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Computing Income for ITR-4 Form


Computing Income for ITR-4 Form

The process of determining the different sources of Income is called ‘Computation of Income’. While computing income, the different incomes are finally grouped as  “Gross Total Income”. After computing income, the tax is computed based on the income tax rate applicable and the various income tax deductions allowable. In this article, we look at the procedure for computing income under form ITR-4. ITR-4 return filing form is used for filing an income tax return for taxpayers who have opted for the presumptive taxation scheme. While computing income for ITR-4 form, the taxpayer must be aware of regulations laid out in Section 44AD, 44ADA and 44AE as discussed below.

ITR-4 Form

ITR-4 form is used for filing an income tax return under the presumptive taxation scheme. The format for ITR-4 shall be the following:

Form ITR-4

Section 44AD

Section 44AD primarily focuses on the computation of ‘Business Income’, which is applicable if the taxpayer is a resident individual, resident Hindu Undivided Family or a resident partnership firm, but not an LLP. Computing Income under Section 44AD involves the following aspects:

  • The taxpayer should be an eligible owner of a business.
  • The annual turnover should not exceed 2 Crores.
  • If the turnover does not exceed 2 Crores, the income tax can be computed on an estimated basis at the rate of 8% of turnover.
  • For the income tax rate of 8%, no further deduction is allowed under any other sections.
  • Deduction on remuneration and interest to partners is not available from the year 2017-2018.

Not all taxpayer can file an income tax return under the presumptive taxation scheme. The following is a list of taxpayers who are not eligible to avail the benefits of computing the income tax under section 44AD:

  • A person carrying on a profession.
  • A person whose income is based on commission or brokerage.
  • A person carrying on any agency business.
  • A person whose business is plying, hiring or leasing goods carriages.
  • An assessee who has claimed any deduction under 10A, 10AA, 10B, 10BA, 80HH and 80RRB in the relevant assessment year.
  • Companies incorporated in India – Required to file Form ITR-6

Benefits of Section 44AD

For the purpose of computing the income tax, the assessee who opts for the above-mentioned scheme is eligible for the following benefits:

  • The taxpayer can submit his return of Income in ITR-4S (ITR-4S is a simplified form as compared to other forms).
  • The taxpayer is exempted from maintenance of books of account.
  • The taxpayer is facilitated with ‘Payment of Advance Tax’ in a single instalment. This payment should be done before March 15 of the financial year immediately prior to the particular financial year.
  • The taxpayer gets a priority among other taxpayers who are required to pay the tax in four instalments prior to the assessment year.
  • The taxpayer can also declare a higher income if covered by section 44AD.

Section 44ADA

Section 44ADA primarily focuses on the computation of ‘professional income’. A taxpayer whose gross receipts do not cross Rs. 50 lakh in the financial year can claim the benefits of this section to file under the presumptive taxation scheme. The following are the professionals who are eligible to avail the benefits of section 44ADA and file ITR-4 return:

  • Legal
  • Medical
  • Engineering
  • Architectural Profession
  • Accountancy Profession
  • Technical Consultancy
  • Interior Decoration

Section 44AE

Section 44AE pertain to the presumptive taxation scheme application for taxpayers engaged in the business of plying, leasing or hiring trucks. Following criteria’s are applicable for those filing ITR-4 return under section 44AE:

  • The taxpayer should be engaged in the business of plying, hiring and leasing goods carriages.
  • He should not own more than 10 goods carriages, the previous year.
  • Income would be calculated on an estimated basis at the rate of Rs.7, 500/- for every month during which the goods carriages are owned by the taxpayer.
  • Except for remuneration and interest to partners, no deductions are allowed.
  • If the taxpayer wants to declare lower income, he will have to maintain books of account and get his account audited on a compulsory basis.
  • The returns should be submitted electronically with a digital signature.