Income tax return filing: These taxpayers should not file ITR-4

The deadline to file an income tax return (ITR) is set to expire soon. A taxpayer should file the correct ITR by the due date, July 31, for financial year 2022-23. Though there is an option to file belated returns until December 31, a penalty will be levied. Moreover, if you fail to file the ITR by July, there could be financial implications.

ITR-4 is the Income Tax Return form for individuals, HUFs, and firms (other than LLP) opting for the presumptive income scheme under Sections 44AD, 44ADA, and 44AE of the Income Tax Act.

The presumptive taxation scheme: According to Sections 44AA of the Income Tax (I-T) Act, 1961, a person engaged in business or profession needs to maintain regular books of accounts under certain circumstances. The presumptive taxation scheme under sections 44AD, 44ADA and 44AE has been framed to relieve small taxpayers from such compliance burden. A person adopting the presumptive taxation scheme can declare income at a prescribed rate. The Act has laid out presumptive taxation schemes (for ITR-4 users) as given below:

• Section 44AD: Computation of income on an estimated basis for taxpayers (being a Resident Individual, Resident HUF, or Resident Partnership Firm (other than LLP) engaged in certain business subject to certain conditions.
• Section 44ADA: Computation of professional income on the estimated basis for Assessee being a resident in India and engaged in a profession referred to in section 44AA (1) subject to certain conditions.
• Section 44AE: Computation of income on an estimated basis in the case of taxpayers (being an Individual, HUF, Firm (other than LLP) or any other person being a resident or non-resident) engaged in the business of plying, leasing or hiring goods carriages, who owns not more than ten goods carriages at any time during the previous year.

Who is not eligible for the presumptive taxation scheme of Section 44AD?

According to the FAQs on income tax filing website, "The scheme of Section 44AD is designed to give relief to small taxpayers engaged in any business, except the following businesses:

• Business of plying, hiring, or leasing goods carriages referred to in sections 44AE
• A person carrying on any agency business
• A person earning income in the form of commission or brokerage (e.g., insurance agents)
• Any business whose total turnover or gross receipts exceeds Rs 2 Crore
• Apart from the above, a person required to maintain books of accounts as referred to in Section 44AA (1) is not eligible for presumptive taxation scheme u/s 44AD."

Thus, taxpayers who satisfy the following conditions can file ITR-4. A Resident Individual / HUF / Firm (other than LLP) can file such ITR:

• Income not exceeding Rs 50 Lakh during the Financial Year (FY)
• Income from Business and Profession which is computed on a presumptive basis u/s 44AD, 44ADA or 44AE
• Income from Salary/Pension, one House Property, Agricultural Income up to Rs. 5000.
• Other sources which include (excluding winning from Lottery and Income from Race Horses):
• Interest from Savings Account
• Interest from Deposit (Bank / Post Office / Cooperative Society)
• Interest from Income tax refund
• Family Pension
• Interest received on enhanced compensation
• Any other Interest Income (e.g., Interest Income from unsecured loan)

These taxpayers shouldn't file ITR-4 for tax purposes. Dr. Suresh Surana, Founder of RSM India, said, "ITR-4 is not for every taxpayer. It cannot be filed by an individual/HUF/Firm (Other than LLP) who is a Resident Not Ordinarily Resident (RNOR), and non-resident Indian. Secondly, if the taxpayer's total income exceeds Rs 50 lakh, he cannot file ITR." The other reasons why taxpayers cannot file ITR -4 are:

• A taxpayer who has agricultural income in excess of Rs 5,000
• Director of a company
• Have income from more than one house property
• Those who have income like winnings from lottery, own and maintain race horses, and income taxable at special rates u/s115BBDA or Section 115BBE.
• He has held any unlisted equity shares at any time during the FY
• He has deferred income tax on ESOP received from his employer, being an eligible start-up
• He is not covered under the eligibility conditions for ITR-4

Sundara Rajan TK, Partner, DVS Advisors, says, "Common mistakes in filling ITR-4 include declaring only the minimum specified profit rate instead of actual profits under the respective section, those with only commission income opting for this return, choosing an inappropriate business code and its description, misreporting turnover based on GST returns, and improper declaration of basic financial details of the business such as capital, stock, debtors, and cash."