Understanding ITR 4: The Presumptive Income Scheme for Individuals and Businesses

The Indian government employs a range of tax return forms to manage tax filing and compliance for its taxpayers. Two such forms are ITR-4 and ITR-6, each serving distinct purposes and applicable scenarios. This article aims to provide a comprehensive understanding of the differences between ITR-4 and ITR-6, highlighting who is required to file each form and the implications of using the presumptive income scheme.

What is ITR 4?

ITR-4 is a specialized form designed for taxpayers opting for the presumptive income scheme under Sections 44AD, 44AD(A), and 44AE of the Income Tax Act, 1961. This scheme allows taxpayers to report their income on a simplified basis, without requiring detailed proof of business income.

When to Use ITR 4 Form

ITR-4 is applicable to individuals, Hindu Undivided Families (HUFs), and partnership firms whose total income for the Assessment Year (AY) 2020-21 includes:

Business income under Sections 44AD or 44AE Income from a profession calculated under Section 44AD Salary or pension with a total income up to Rs 50 lakh Income from one House Property with a total income up to Rs 50 lakh, excluding brought forward losses or losses to be carried forward under this head Income from other sources with a total income up to Rs 50 lakh, excluding winnings from lotteries and income from horse races

It's important to note that freelance professionals engaged in the above professions can also opt for this scheme if their gross receipts do not exceed Rs 50 lakhs.

Exclusions for ITR 4

Not all taxpayers are eligible to use ITR-4 for the AY 2021-22. Exclusions include:

Individuals having income from salary, house property, or other sources above Rs 50 lakh cannot use this form. Individual taxpayers who are directors in a company and have invested in unlisted equity shares. HUF or partnership firms whose books of accounts should be audited under the Income Tax Act, 1961.

Understanding ITR 6

ITR-6 is another Income Tax Return form used by taxpayers who have opted for the presumptive income scheme. However, it is specifically tailored to address a higher turnover threshold. In this case, if the business turnover exceeds Rs 2 crores, taxpayers are required to file ITR-6 instead of ITR-4.

When to Use ITR 6 Form

ITR-6 is mandatory for entities that opt for the presumptive income scheme and whose business turnover exceeds Rs 2 crores during the assessment year. The form requires the submission of detailed information, including specific turnovers, under different heads.

Comparing ITR 4 and ITR 6

While both ITR-4 and ITR-6 are designed for entities using the presumptive income scheme, they differ in their complexity and the level of detail required. The key differences are evident in the following:

Turnover Threshold: ITR-4 is for businesses with turnover up to Rs 2 crores, whereas ITR-6 is for businesses with turnover exceeding Rs 2 crores. Level of Detail: ITR-4 simplifies the tax return process for small businesses, while ITR-6 requires more detailed documentation and verification. Eligibility: ITR-4 is suitable for entities with lower turnovers and less complex business activities, while ITR-6 is more appropriate for businesses with higher turnovers and greater operational complexities.

Key Takeaways

Understanding the differences between ITR-4 and ITR-6 is crucial for taxpayers opting for the presumptive income scheme. Appropriately choosing the right form can significantly streamline the tax return process and reduce the administrative burden. Businesses and individuals should carefully review their financial situation and business operations before deciding which form to file.