Business Income Return


1. Selecting the Legal Entity

Setting up a new venture one of the first questions you encounter when you begin your business is what legal entity it should be set up as. Depending on the nature and size of the business some of the legal entity options available are:

  • Sole Proprietorship
  • Limited Liability Partnership
  • Private Company
  • Public Company
  • Joint Venture

As such, there is no legal rule that a ‘company’ must be formed to start a business. Incorporating a company has its own pros and cons. forming a company increases compliance work. If your business is growing rapidly and becomes unmanageable, it helps to separate it into a separate legal entity which will have its own PAN and will file a separate tax return. Else you may choose to carry on your business as a sole proprietor.

2. Maintaining Books of Accounts

If as a business any of the following criteria are met, then maintaining the books of accounts as per the income tax act is mandatory:

  • Income is more the Rs. 1,20,000; or
  • Total sales, turnover or gross receipts are more than Rs. 10,00,000

In any of the three immediately preceding previous years. This condition has further been relaxed for individuals and HUF where they will be bound by the mandate of maintaining books of accounts only if:

  • Income is more than Rs 2.5 lakhs or
  • Total sales, turnover or gross receipts are greater than Rs 25 lakhs in any of the three immediately preceding previous years.

Note: The penalty for non-maintenance of books of accounts if you have not maintained the accounting records which you should have maintained as per law, you would be liable for a penalty of up to Rs 25,000.

3. Tax Audit

For businesses having gross receipts of more than Rs 1 crore in a financial year are liable for tax audit. The due date of filing the tax audit report is 30th September of the assessment year. The tax audit report must be filed electronically via Form 3CD. For taxpayers subject to tax audit, the due date for filing of return of income is also 30 September of the assessment year. Under normal circumstances, revision of a tax audit report is not possible. However, in cases where the accounts have been revised it is possible to revise the tax audit report.

4. Due Date

  • Due date for filing of tax audit report – 30th September of the assessment year
  • Due date for return filing (if tax audit is applicable) – 30th September of the assessment year
  • Due date for return filing (if tax audit is not applicable) – 31st July of the assessment year

5. Presumptive Taxation

Presumptive taxation for businesses is covered under section 44AD of the income tax act. Any business which has a turnover of less than Rs 2 crore can opt to be taxed presumptively. They must declare profits of 8% for non-digital transactions or 6% for digital transactions, whichever one is applicable. The following businesses are excluded from presumptive taxation:

  • Life insurance agents
  • Commission of any kind
  • Running the business of plying, hiring or leasing goods carriages

A. Computation of Presumptive Taxation


Lalit Traders have gross receipts of Rs 1.5 Crore for FY 2017-18 and do not maintain books of accounts. Lalit traders have opted for presumptive taxation. During the year Lalit Traders received Rs. 70 Lakhs through non-digital transactions (cash payments) and Rs. 80 Lakhs through digital transactions.
What will be the income under the head business and profession?


Income under the business and profession:

For non-digital transactions: 70,00,000 * 8% = Rs. 5,60,000

For digital transactions: 80,00,000 * 6% = Rs. 4,80,000

Income under the head “Business or Profession” will be = Rs 10,40,000

B. Benefits of Presumptive Taxation

  • National Defence Fund set up by the Central Government
  • Prime Minister’s National Relief Fund
  • In presumptive taxation under Section 44AD, your net income is considered as 8% of your turnover and you will pay tax on that income
  • If your receipts are in digital (non-cash) form then only 6% of your receipts is your net income and you will pay tax on that income
  • You don’t have to maintain accounting records
  • You don’t have to get your accounting records audited
  • You have to pay advance tax – but instead of estimating income and paying tax each quarter, you can pay all your advance tax before March 31. Advance tax, for taxpayers having opted for the presumptive scheme, is to be paid by 15th March of the relevant financial year if you expect that your income tax liability will exceed Rs.10,000 in the financial year
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