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Can You Have Other Income with Salary?
One of the most common questions people have is whether they can have other income while earning a salary. The answer is yes! When filing your income tax return, you can show five types of income: salary, house property, business and profession, capital gain, and other sources like interest from fixed deposits or savings accounts. The income tax act does not prohibit you from having other sources of income in addition to your salary. However, some employers may have contracts that restrict you from earning business income alongside your salary. While you can earn income from other sources like capital gain, you may not be allowed to earn income from business or profession if bound by your employer’s contract.
Is It Mandatory to File an Income Tax Return?
Many individuals wonder if it is mandatory to file an income tax return. The simple answer is that you need to file a return if your gross receipts are more than 2.5 lakh rupees. Even if your income is below this threshold, it is recommended to file your return if you want to avail all the benefits and deductions available. Filing your return also allows you to carry forward any losses and set them off against future profits, helping you save tax in the long run.
Understanding Business and Professional Income
Business and professional income is calculated by subtracting expenses, including depreciation, from total revenue. When running a business or profession, various expenses are incurred, such as salaries, freelancers’ payments, commissions, consulting fees, travel expenses, office rent, electricity bills, marketing and advertising charges, online subscriptions, and more. After deducting these expenses, the net income is considered for tax purposes. It is important to note that assets, such as office furniture and equipment, are not considered expenses but can be claimed as depreciation over multiple years.
The Benefits of Presumptive Taxation
If maintaining detailed accounting records seems daunting, the government offers a simplified method called presumptive taxation. There are two sections under presumptive taxation: 44ADA for professionals and 44AD for businesses. Under these sections, you can declare a percentage of your total turnover as your income, saving you from the hassle of maintaining extensive records. Professionals with income less than 50 lakh rupees can declare 50% of their total turnover as income, while businesses with income less than 2 crore rupees can declare either 8% or 6% of their total turnover as income, depending on the mode of payment. This method eliminates the need for maintaining books of accounts and allows for easier tax filing.
Understanding Accrual Accounting and Cash Method
When it comes to maintaining accounts, there are two methods: accrual accounting and cash method. Accrual accounting involves recording income and expenses when they are earned or incurred, regardless of when the payment is received or made. On the other hand, the cash method only records income and expenses when the payment is received or made. While the cash method may seem simpler, it is recommended to use the accrual accounting method, especially if you have GST obligations or if your business involves multiple transactions with various parties. Accrual accounting allows you to keep track of receivables and payables, ensuring accurate financial reporting.
Maintaining Documents for Tax Purposes
As a small business owner or freelancer, it is essential to maintain certain documents for tax purposes. If you are registered under GST, you need to keep track of all invoices and maintain cash vouchers for cash transactions. Bank statements can also be included as supporting documents for online expenses. However, apart from GST obligations, you are not required to maintain extensive records. Keeping track of invoices and bank statements is sufficient for most small businesses.
Advanced Tax Liability and GST Registration
When it comes to paying taxes, it is important to stay on top of your obligations. For individuals filing their returns under 44AD or 44ADA, advance tax needs to be paid before 15th March of the financial year if the tax liability exceeds 10,000 rupees. Failure to pay advance tax can result in interest and penalties. Additionally, if your business involves selling tangible goods or services, you need to register for GST if your turnover exceeds 20 lakh rupees (40 lakh rupees in some cases). However, if you are solely providing services, the threshold is 20 lakh rupees. It is important to register for GST only if you meet the applicable turnover thresholds.
Streamlining Tax Planning with Wealth Bid
To make tax planning easier, you can leverage the power of technology. Wealth Bid is a platform that allows you to manage your taxes efficiently. It provides features such as linking your brokerage account to view real-time capital gains, comparing tax liabilities under different tax regimes, and receiving reminders for advance tax payments. Wealth Bid simplifies tax planning and ensures you stay on top of your tax obligations throughout the financial year.
By understanding the basics of tax planning, business and professional income, presumptive taxation, accrual accounting, and GST registration, you can effectively manage your taxes as a small business owner or freelancer. Remember to consult with a tax professional or use reliable tax planning platforms like Wealth Bid to ensure you stay compliant and maximize your tax savings.