How To File Your Income Tax Returns When Bootstrapping

Which tax return form do you pick when you turn a winnable entrepreneur? What do you show as income and assets?

If you are an individual then you are aware to file your ITR either ITR 1 or ITR 2. If you are having a business then you know it is ITR 3, 4 or 4S among which you need to choose. Therefore, what if you are in the transition? If you have left your job and started working on a prototype for your startup. Which income tax form is suitable for you?

Should you collect the Form16 from your ex-employer and declare the salary in your income tax file in ITR 1 or will you need to file the ITR 4, the business may not be incorporated? Hence, cutting the cost is preference, how to avoid paying a huge fee to the CA and D-I-Y your income tax returns.

Choose Your ITR Form

You can start choosing the right form which is suitable for your business. If you are not registered the startup or raise any capital then use you savings to run the show, it is important for you to file ITR 4 which is meant for business and professionals.

It is important for you to register and have a proper record of your original capital investment with the income tax department. Many of them lean to create mistake of showing lack of revenue as a loss in their income tax return form, they should be capitalised in the balance sheet of ITR 4. Any expenses accom-lished can be capitalised as an assets. The business starts accomplishing income only then these expenses can be adjusted from the revenue and claimed as loss.

If your business is making a profit, you can then file an ITR 4S which provide your business gross receipts or a turnover which is not more than 1 crore. Therefore, it should not be registered as a company.

The main advantage of choosing this ITR 4S is that you are not required to maintain any books, profit and loss statements or to conduct audits. You even do not pay any advance tax. Therefore, your tax subjection will be calculated depending on your assumed business income, irrespective of actual income. Under Income Tax Act, section 44AD says that the circumstantial method, the net income is predicted to be 8% of the gross receipts for business. So, if you have profit or loss in the circumstantial rate then you can still file your income tax return with the lengthier ITR Form 4.

If you have incorporated the startup either as a partnership firm (ITR 5) or as a company (ITR 6) and it has a separate legal identity along with a separate rate for income tax return has to be filed too. You will then require to file the ITR as an individual again. Then you must choose the ITR 1, if you are paying yourself a salary and do not have more than one property. You can file ITR 2A if you have owned more than one house and ITR 2 if you have capital gains or income or else property abroad. ITR 3 is required to be filed for those start-ups partners whose business is registered as an LLP.

Income and Deductions

If you have left your job, do not forget to collect your Form 16 and declare it in your income tax return.

If you have any EPF then withdraw it to fund venture. If you withdraw you EPF before the term of five years then it will be added to your taxable income. Payment in respect of employer’s contribution along with the interest is taxed as salary, while the interest on the employee’s contribution is taxed as other income.

Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians. 

With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.