It's not just people involved in business need to file income-tax returns, but self-employed professionals such as doctors, lawyers too must fulfil the annual income-tax ritual.
The Income-Tax Act states, “Profession implies apparent achievement in special knowledge as distinguished from mere skill. Special knowledge has to be acquired only after study and application”.
How is income-tax accounted?
Mercantile system: Net profit or loss is calculated after taking into consideration all income and expenses of a particular accounting period irrespective of whether or not income was received or expenses paid during that period.
Cash system: A record has to be kept of actual receipts and actual payments of a particular year.
Permissible deductions
* Rent, rates, taxes, repairs and insurance of premises used for the profession.
* Repairs, depreciation and insurance of machinery, plant and furniture used.
* Expenditure in respect of scientific research like in-house research, contribution to an approved university, college, association.
* Premium in respect of insurance against risk of damage or destruction of stock and stores used.
* Premium for health insurance of the employees;
* Bonus and commission to employees;
* Interest on capital borrowed for profession.
* Contribution to a provident fund or a gratuity fund.
* Bad debts.
* Banking cash transaction tax, STT and commodities transaction tax.
* Any expenditure incurred for the profession.
Non-Permissible Deductions
* Expenditure on advertisement in any souvenir of a political party;
* Any interest, salary, royalty, fees for technical services or other sum payable outside India from which TDS as not been deducted;
* Any tax calculated on the basis of profits or gains of profession and wealth tax.
Payment by cheque: Any expense exceeding Rs 20,000 should be paid by account payee cheque. If such amounts are not deductible expense.
Don’t forget
Book-keeping: If the gross receipts are less that Rs 1.50 lakh, the assessee has to maintain his accounts. If the gross receipts exceed Rs 1.50 lakh, he has to maintain books of accounting such as the cash book, journal, ledger, copies of bills exceeding Rs 25. If gross receipts exceed Rs 10 lakh, accounts have to be audited.
Advance tax: Since professional’s income does not have TDS, he has to pay advance tax on the basis of his estimated income in the current financial year. Advance tax is payable only in cases where tax payable is in excess of Rs 5,000.
Schedule: The first installment — 30 per cent of estimated advance tax — should be paid on or before September 15, 30 per cent on or before December 15, and the remaining 40 per cent on or before March 15. If there was shortfall in earlier installment, it should be made up in subsequent installment.
Dates for filing returns: An assessee, who does not need to get the accounts audited, has to file returns by July 31 through Form ITR4. An assessee, who gets his accounts audited, has to file returns by September 30.
(The writer is CEO of bankbazaar.com. He can be contacted at adhil.shetty@
bankbazaar.com)