Self-employed means a person who sells his or her services to different employers without a long-term contract with any of them. Income Tax Act, 1961, levies tax on income of Self-employed persons under the head “Profit and gain from Business or Profession”. In the act, self-employment is called a profession. Business has been defined in the Act as, “any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture”. But Profession has not been defined in the Act. Profession also includes Vocation as given in the Act. Thus, a painter, a sculptor, an author, an auditor, a lawyer, a doctor, an architect, an astrologer comes under profession or Vocation.
Profit should be computed after deducting all losses and expenses incurred for earning the income in the regular course of business, profession or vocation. Professional Income earners have to get their accounts audited by Chartered Accountant and submit tax audit report if their gross receipt is Rs. 50 lakhs or more in a financial year.
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Self-Employed Tax Filing
In normal tax filing process by self-employed earner, they have to file Income Tax Return - 4 (ITR-4) . They are allowed to claim all the expenses which are incurred to earn revenue from profession. These expenses are deductible subject to valid proof in record. Under the presumptive scheme, it is deemed to have been allowed the deduction of all the expenses and depreciation to arrive at profit from profession.
Presumptive Taxation
Government has introduced a presumptive taxation scheme for professional earners whose total gross receipts are less than Rs. 50 lakhs in financial year and businesses whose turnover is less than Rs 2 crore. Under this scheme, they do not have to keep all such records, books of accounts, etc. The profit is assumed at 8% of gross receipts for businesses and 50% of the gross receipts of profession in a financial year and accordingly they have to pay Income Tax as per Income tax rates applicable on them. This scheme is optional for them. If they do not go under the scheme, they have to get their books of account audited by Chartered Accountant and accordingly file the Income Tax return and pay tax. Under the presumptive scheme, assesses can claim tax saving investments under section 80C, and medical insurance premium under section 80D. All deductions under section 80 of chapter VI A are allowed. This scheme is applicable to only an Indian resident assesse who is an Individual, Hindu Undivided Family (HUF) or Partnership Firm.
If any resident assesse has opted to file Income Tax Return under the Presumptive Scheme in any financial year, in the next financial year, they may opt out of presumptive scheme and file Income Tax Return as a normal assessee. However in this case, they then cannot avail the benefits of the presumptive scheme for the next five financial years. For example:
If the resident assessee opts to file Income Tax Return under the presumptive scheme for the financial year 2016-2017 and 2017-2018, and in next financial year 2018-2019, the assesse opts out of the presumptive scheme and files Income Tax Return under normal course then he/she cannot opt to file his/her return under presumptive scheme for the next five financial years that is 2019-2020 to 2023-2024.
