Small businesses and professionals are facing a new tax compliance hurdle this year. The Central Board for Direct Taxes has introduced a requirement that mandates taxpayers under the presumptive tax scheme to disclose their investment details in the income tax return, specifically in form ITR-4 (Sugam).
This change targets businesses with turnovers up to Rs 2 crore and professionals earning up to Rs 75 lakh, including doctors, lawyers, architects, and consultants. Previously, these small taxpayers had an easier route; they declared income based on a fixed percentage of turnover without needing extensive bookkeeping.
For electronic payments, a minimum profit margin of 6% is required; it’s set at 8% for cash receipts. Professionals must report half of their gross earnings as income. If reported profits dip below these thresholds, an audit becomes necessary.
Tax experts see this adjustment as a tightening grip from the Income Tax department aimed at curbing potential misuse of the presumptive mechanism. A tax consultant, stated, “The I-T department is now more watchful and alert” regarding taxpayers who may be misreporting earnings to lower their taxes.
This year marks the first time that investment-related disclosures are being directly requested by authorities through the presumptive tax return process. He explained that comparing declared incomes with investment patterns will help identify discrepancies where spending appears inconsistent with reported earnings.
The stakes are high — misreporting can incur penalties up to 200% of the owed tax. This means that once undisclosed income is identified, individuals could face overall liabilities amounting to 117% of what they misreported.
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