive taxation?

Opting out of presumptive taxation during the 5-year period may lead to ineligibility to avail of the scheme for the subsequent 5 years.

How is tax liability calculated under presumptive taxation?

Tax liability is computed based on a predetermined percentage of turnover or gross receipts, irrespective of actual profits or losses.

What if I have losses under presumptive taxation?

Taxpayers may still be liable to pay tax on presumptive income, even if they incur losses, highlighting the importance of evaluating tax implications carefully.

How does filing under the regular scheme differ from presumptive taxation?

Under the regular scheme, tax liability is computed based on actual profits or losses, considering deductions, exemptions, and set-offs.

What are the implications of choosing between presumptive taxation and the regular scheme?

Taxpayers should consider factors such as tax liability, compliance requirements, business objectives, and long-term financial goals before making a decision.

Can I seek professional assistance for tax planning and compliance?

Yes, consulting with a tax advisor or chartered accountant can provide valuable insights and assistance in navigating the complexities of tax filing and compliance effectively.

Are there any penalties for non-compliance with tax laws?

Yes, non-compliance with tax laws may lead to penalties, interest, and other consequences, underscoring the importance of accurate tax planning and compliance.

Where can I find more information about ITR-4 and presumptive taxation?

You can refer to the official website of the Income Tax Department of India or consult with a qualified tax professional for personalized guidance and assistance.