INCOME TAX RETURN-4 (ITR-4) | Structure, Process and Changes in ITR 4

ITR 4: What is ITR 4? ITR 4 is basically a form for Income Tax Return and is made for the taxpayers who have selected for the tentative scheme of income as per the Income Tax Act’s Section 44AD, Section 44ADA and Section 44AE. However, if the business’s annual turnover exceeds Rs.2Crore, then also the taxpayer has to file ITR – 3.

Who Should File ITR 4?

ITR – 4 forms must be filed by any partnership/individual/HUF firm whose total salary or turnover for Assessment Year 2019 – 20 comprises:

  • Income through an individual professional that is calculated u/s 44ADA.
  • Income from individual business u/s 44AE or 44AD.
  • Salary/Pension up to Rs.50Lakh.
  • Income through a single individual house property that is worth up to Rs.50Lakh (this excludes the loss that is carried forwarded or brought forward loss in this head).
  • Income through any other sources that are up to Rs.50Lakh (this excludes winning from horse race and from the lottery).

Who Should Not File ITR 4 for The Assessment Year?

Anyone whose source of income is salary, house property, or some other source and if the annual income of an individual is more than Rs.50Lakhs is not eligible to use this form.

Any individual who is either a director in a company or invested in unlisted equity shares is also not eligible to use the ITR 4 form.

Structure of ITR 4 Form

The basic structure of the ITR 4 form can be divided into four parts:

Part A: General Information about the form.

Part B: Gross total income calculation through the five income heads

Part C: Gross total taxable Deduction and Income.

Part D: Tax computation and status.

  • Schedule BP: Details of income from an individual Business (For Assessment Year 2018 – 19, this form is modified to include details of GST along with detailed information of finances which is furnished in Schedule BP)
  • Schedule 80G: Donations’ details that are entitled to deduction as per 80G
  • Schedule IT: Payment’s statement of tax on advance tax and self-assessment.
  • Schedule – TCS: Statement’s tax collected at the source.
  • Schedule TDS1: Tax deducted statement at the source over the income that is other than salary.
  • Schedule TDS2: Tax deducted statement at the source over the income that is other than salary.

The Process to File ITR 4

One can submit his/her ITR 4 form either online or offline:

Offline Mode:

One can file the ITR 4 form offline only in the below-mentioned cases:

  • If any individual is of 80 years or more.
  • The individual’s income is not more than Rs.5 Lakhs, and those who do not need to claim the refund in ITR.
  • The following is the process of filing Income Tax Return offline:
  • By furnishing Income Tax Return in the form of physical paper.
  • By furnishing the bar-coded return.

The income tax department issues an acknowledgment during the submission of the physical paper return.

Electronically / Online:

  • This can be done by furnishing the Income Tax Return electronically under the digital signature.
  • By electronically transmitting the data and after that submitting the return’s verification in the Return Form, i.e. ITR – V.

If one submits his/her ITR 4 form electronically with a digital signature, then an acknowledgement is sent to that person on his/her registered email id. One can also select to download this form manually from the website of the Income Tax Department. Then he/she is needed to sign this form and send it to the Department of Income Tax’s CPC Office that is situated in Bangalore within three months (approximately 120 days) of e-filing.

Note: ITR 4 is one of those forms that are annexure-less, which means; one does not have to attach any document while sending it.

Major Changes Made in ITR 4 for AY 2020-21

  1. Individual taxpayers need to meet the criteria of (a)incurring expense above Rs 2 lakh on foreign travel or (b) making cash deposits above Rs 1 crore with a bank, or (c) if the total expenditure is above Rs 1 lakh on electricity, then the individual should also file for ITR-1. The taxpayer should specify the amount of the expenditure or deposit.
  2. Under Part A, the ‘Govt’ checkbox stands changed to ‘State Govt’ and ‘Central Govt’, and a checkbox for ‘Not applicable’ (e.g. family pension etc.) has been introduced under the section of ‘Nature of employment.
  3. Return filed under section has been separate between normal filed and filing in response to notices.
  4. The ‘Schedule VI-A’ for tax deductions is revised to include reduction under section 80EEA and also section 80EEB. A drop down is given to enter a description of donations under section 80G
  5. In ‘Schedule BP’, gross receipts or gross turnover to include revenues from authorizing electronic modes received before the mentioned specified date.
  6. The details of tax deduction claims for payments or expenditure or investments made between 1 April 2020 until 30 June 2020.

Major Changes Made in ITR 4 for AY 2019-20

  1. ITR 4 form for the year 2018-19 does not apply to a person who is either a director of a company or has already invested in unlisted equity shares.
  2. Under Part A, the ‘Pensioners’ checkbox has been introduced under the section of ‘Nature of employment’.
  3. Return filed under section has been separated between normal filing and already filed in response to official notices.
  4. Deductions under salary will be separated into standard deduction, professional tax and entertainment allowance.
  5. 80G Deduction: The amount of Donation is bifurcated into cash and other modes.
  6. Separate Business details like Business code, name of business, description for section 44AD, 44AE and 44ADA.
  7. New fields under section 44AE have been introduced like Registration No. of goods carriage, whether hired/owned/leased, Capacity of goods carriage in Tonnage (in MT), No. of months for which goods carriage was hired/owned/leased by assessee etc.
  8. Under GST details, the turnover rate text has been replaced by “Annual value of outward or exported supplies as per the GST returns filed”.
  9. ‘Deemed to be let out property’ option is made available now under ‘Income from house property.
  10. The taxpayers will be required to provide income-wise detailed information and description under the ‘Income from other sources.
  11. For deduction u/s 57(iia), a separate column is introduced under ‘Income from other sources – in case of family income through a pension.
  12. Section 80TTB column is now included for senior citizens.

Presumptive Taxation Under Section 44AD

What is Section 44AD of the Income Tax Act?

To provide relief and reduce the tax burden to the taxpayers from tax compliances, the government of India incorporated and introduced a simplified scheme. The scheme of tentative taxation under section 44AD of the Income Tax Act of India. Businesses are not required to maintain regular books of accounts anymore if they are adopting the presumptive taxation scheme.

A presumptive income scheme allows the assessee at a prescribed rate under the income tax act to declare their income. Section 44AD is one of the newly introduced sections of such a scheme. This saves a lot of compliance-related costs and time.

The pertinence of section 44AD of the Income Tax Act

There are special allocations accommodated in section 44AD of the income tax act, which applies to the individual. Below are the types of an individual who can choose for the provisions of the given scheme:

Partnership firms(excluding limited liability partnership),

Individual resident taxpayers,

Hindu Undivided Family,

To benefit from the provisions of the scheme, the individual should not have claimed deduction under chapter VI-A which states “deductions in respect of certain incomes” or section 10AA. It applies to businesses whose gross receipts or total turnover in the previous year is less than Rs. 2 crore.

A few assessees who cannot opt the section 44AD scheme

An individual assessee or a firm who is involved in providing professional services and earning the income, which is in the nature of commission or brokerage, cannot adopt the presumptive income scheme. However, a separate has been introduced for such professionals, which is section 44ADA that allows them to opt for this presumptive scheme.

A person who is having any business of agency or an individual assessee who is claiming deduction under chapter VI A under part C or section 10AA – deductions in respect of a certain amount of income.

Features Provided by section 44AD of Income Tax Act

Section 44AD bestows an option to the individual assessee to choose between opting for the presumptive scheme or the normal provisions. Mentioned below are few key features of the presumptive income scheme of Section 44AD:

As per the scheme provisions, a sum equal to 8% of the gross receipts or total turnover of the assessee or a percentage higher than 8% shall be considered to be the profits of such business.

In order to encourage businesses to accept digital payments and to promote digital transactions, the rate of 8% has been revised and been brought down to 6%. Thus, in effect, individual accepting digital payments can consider their deemed 6% of total income. This would be only applicable in a case where the amount of such gross receipts or turnover is received by:

Account Payee Bank Draft or Cheque

  1. IMPS
  2. UPI
  3. Credit Card
  4. Debit Card
  5. Net Banking
  6. NEFT
  7. RTGS

However, the individual assessee has the option to declare an amount higher than the presumptive income so calculated, or in his return of income, claimed to have been actually earned by the individual.

The eligible assessee, to the extent of the whole amount on or before 15th March, needs to pay the advance tax.

The assessee will get exemption from maintaining books of accounts by opting for the scheme.

In a case where an assessee declares profits in accordance with the scheme by opting for the presumptive scheme and does not declare the profits for any five consecutive assessment years, not in accordance with the scheme, in accordance with the scheme, the individual shall not be eligible to claim any benefit of the provisions for further five assessment years starting from the year in which profits were not declared.

Allowances and Deductions of Section 44AD Presumptive Income

Any deductions shall be deemed to have already been provided if permitted under the provisions of sections 30 to 38. In such a case, the taxpayer cannot claim any further deduction.

A deduction on account of salary paid and interest to the partners can not be claimed under the provisions of section 44AD as it does not allow the firm.

As per sections 40, 40A, and 43B, there shall be no disallowances.

Applicability of Advance Tax in Section 44AD

In straightforward terms, income tax should be paid in advance instead of the year-end is what advance tax means. It has to be made in installments as per the due dates provided in the income tax act and falls in the category of ‘pay as you earn’.

An individual assessee opting for the scheme of presumptive tax, to the extent of the whole amount before or on 15th March of the financial year, must pay the advance tax.

The Pertinence of Written Down Value for Presumptive Income Section 44AD

An eligible business shall be deemed by the written down value of any asset to have been calculated as if the individual assessee had been already claimed and, in respect of depreciation for each of the relevant assessment years, allows the deduction.

The Pertinence of Section 44ADA for Professionals

In case the individual assessee is carrying on any business, the provisions of section 44AD are only applicable. The provisions of section 44ADA will actually come into force in a case where the assessee is carrying on a profession.

Section 44ADA is also another presumptive tax scheme that was introduced from the financial year 2016-17. For small professionals, it provides a simple method of taxation.

The scheme is applicable to the following individuals:

Individual who engages in any profession referred to in section 44AA(1). Professions such as engineering, the architectural, legal, and medical profession. Additionally, the technical consultancy or profession of accountancy or interior decoration or any other profession is notified by the Official Gazette Board.

Individuals who do not exceed 50 lakhs of gross receipts or turnover in the previous year.

In the case of such individuals, the presumptive income would be a sum is a higher amount or equal to 50% of the total gross receipts as may be provided for by the assessee under section 44ADA. Any further deductions which are allowed under section 30 to 38 shall be deemed to have already been provided for them.

Like section 44AD, the individual must pay the advance tax if opting for section 44ADA. The assessee must make the payment by 15th March of that financial year. Under section 44AA(1), the taxpayer is getting exemption from the maintenance of books of accounts in respect of such income.

An individual may claim that his gains and profits from the above profession are lower than the gains and profits deemed to be his income under section 44ADA. If such total income of the individual exceeds the basic exemption limit, then under section 44AA, the individual has to maintain books of account. The books of accounts of the individual must also undergo an audit. Additionally, the individual needs to furnish a report of such audit.

Which Individual can file a return under section 44AD?

Under section 44AD, the following assessee’s can file a return:

  • A resident partnership, HUF, and an individual firm (excluding LLP). The individual assessee must engage in eligible businesses. Under section chapter VIA or 10A/10AA/10B/10BA – deductions in respect of certain income(80IA to 80RRB), he must not claim any deduction.
  • The firm or individual’s gross receipts or profit in the previous year does not exceed a gross amount of Rs. 2 crores.
  • Other than a business of leasing goods carriage, plying, or hiring, will be imposed on individuals or firms engaged in any business.
  • Further, the individual assessee must declare a minimum of 6% or 8% of the gross receipts or total turnover.

What Is The Turnover Under Section 44AD of the Income Tax Act?

For the purpose of section 44AD, gross receipts or total turnover is the amount that is receivable or received from the client in respect of the sales made in the foregoing year. An option to the individual assessee to choose either the mercantile or cash method of accounting is provided under Section 145 of the income tax.

Gross receipts shall not consider or include the value of material supplied by the client or business.

Below are some receipts that do not form part of the gross receipts:

  • Retention money
  • Value of inventory
  • Interest income
  • Sale of property, plant, and equipment
  • Advances received from customers

Under Presumptive Income, Is The Maintenance Of Books Of Account Mandatory?

The assessee can claim relaxation in the maintenance of books of accounts if the assessee is opting for the presumptive income scheme.

Compulsorily maintain his accounts books if a person declares his income below 6%/8% of gross receipts or total turnover, total taxable income is above the exemption limit.

Presumptive Taxation Under Section 44AE

Who can opt for the tentative taxation scheme of Section 44AE:

The provisions of section 44AE are pertinent to every person (i.e., an individual, company, HUF, firm, etc). A person who is engaged in the hiring or leasing of goods carriages, the business of plying and who at any time does not own more than ten goods vehicles during the year can adopt the presumptive scheme of section 44AE for taxation.

Business/Persons Not Covered Under This Section 44AE

A person who is engaged in the hiring or leasing of goods carriages, the business of plying and who at any time does own more than ten goods vehicles during the year can not adopt the presumptive scheme of section 44AE for taxation.

Under The Presumptive Taxation, Computation Of Taxable Business Income Scheme Of Section 44AE

For an individual who is willing to opt for the presumptive taxation scheme of section 44AE, the individual’s income will be computed on an estimated basis.

For Heavy Goods Vehicle, at the rate of Rs. 1,000 per ton of gross or total vehicle weight, income will be computed for part of a month or every month during which the heavy goods vehicle is owned by an individual taxpayer.

In the case of vehicles other than the heavy goods vehicle, at the rate of Rs. 7,300 per ton of gross or total vehicle weight, income will be computed for part of a month or every month during which the heavy goods vehicle is owned by an individual taxpayer. In this case, part of the month would be considered as a full month.

Payment Of Advance Tax Under Section 44AE

In the case of an individual who adopts the tentative taxation scheme of section 44AE, there is no adjustment as regards payment of advance tax, and, hence, the individual will be liable to pay advance tax even if the person adopts the presumptive taxation scheme of section 44AE.

Presumptive Taxation Under Section 44ADA

Who can opt for the tentative taxation scheme of Section 44ADA

To give reassurance to small taxpayers engaged in specified professions, the presumptive taxation scheme of section 44ADA is designed.

A person or individual resident in India engaged in the following professions can take advantage of the presumptive taxation scheme of section 44ADA

  1. Accountancy
  2. Technical consultancy
  3. Legal
  4. Medical
  5. Engineering or architectural
  6. Any other profession as notified by CBDT
  7. Business/Persons not covered under this section 44ADA
  8. Interior decoration

Certain professionals or individuals whose total gross receipts or income from profession surpass Rs. 50,00,000 in a financial year of India are considered to be not eligible to choose this section.

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