ITR filing: Which ITR form must be filed by sole proprietorship businesses

The Income Tax Return (ITR) filing deadline for the financial year 2021-22 (assessment year 2022-23) is 31st July 2022 for individuals with salary income and businesses not liable for audit. 

Every year the income tax department notifies various ITR forms for filing ITR. Individuals running businesses need to file either ITR-3 or ITR-4 out of the seven ITR forms notified by the government for FY 2021-22.

In this article, we will understand how small businesses can file income tax returns.

How to choose the ITR form?

If you are an individual and running a business, you can file ITR-3 or ITR-4. ITR-3 can be used by all the individuals running the proprietorship business. However, it is one of the complex ITR forms. Small businesses opting for a presumptive taxation scheme under Section 44AD, 44ADA, 44AE, with a total income less than Rs 50 lakh, can file ITR-4. 

Who can opt for a presumptive taxation scheme?

Small businesses and professionals can opt for presumptive taxation schemes. By opting for this scheme, you can get rid of the hassles of maintaining books of accounts and getting tax audits done. 

3. Under Section 44AD, businesses with a turnover less than Rs 2 crore can opt to declare 8% (6% in case of 95% digital transactions) of their turnover as profits.
4. Under Section 44ADA, certain professions can opt to pay tax on 50% of their gross receipts. It applies to the following professions only if the gross receipts are up to Rs 50 lakh in a financial year –
   1. Interior decorations
   2. Technical consulting
   3. Engineering
   4. Accounting
   5. Legal
   6. Medical
   7. Architecture
   8. Other professionals- movie artists, authorised representative, and
   9. Any other notified professionals
5. Under Section 44AE, the taxpayers engaged in plying, hiring or leasing goods carriages and who do not own more than 10 goods vehicles, can opt to declare their income in the scheme at Rs 7500 per vehicle per month. If the gross vehicle weight is 12MT or more (heavy goods vehicle), the taxpayers can opt to pay an amount equal to Rs 1,000 per ton of gross vehicle weight or unladen weight, for every month or part of a month during which the heavy goods vehicle is owned by the taxpayer in the previous year.

Which ITR to file if the accounts are audited?

You can opt to use the ITR-4 form for ITR filing if you are eligible to declare profits from business and profession on a presumptive basis under any of the sections mentioned above (Section 44AD, 44ADA or 44AE). However, if you have maintained all books of accounts and other documents, and the books of accounts are audited as per section 44AB, or if you want to disclose lower profits, then you should file ITR-3. 

Income tax audit under Section 44AB applies to a certain class of businesses. A tax audit is mandatory if a proprietor is running a business and sales turnover exceeds Rs 1 crore (Rs 10 crore if 95% digital transactions). However, the due date to file ITR in tax audit cases is 31st October 2022.

For any clarifications/feedback on the topic, please contact the writer at namita.shah@clear.in