Can a Business with Less than 20 Lakhs Turnover Still File Income Tax Returns?

Yes, even if a business has an annual turnover of less than 20 lakhs and is not required to register under Goods and Services Tax (GST), it is still possible to file an Income Tax Return. Let's explore this in more detail.

Understanding GST and Income Tax

It is important to recognize that GST and Income Tax are two distinct types of taxes. GST is an indirect tax levied on the supply of goods and services, while Income Tax is a direct tax imposed on income earned by individuals and businesses.

Exemption from GST Registration

For GST purposes, a business may not need to register if its turnover does not exceed certain thresholds. Specifically:

20 lakhs for services 40 lakhs for goods

However, this does not automatically exempt the business from paying Income Tax. The basic exemption limit for individuals under Income Tax is 2.5 lakhs. Therefore, if a business has a profit exceeding this limit, it is mandatory to file an Income Tax Return.

Filing an Income Tax Return

The type of Income Tax Return (ITR) to be filed depends on the nature of the business and income. For businesses with very low turnovers, ITR-3 (Business and Monthly Returns) or ITR-4 (Situation of Individuals and HUFs) can be applicable.

Even if the turnover is less than 20 lakhs, the total income earned may still exceed the basic exemption limit of 2.5 lakhs. Therefore, it is important to file an Income Tax Return to avoid any penalties or legal issues.

Why is Filing Income Tax Returns Important?

Filing Income Tax Returns, even if not required for GST registration, is crucial for several reasons:

Improves creditworthiness for loans and other financial services. Ensures compliance with tax laws, avoiding any penalties or interest charges. Supports future business expansions and helps in obtaining preferential treatment from various government schemes.

Section 44AD of the Income Tax Act

Under Section 44AD of the Income Tax Act, businesses can file returns if their income is above the basic exemption limit. In this case, calculations can be made based on a certain percentage of the turnover. For example:

If 6% of the electronic receipts and 8% of other receipts is considered as gross income. If the total turnover is Rs. 19,00,000, with 8% of the turnover being Rs. 1,52,000, no income tax may be applicable. If the income is declared as 35% of the turnover, the gross income would be Rs. 6,65,000, and taxes would apply based on the income tax slab rates.

To mitigate tax liability, individuals can claim deductions under sections like 80C (such as Provident Fund, Life Insurance, etc.) and 80CCD (such as National Pension System).

By doing so, the net taxable income can be reduced to a level where no tax liability exists.

Conclusion

Therefore, even with an annual turnover of less than 20 lakhs, it is completely possible to file Income Tax Returns. The key is to understand the differences between GST and Income Tax, and ensure compliance with both laws to avoid any legal issues in the future.

Contacts for Assistance

If you need any further assistance with Income Tax Returns or related matters, you can contact us at example[at].