ITR 4S is known as SUGAM and is mostly used by assessee's covered under section 44AD of Income Tax Act. As per this section presumptive taxation method is to be followed. But what does it mean well under this scheme taxable income @8% of the gross receipts or the total turnover of the business is to be applied. The tax can be calculated on the above income at the rates applicable. Individual, partnership firms, HUF can avail benefit of this method.
ITR 4S can be filed by the people whose income in the previous year does not exceed Rs 2 crore. This generally applies for the taxpayers who opt for presumptive way of taxation of income. I,e under section 44AD .The return has to be filed before the due date applicable i.e by 31st july. The assessee need not have to maintain the books of accounts. While calculating the Income it is assumed that all the deductions and depreciation has been provided to the taxpayer.
If the turnover exceeds Rs 2 crore then section 44AD will not apply and income will be calculated as per normal provisions under business head income. If income is less than the prescribed limit of Rs 2 crore then audit by a chartered accountant will not be required. But if it exceeds or declared taxable income is less than 8% of gross receipts then audit by CA is compulsory.
Most professionals, freelancers, partnership firms can avail this benefit.
The advantages of opting for section 44AD is as follows
The taxable income is estimated to be 8% of the gross receipts
Maintenance of books of accounts is not required.
All expenses have been assumed to be deducted from the income claimed.
Audit of books of accounts is not required.
Payment of advance tax is not required.
Other deductions under chapter VI A are available.
If one has multiple businesses then each such can claim such presumptive taxation scheme. Eligibility criteria should be met by each business.
The business which does not fulfill such criteria then income will be calculated as per normal provisions, i.e. (Income -Expense-depreciation).
This provision will apply for each previous year. Every year the criteria will be checked.If in any year income is estimated less than 8% then in such year books of accounts have to be maintained and need to be audited by the chartered accountant.
Since payment of advance tax is not applicable for this section thus in case of multiple business limit of payment of advance tax has to be calculated excluding the liability under this provisions.
Let us understand with the help of an example,
Santosh runs a small gift shop and his turnover during the year is Rs 75 lacs thus if he avails presumptive taxation scheme then 8% of Rs 75 lacs comes out to be Rs 6 lacs will be taxable income. Thus he is not required to maintain any books of accounts or do any audit or pay any advance tax.
But if his income calculated as per normal method is less than 6 lacs say 5 lacs then this option is not viable for him but he needs to maintain books of accounts and get it audited etc.
In short for small business owners who feels that income might be higher than 8% can go for this option as it saves tax and are not required to maintain books of accounts or get it audited during the previous year.