What Do We Understand by a Business Tax Return?

A business tax return, in all essence, is primarily an income tax return. It refers to a statement of expenditure and income of a particular business. Any tax that has to get paid on the generated profits gets declared and falls under this return. 

A business tax return consists of various details about the liabilities and assets possessed by a business. For that reason, items such as fixed assets, loans taken and given, and creditors and debtors get included in it. 

Which Individuals or Businesses Have to File and Prepare for a Business Tax Return?

The necessity and requirement of filing and preparing for a business tax return primarily depends on the type or kind of the company’s structure. 

The following are cases where a business must prepare for a business tax return file:

  • Suppose an individual serves as the sole proprietor of their business income and the personal earnings they acquire from their salary. In that case, the interest revenue and the one generated from the house property need to get mentioned in one return. 
  • An individual may receive a total income that stays above the fundamental taxable limit before the necessary deductions. In that case, they need to file a business tax return compulsorily. This threshold gets set at Rs. 2.5 lakhs a year. It stands true irrespective of the losses and profits of the business.
  • All firms, Limited Liability Partnerships (LLPs), and companies have to file a business tax return with no compromise to the matter. They have to do so no matter how much profit or loss they get. Even if they are not undertaking any projects and operations, they have to file a business tax return. Such firms, LLPs, and companies get taxed at a 30% rate. 

How Can an Individual or a Company Prepare Their Business Tax Return File for 2022?

Contrary to what most people think, preparing a business tax return file is not that arduous. It merely requires careful and steady planning and working. Individuals and companies can follow the subsequent steps to do so:

  • Determining the Business Tax Return Form that is Suitable and Applicable

The foremost step is to evaluate and assess the income sources and their categories. It helps discover and determine the business tax return form that applies to them and their circumstances. This process is exceedingly essential for all taxpayers. 

So far, the Government has declared and specified seven forms for the financial year 2021-2022. Among them, ITR-1, ITR-2, ITR-3, and ITR-4 apply to individual taxpayers. They must not remain associated with any organization. The choice of the correct one depends on the person’s category and source of income. Their residential status also matters. 

If the incorrect business tax return form gets selected, the taxpayer must file the correct form again. They have to do so once they receive the notice from the income tax department. To ensure that any confusion does not happen, an online platform or a Tax Help Guide serves to help determine the suitable ITR.  

  • Collecting and Organizing Documents Associated With the Distinct Income Sources

The Income Tax Act divides the sources of income into five categories. They fall under house property, capital gains, salary, profession and business, and others. A taxpayer must collect and organize the required data and documents to know about and combine all the income sources. For example, they can gather interest certificates, bank statements, capital profit reports, Form 16/16A, and Form 26AS.

  • Avoiding Errors and Mistakes When Reporting About Income and Deductions in the Business Tax Return

After collecting the necessary information, the next step is to summarize the financial condition and situation. It includes rents, dividends, salary, professional receipts, capital loss or gain, etc. Similarly, the taxpayers can assemble information regarding the investments done in the year to save taxes. 

This practice helps in avoiding mistakes and errors. It can help prevent any underclaiming of deductions and false reporting of income. 

  • Verifying and Validating Form 26AS

Information specified in Form 26AS gets considered and accepted by the income tax department. It mentions details such as the TDS that deductors subtract and the income paid or credited. Form 26AS also contains other information. It states the elements for the financial year relevant to the deduction of the TDS. For example, it consists of the deposit interests from banks, the value of a sold property, salary and dividend incomes, and so on. Form 26AS shows all transactions of the high amount made during the year. 

For these reasons, a taxpayer must include all their income details in the business tax return file. It is necessary to verify the details and TDS amount that get mentioned in Form 26AS. Suppose a discrepancy occurs between the information in Form 26As and Form 16/16A. In such cases, the income tax department can issue a non-disclosure notice for the income. 

  • Calculating Tax Liability According to the Tax Regime

Individuals and companies can choose between the old and new tax regimes for 2020-2021. The former allows various deductions and exemptions. On the other hand, the latter offers options of concessional rates of the taxes. 

Thus, when preparing the business tax return file for 2022, a taxpayer must file for 101E. It declares whether the taxpayer is opting for the new tax regime. After that, they can calculate the tax liability depending on the selected tax regime.

  • Paying Due Income Taxes

Before submitting the business tax return file, it is exceedingly necessary to pay off any due taxes. The critical thing to note is the last date of payment of the self-assessment tax liability. If a taxpayer does not pay the tax amount on time, they become liable to compensation at the rate of 1% every month. It starts from the last date of the payment to the date it got done. 

After the above procedures get done, the taxpayer can report the business tax return information and submit the documents to the income tax department. 

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].