According to the Income Tax Act of 1961 and the Income Tax Rules of 1962, the government of India has imposed a direct tax on an individual known as a “assessee” under the name of Income Tax. In accordance with the Income Tax Act of 1961, the assessee is:
A person who may work as a salaried employee or be the owner of a proprietorship, a Hindu Undivided Family (HUF), a limited liability partnership, a partnership firm, a registered business with the Registrar of Companies, etc. The Assessee is identified by their PAN, or Permanent Account Number, according to the Income Tax Department.
Tax Return Filing for an Entrepreneur or Self-Employed Person
To calculate total income and charge income tax, all of a person’s income is divided into the following five categories:
- earnings from a salary
- income from a home investment
- Gain from a Business or Profession
- monetary gain
- earnings from unrelated sources
Who is regarded as a self-employed person?
A person who sells their services to numerous businesses without entering into a long-term employment agreement is considered self-employed. The Income Tax Act of 1961, under the heading “Profit and Gain from Business or Profession,” imposes tax on the income of self-employed individuals. Self-employment is referred to as a profession in the statute. The Act defines a business as “any trade, commerce, or production, or other adventure, or concern, of a like sort.” However, the Act doesn’t define “profession.” The Act’s definition of “vocation” also includes “profession.” A painter, a sculptor, an artist, etc.
So, among those who fall under the category of profession or vocation are painters, sculptors, authors, auditors, lawyers, doctors, architects, and astrologers.
After deducting all losses and expenses incurred for generating income throughout the normal course of a business, profession, or vocation, profit should be calculated. If a professional income earner’s gross receipts are Rs. 50 lakhs or more in a fiscal year, they must submit a tax audit report and have their accounts audited by a chartered accountant.
Tax Filing for the Self-Employed
Self-employed individuals are required to file Income Tax Returns 4 as part of the standard tax filing process (ITR-4). They are permitted to deduct any costs incurred in order to generate income from their profession. These costs are deductible if there is good documentation on file. According to the presumed scheme, it is assumed that all expenses and depreciation were allowed to be subtracted in order to arrive at the profession’s profit.
Supposed Taxation
For professionals earning less than Rs. 50 lakhs in total gross receipts per fiscal year and firms with less than Rs. 2 crore in annual revenue, the government has implemented a presumptive taxation scheme. They are exempt from keeping all such records, books of accounts, etc. under this plan. Profit is estimated at 8% of company gross receipts and 50% of professional gross receipts in a fiscal year, and as a result, they must pay income tax at the corresponding rates. For them, this plan is optional. If they choose not to participate in the programme, they must have a Chartered Accountant audit their books of accounts, file an income tax return, and pay all applicable taxes.
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