Monday, November 28, 2022
Finance

4 Common Tax Filing Mistakes

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Understanding the complexities involved in returns filing is one of the most vital aspects of running a successful business in India. Check out the 4 common mistakes that should be avoided while filing tax returns.

Like individuals, businesses are also required to file tax returns every year mandatorily. The duly filled ITR (Income Tax Return) helps the tax authority assess the tax liabilities. It also contains detailed information about the assets, liabilities, profits, debtors, and creditors of a commercial entity.

To run a successful and transparent business in India, it is essential to understand the returns filing process in detail. If you’ve recently started a business, here are 4 common returns filing mistakes that you should avoid-

  1. Incorrect Form Selection

Every company, proprietorship, LLP (Limited Liability Partnership), firm, or partnership is required to file tax returns. Relevant ITR forms should be selected based on business formation. For instance, LLPs and partnership firms should only use ITR 5 for filing tax returns. Partners of a firm should file their tax returns using ITR 3, while companies should use ITR 6.

Businesses that have opted for presumptive taxation scheme should use ITR 4 for filing their returns. The returns will be rejected by the tax department if the wrong form is selected.

  1. Not Conducting Tax Audit Before Filing ITR

Taxpayers with a business income of more than Rs. 1 crore in a financial year must get their accounts audited by a Chartered Accountant. The tax audit is also necessary if a taxpayer wants to carry forward the business losses or at least 8% of the business turnover is offered as income under the presumptive taxation scheme.

During the audit, an accountant will examine the organization’s taxes and ensure that the business has provided correct details regarding its income, deduction, and expenditure. Businesses liable for the audit should perform the same and provide details about the audit while filing ITR.

  1. Not Claiming Tax Deductions

The income tax is levied on the income after allowing eligible deductions. Like individual taxpayers, businesses are also eligible for several tax deductions in India. For instance, under Section 30 of the IT Act, expenses like rent, repairs, and insurance of the business premises are eligible for deduction.

Similarly, there are several other provisions under Section 31, Section 32, Section 33, Section 35, Section 36, Section 37, and Section 43B to help businesses reduce their taxable income. Details about all of these deductions, when claimed, should be provided while filing ITR. Businesses should understand these deductions and claim them while filing ITR to reduce their tax liabilities.

  1. Not Filing Tax Returns Before Due Date

Tax returns should always be filed on or before the due date to avoid penalties. Moreover, losses can only be carried forward if the ITR is filed on or before the due date. Businesses that are not liable for audits should file their tax returns on or before 31st August after the end of the financial year.

The ITR filing due date for businesses that require audits is 30th September after the end of the financial year. In case if the assessee must conduct a transfer pricing audit, then the due date for filing ITR is 30th November.

Business Tax Returns Filing in India

An increasing number of businesses now rely on an income tax consultant to help them comply with the tax laws, take advantage of the available deductions, and file tax returns. Hiring experienced tax advisors is also an effective way to avoid returns filing mistakes that could have severe consequences.

Moreover, their expertise in international tax laws can also be relied upon by Indian businesses wanting to expand their operations overseas.