Audit: Professional Income to Business Income

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A user running an IT services proprietorship business was incorrectly categorised as 'Professional' for their ITR filing, leading to an unnecessary audit. They clarified that since they employ staff, their income should be classified as 'Business Income'. Another CA confirmed this distinction and advised that the category can be corrected during the current financial year's ITR filing without any special procedures.

Rahul Singh

Rahul Singh (Querist)

09 November 2020 Dear All,

In my last to last financial year ITR filing, my other CA added my category as Professional for which reason I had to get Audit done. But my category is Business I think, because I'm running a proprietorship Services based business. This Audit thing has became an issue as that means I have to pay extra fees, extra maintenance of books, etc.

So how can I get this changed at least for current year? Because I've heard Business Income auditing slab is much higher.

Please tell, if audit actually gives benefit in prospect? e.g. IT Department, Loans, etc.

Thanks

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 November 2020 What are the nature of services provided by you.

Rahul Singh

Rahul Singh (Querist)

09 November 2020 Dear CA R SEETHARAMAN,

It's IT Services only.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 November 2020 It's only professional income only if you are providing IT services. It will not fall under business income.

Rahul Singh

Rahul Singh (Querist)

09 November 2020 But I was told that it can be shown in Business and it's my choice, so can you please re-check for this? Is it really mandatory for IT Services (proprietorship business) to fall under Professional Income?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 November 2020 Confirm yourself alone is providing services or employing somebody and providing services.

Rahul Singh

Rahul Singh (Querist)

09 November 2020 Dear CA R SEETHARAMAN,

Sorry didn't understood. But I'm absolutely employing people and providing IT services, so what can be done in this case? Because I think as per ITR I look like a Freelancer, though I'm running a business.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

09 November 2020 In such a case it will be considered as business as you are employing people and not a freelancer.

Rahul Singh

Rahul Singh (Querist)

10 November 2020 Thanks for the clarification. So how can we change this while filing ITR for this current financial year after March 2021? Anything special needs to be done or what should I do?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

10 November 2020 Yes, change while filing ITR, no need for anything.

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