Managing a successful business in India takes a lot of juggling in the form of staying complaint with different tax regulations and changes that your corporation might be subject to. Filing for taxes has never been more transparent than it is today with the online filing or e-filing methods.
It doesn’t just ensure transparency but also speeds up the process and removes all the complicated hassles that existed in the traditional tax return filing for businesses. Staying compliant with the Income Tax Act and GST rules is easier with the online portals.
Registering as a business entity in India and obtaining a GSTIN number just takes a few clicks with proper documents. In addition to this, online GST payment is far easier using the internet when compared to the traditional methods. All you have to do is log in to the GST portal and file the relevant taxes on the portal.
In India, businesses are mainly categorized under four categories that include Proprietorship, Partnerships, Limited Liability Partnership (LLP) and Companies. The procedure for filing a tax return varies depending upon the type of business you are in.
The complexities and tax rates also vary depending upon the nature of business, turnover and some other key factors. Let’s get some insight into how tax-return filing works for various types of businesses.
Tax Return Filing for Proprietorship
Sole Proprietorship is a type of business in which there is no distinction between the identity of the business and its owner. Both are considered as a single entity. Any individual who has a business income can be grouped under sole proprietorship.
Businesses operating as proprietorships are subject to the annual income tax return and are required to file tax-returns each year. Since there is no distinction between the identity of the owner and the business, the tax-return filing method is also identical to income tax return filing for individuals.
As per the Income Tax Act, any proprietor who is under the age of 60 and has an annual income above Rs. 2.5 Lakhs is mandatorily required to file an income tax return. If the age of the proprietor is in the range of 60-80 years and the annual income is more than Rs. 3 Lakhs then the income tax filing is mandatory.
If the age of the proprietor exceeds 80 years and the annual income is more than Rs. 5 lakhs then they are required to file income tax returns. The income tax rate for proprietorship businesses is not fixed as in the case of other types of business entities. The tax rates vary depending on which income slab the proprietor falls in, it is similar to individual income tax rates.
For any proprietorship firm, an audit is required if the annual sales turnover during a given financial year is more than Rs. 1 Crore. The corresponding figures for audit in case of professionals are when the income exceeds Rs. 50 Lakhs benchmark. Sole proprietors are required to file the form ITR-3 or ITR-4 Sugam.
Tax Return Filing for Partnership Firms
The partnership firms have a separate legal existence that is different from the owner(s) of the firm. There is no threshold amount for filing the income tax returns for partnership firms; they have to file tax returns even in case of losses. As per the Income Tax Act, they are taxed as a separate legal entity.
The tax rates for these firms are similar to that of Limited Liability Partnerships and Companies based in India. In case there is no business activity carried out under the partnership firms, they are mandatorily eligible to file NIL returns before the due date. The tax rate charged to partnership firms is at 30%, the percentage is charged from the total income.
When the income reported by partnership firms exceeds Rs. 1 crore, they are also subject to pay income tax surcharge of 12% on the amount of income tax. In addition to this, they are also required to pay Health and Education Cess at a rate of 4% on the income tax and the surcharge amount.
A minimum alternate tax of 18.5% on the adjusted total income is applicable just like for Companies. When the sales turnover exceeds Rs. 1 crore the partnership firms are required to opt for auditing. In addition to this, other conditions may make the audit process mandatory for a firm. The income tax return is filed under ITR5.
Tax Return Filing for LLPs
Just like partnership firms Limited Liability Partnerships also have a separate legal entity and the tax liability is separate from the partners involved. These firms are also required to file income tax returns irrespective of the amount of profit or loss. NIL income tax returns are filled in case of no activity for any financial year. The tax rate for LLPs based in India is at 30%, this is applied to the total income generated.
Surcharge rates are also similar to partnership firms and a 12% rate is applicable when the income exceeds Rs. 1 crore. The 4% Health and Education Cess apply to the tax and surcharge amount of an LLP business. A minimum alternate tax of 18.5% on the adjusted total income is applicable just like for Companies registered in India.
The audit guidelines for LLPs are a little different; an audit from a practising CA is required when the turnover exceeds Rs. 40 Lakhs or if the contribution amount exceeds Rs. 25 Lakhs. Form 3CEB should be filed in special circumstances and case of international transactions with associated enterprises. It must be verified by a certified CA. Form ITR-5 should be filed for filing income tax returns using the digital signature of one of the partners in the firm.
Tax Return Filing for Companies
As per the Income Tax Act, the tax obligations for companies fall under two categories based on the origin; domestic companies and foreign companies. Companies that are registered under the Ministry of Corporate Affairs are categorized under the domestic type.
This includes Private Limited Company, One Person Company or Limited Company. All registered companies are mandatorily required to file income tax returns annually irrespective of the income generated during a given financial year.
The tax rate for domestic companies having an annual turnover of less than Rs. 250 crore is fixed at 25% with a surcharge of 7% applicable on net income between Rs. 1 crore to 10 crores. In case the companies have a turnover of more than Rs. 250 crore, the tax rate is at 30% whereas the surcharge rate remains the same.
The tax rate for companies categorized under the foreign category is at 40%, the surcharge applicable is on a lower side and stands at 2%. The minimum alternate tax for companies is at 18.5% of book profits along with surcharge and Education Cess.
The accounts must be audited by a certified CA annually irrespective of the amount of turnover generated. All the companies that are registered and doing business in India are required to file the form ITR 6 for tax filings.