5 Reasons why your company
should file tax returns on time?
Filing returns for business means reporting the income and expense to the Income Tax (IT) department, it also includes the assets and liabilities a company has. It is evident that tax filing for companies can be more complex than for individual tax returns. Hence the need to be even more vigilant and necessary to file the tax returns.
There are different structures of company formation like partnership, proprietorship, limited liability partnership or a private limited company. Different structures of the company will draw a particular tax liability. Hence, it is important to consider what kind of company one wants to form. Different company structures have to fulfil certain conditions and maintaining accounts is mandatory for businesses with income more than Rs. 1,20,000 and total sales or turnover of more than Rs. 10,00,000. In some of the cases businesses are required to carry out tax audits within the filing dates.
Income tax rates are different according to the business structure. For example, the partnership firms and LLP have a flat 30 percent tax rate applicable. If their income crosses Rs. 1 crore there is additional 12 percent charge. After computation of this there is additional 3 percent that is applicable for health and education cess. Whereas the domestic company will have to pay 30 percent tax if it crosses Rs. 250 crores in previous year. There is a surcharge applicable at 7 percent and 12 percent respectively for income between Rs 1 crore to 10 crore and greater than 10 crores.
The aim of income tax audit is to examine the income, expenditure and deduction filed by the company are genuine and correct. Businesses have to get their accounts audited as per the provision of section 44AB of the Income Tax Act.
Let’s deep dive into some reasons to understand the need to file tax returns.
When you are into business irrespective of it being a small or big business, one may need a loan to expand, for mergers and acquisitions or just research and development. Financial assistance is required at some point. Availing a business loan is the easiest and quickest way. Even if you want some investor to rely on you, they would need a recent tax filing. To get an approved business loan, organizations must have recent years income tax returns and the income statements. Hence the need of filing the returns is utmost.
Not being able to file the taxes on time or intentionally missing the tax filing can attract penalties for the business. That in turn will attract bad reputation and you will end up paying more than the actual taxes that were required to pay. If one is avoiding tax payment thinking they can’t be caught then they might be right for a short duration but eventually the income is visible under the registered company Pan number.
One might think that their company is anyway running in losses and they can skip the tax returns. Then they must be reminded of the carry forwarding of the business losses to the coming year. Such a provision helps to report the loss under the special head. That will waive-off that much amount in the next year’s income. Which in turn is advantageous for the business as the reporting income gets reduced by the reported losses.
If your business requires you to deal with the government or get contracts in a government firm, your business needs to have a clean sheet in terms of financial stability. Even if you have to get investors to invest or to get loans, the company needs to clear due diligence. To ensure any of the above you need to make sure your business file tax returns that are audited. In most government tenders they keep track of 5 years of past audited reports.
The presumptive taxation scheme can be claimed by certain businesses. That can reduce the taxation for small businesses. They have to pay the tax on a certain amount of income only. Small businesses having income less than Rs 2 crores can avail this scheme of paying taxes on only 8% of the earnings. There are also ways to claim depreciation on your business assets only. If one company has not claimed a presumptive tax scheme, the taxable amount is taken after accounting for all the expenditures and depreciation. Therefore, it has many folds advantage of tax returns on time.
There are innumerable benefits of filing taxes on time. As a business owner it gives you a vision of your business and you can better handle the growth. It increases the trust of customers and all the stakeholders. Therefore, one must ensure filling the returns on time.