“Do I really need to save my receipts to save tax?”
“What will happen if I report fewer profits than I actually made this year?”
Do these questions often cross your mind? Filing your tax return as a business owner is no walk in the park. And it’s always good to learn from the mistakes other people make. So we have whipped up a list of eight very common mistakes that new business owners make while filing income from their business or profession so that you don’t have to make the same mistakes.
When it comes to filing income from your business, here’s what not to do:
Not declaring directorship in a company:
Regardless of whether a company is listed, unlisted, domestic, or foreign, if you are a director in the company, you need to declare your directorship. Consequently, you will not be allowed to file the Sahaj and Sugam forms. You’ll have to file an ITR-2 and also mention your Director Identification Number (DIN), Permanent Account Number (PAN), equity holding, and the names of the companies in the same. The purpose of this is to check the routing of black money and to reduce the number of shell companies cropping up. Shell companies are the companies that only exist on paper, and have no office and no employees, but may have a bank account, assets, or passive investments.
Not declaring that you have shares in an unlisted company:
If you hold shares in an unlisted company, regardless of whether it’s domestic or foreign, you need to declare the same. And consequently, you will not be allowed to file an ITR through forms Sahaj or Sugam. The purpose of this, too, is to check the routing of black money and to reduce the number of shell companies cropping up. You’ll also need to disclose details like acquisition cost, sale consideration, and date of sale or purchase of any such shares held by you during the financial year.
Not reconciling your income reported as per profit and loss with the income filed under GST returns:
Income from a Profit and Loss Statement is what you make after subtracting the costs and expenses from the total revenue secured in a financial year. And your GST Return is a document complete with all the details of all your income, sales, expenses, and purchases. It’s a good idea to ensure both data are consistent before filing an ITR.
Not reconciling income reported as per Profit and Loss with Form 26AS:
With the help of Form 26AS, it takes IT officers no time to figure out what income or receipt you have missed in your ITR, if any. If the assessing officer finds an inconsistency in your income from the profit and loss statement and the records from Form 26AS, he can choose to add the missing entries to your total income.
Not updating numbers of balance sheet and profit and loss account even if you are filing under the presumptive scheme:
Under the presumptive scheme of taxation, an individual earning less than 50 lakhs per annum can offer 50% of his gross revenue as taxable income under his slab rates, forfeiting his right to claim other profession-related deductions. Even though it’s not mandatory to fill these under the presumptive scheme, in case you forget to fill data in your balance sheet and profit and loss account, the IT department could send you an intimation for a defective return.
Not showing actual profit and loss:
Form 26AS can be used for reconciliation with P & L statements. Maliciously or mistakenly declaring fewer profits than you actually made- like if you made a 55% profit and you only declare 50%, could land you in trouble.
Not reporting interest income and capital gains after reducing those from business income:
Interest acquired from your business and your capital gains are taxable and need to be accurately reported. If you subtract these amounts from your total business income, they need to be reported separately to avoid raising unnecessary suspicion.
Not keeping receipts/ records of actual expenses claimed as deductions:
You can’t claim a tax deduction without actual proof of purchase. So it’s always a great idea to keep the receipts for all your tax-deductible expenses. And because the ink on receipts tends to fade away with time, you can store an electronic backup as well just to be on the safer side. And then they’re also easier to attach to your tax return.
Now you know what information you can’t afford to skip when declaring all your income and expenses on an ITR. So ask yourself these eight questions the next time you file your return. Make sure to correctly and honestly declare all income and use legal ways to save tax instead, because failing to accurately declare income and profits could surely get you in trouble. Also find out some interesting advices on taxation and finance, here.