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Life Insurance - Self-employed don’t need to keep detailed accounting records, here’s why
16-Aug-2016
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Self-employed can now show income on an estimated basis and they do not need to keep detailed accounting records

When it comes to taxes, the self-employed face a host of challenges. Which expenses to claim, how to keep accounting records and making sure tax dues are paid timely. All this can be a mountain of work for the self-employed, who is busy running the show herself. Starting FY 2016-17, the tax department has made taxes easier for the self-employed.

Professionals and freelancers can now show income on an estimated basis. No need to keep detailed accounting records. Or spend time separating business expenses from personal expenses. This special scheme of reporting your income is called the ‘presumptive scheme’. Presumptive means that your income is assumed and actual numbers do not have to be reported. Tax is paid on assumed income.

This scheme was earlier allowed to businesses, professionals could not opt for it. The benefits of scheme lie in the ease and simplicity of return filing. It allows small taxpayers to focus on their work by reducing their compliance burden. Business with turnover of Rs 2 crore or less can opt for this scheme.

Let’s understand in detail the features of this scheme. It was introduced via a new section 44ADA in the income tax act.

* This scheme is available to professionals such consultants, software engineers, doctors, lawyers, engineers, chartered accountants, architects, graphic designers, interior decorators etc. who are not working for an employer, but are self-employed.

* They can go for this scheme if their total receipts in one financial year are Rs 50 lakh or less.

* Income shall be assumed to be 50% of total receipts.

* They don’t have to provide details of expenses in their income tax return.

* Those who opt for this scheme can file income tax return form ITR-4S instead of the ITR-4. Historically, ITR-4S has been a much shorter form. Do note that ITR forms are released by the income tax department every year.

* They are not required to keep formal accounting records.

As a professional, you can save a lot of effort and energy by opting for this scheme. You save precious time that would have been spent preparing accounting records and keeping track of your expenses. You are eligible to claim deductions under section 80 of the income tax act from your total income. Deductions such as 80C, 80D, 80E etc. can be claimed from your total income. Total income is your ‘assumed’ income from self-employment plus any interest income etc.

If treating 50% of your income as expenses seem too low and your actual expenses are higher, don’t worry. This scheme is optional. You can continue to file your return in ITR-4 and claim all your expenses and pay tax on remaining income. You’ll have keep proper accounting records and prepare details of your profit and loss

account.

A large number of self-employed such as graphic designers, software experts who work independently, app developers, freelance writers, are expected to benefit from this new scheme of filing tax returns.

Source : Financial Express back