As a businessman or self-employed in India, it is essential to understand the process of calculating income tax to ensure that you are filing your returns correctly and in compliance with the law. Income tax is a tax levied on the income earned by individuals, businesses, and other entities in India. Let’s take a closer look and find out everything you need to know about calculating income tax for self-employed and businessmen in India and the tools available to help you calculate your tax liability accurately.
To calculate the tax benefits of a home loan balance transfer and top-up loan, you can use an income tax calculator. These calculators are available online and can help you estimate your tax liability based on various factors, such as your income, deductions, and exemptions. Some calculators may also have a home loan balance transfer calculator built-in, which can help you determine the savings you can make by transferring your home loan to a new lender.
Who is Considered Self-Employed?
Self-employed individuals are those who sell their services to different employers without a long-term contract with any of them. The Income Tax Act, of 1961, levies tax on income earned by self-employed individuals under the heading “Profit and gain from Business or Profession”. Self-employment is referred to as a profession, and business has been defined as “any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture.” However, the Act does not define profession explicitly. Professions also include vocations. Therefore, painters, sculptors, authors, auditors, lawyers, doctors, architects, astrologers, and others fall under the category of profession or vocation.
Profits are computed after deducting all losses and expenses incurred for earning income in the regular course of business, profession, or vocation. Professional income earners must have their accounts audited by a chartered accountant and submit a tax audit report if their gross receipts are Rs. 50 lakhs or more in a financial year.
Tax Filing for Self-Employed
Self-employed earners must file an Income Tax Return-4 (ITR-4) during the normal tax filing process. They can claim expenses incurred to earn revenue from their profession as a deduction subject to valid proof in the record. Under the presumptive scheme, professional earners whose gross receipts are less than Rs. 50 lakhs in a financial year are not required to keep records, books of accounts, etc. The profit is assumed at 50% of gross receipts for professionals and 8% of gross receipts for businesses in a financial year, and they must pay income tax accordingly as per the applicable income tax rates. If they choose not to use the presumptive scheme, they must have their books of accounts audited by a chartered accountant and file their Income Tax return and pay taxes accordingly.
Presumptive Taxation
The government has introduced a presumptive taxation scheme for individuals and businesses with total gross receipts or turnover less than Rs. 50 lakhs and Rs. 2 crores, respectively. Under this scheme, these taxpayers are not required to maintain records or books of accounts. Instead, their profit is assumed at 8% of gross receipts for businesses and 50% of gross receipts for professionals, and they pay income tax accordingly. This scheme is optional, and taxpayers who choose not to participate must have their books of accounts audited by a chartered accountant and file their income tax returns accordingly.
Taxpayers who opt for the presumptive scheme can claim tax savings under section 80C and medical insurance premiums under section 80D. All deductions under section 80 of chapter VI A are allowed. This scheme is only applicable to Indian resident assesses who are individuals, Hindu Undivided Family (HUF), or partnership firms.
If a resident taxpayer has opted for the presumptive scheme in a given financial year, they may opt out in the following year and file their income tax return as a normal assessee. However, they cannot avail themselves of the benefits of the presumptive scheme for the next five financial years.
Surcharge
There is a surcharge on income tax for those whose total income exceeds certain thresholds. The surcharge rate is 10% for total income between Rs. 50 lakhs and Rs. 1 crore, 15% for total income between Rs. 1 crore and Rs. 2 crores, 25% for total income between Rs. 2 crores and Rs. 5 crores, and 37% (under the old regime) or 25% (under the new regime) for total income above Rs. 5 crores. There is also a health and education cess of 4% on income tax and surcharge.
Resident individuals may be eligible for a rebate under section 87A if their total income does not exceed Rs. 3,50,000. The rebate amount is 100% of income tax or Rs. 2,500, whichever is less.
For firms and limited liability partnerships, the income tax rate is 30% (including cess) for taxable income up to Rs. 1 crore and a 12% surcharge applies for taxable income above Rs. 1 crore. The health and education cess of 4% also applies.
Furthermore, if you have apply housing loan and have an outstanding home loan balance, you may also consider transferring your home loan to another lender to avail of a lower interest rate. This is known as a balance transfer, and it can help you save money on your home loan repayments. Additionally, some lenders may also offer a top-up loan when you transfer your home loan, which is a loan that is over and above your existing home loan. This top-up loan can be used for various purposes, such as home renovation, debt consolidation, or other personal expenses.
The basic step in calculating income tax is to determine your taxable income. This includes all the income you have earned during the financial year, such as salaries, business profits, capital gains, rental income, and any other sources of income. Once you have calculated your total income, you can then claim deductions and exemptions allowed under the Income Tax Act to arrive at your taxable income.
To sum it up, calculating income tax for self-employed and businessmen in India can be a complex process, but it is crucial to understand and comply with the law. Deductions such as the one on the interest paid on a home loan can significantly reduce your tax liability, and a balance transfer and top-up loan can help you save money on your home loan repayments. Using an income tax calculator and consulting with a tax professional or financial advisor can help you ensure that you are filing your returns correctly and taking advantage of all the tax benefits available to you.