Filing ITR for a business: what is it and why do you need it?

A business tax return is basically an income tax return, where in being a statement of income and expenses for a business. Thus profits made by that business have to be declared on that statement, so as to enable the calculation of taxes applicable on them. The return also contains details of assets and liabilities held by that business.

Filing tax returns is thus a huge task, especially if the individual is a business owner and has to manage his operations along with filing your business tax returns. However, regardless of how tedious filing taxreturn is, it is very important that they are done because it bears a number of benefits that may work in the favor of the business.

Benefits of ITR Filing for Businesses in India

Carry Forward Loss

Filing your tax return becomes essential if you have a loss arising under the head ‘Profit and Gains of Business and Profession’. It becomes necessary if you wish to carry forward your losses to the next year and then set off the amount in the future incomes doing so reducing the burden of paying a huge tax, that you know, or is more probable that the business will earn profits and thus have to pay huge taxes. And if you wish to carry forward this loss to the next year, you will be required to file your IT returns on or before the due date. This will result in a reduction of taxable income, thereby reducing tax payable in the future years.

Apply for a Loan

Raising adequate capital is a very important aspect if you want to start or grow your business as any business whether big or small requires some sort of financial assistance. If you are in tight financial situations, business loans alleviate the pressure and opens up new opportunities. The primary objective of getting a business loan is to grow your business and activities. However, there is a practical requirement that banks providing loan need your most recent Income Tax Return as well as the calculation of income as one of the many documents that you need to submit along for example a history of 3 years of filing a tax return. Therefore, filing your business tax return today is very important if you want to apply for a loan from the bank today or tomorrow or in the near future.

Saves from Penalty and Prosecution

Evasion of income tax is a crime and you can face some severe penalties in case you fail to file your IT returns. There are some late tax filing penalties as well that can be levied on you if you fail to file returns on time. Therefore, filing your tax returns for business is equally important if you wish to avoid being penalized for late filing of returns or tax evasion. Also do note that there is a huge difference in tax evasion and tax reduction or tax saving. When you do file ITR, you have the opportunity for tax saving, which is lost if the business owner does not file ITR for their business.

Obtain Government Tenders

Your value as a business profile somehow depends on your yearly income tax returns. In case you are a contractor you sometimes have a very good chance of procuring projects from government agencies. A lot of contractors lack the knowledge as well as lose out the benefits of filing their tax returns on time or they haven’t filed the returns at all. It is very important for you as a contractor to not only file your returns on time but it should also be very accurate and should be audited if required.

It so happens that sometimes for tender approval the scrutiny committee might check up to 5 to 7 years of your IT returns to determine if you are capable of doing so and then approve the tender in the favor of the candidate that fits the best. Therefore, it is essential to file your taxes well within time, to outshine your competition.

Claim Depreciation

If you have assets in your name or your business’ name, the income tax department allows you to claim depreciation. This depreciation is allowed only to the owner of the asset and this asset should be used for business and profession purposes only to claim the depreciation. Also, if you have calculated profit on the presumptive basis under Section 44AD or 44AE, such profit is considered after all the expenditures and depreciation that is allowed under Section 32. Therefore, you can take the benefit of depreciation to claim deductions while e-filing IT returns.