If you’re running a shop, freelancing online, running a consultancy, or even trading stocks actively, you may be earning business income. And that means your income is taxed differently from someone earning a fixed salary.
So what exactly is business income under income tax laws in India? What qualifies, what’s exempt, and how can you file it correctly?
Let’s break it down in a simple, human way—no legal jargon, just clarity.
What is Business Income?
Business income refers to the net profit a business generates after all expenses, costs, & paid taxes. It includes profits from any trade, commerce, manufacture, or profession. Whether you're a grocery store owner, an app developer, a YouTuber, or a F&O trader—if you're running it with a profit motive, it counts as business income.
It falls under “Profits and Gains of Business or Profession” as per the Income Tax Act, 1961.
Examples of Business Income
To make it clearer, here are some real-life examples:
- Earnings from a marketing agency
- Profits from a retail shop
- Commission received by real estate agents
- Online income from blogging, freelancing, or YouTube (if regular)
- Consultancy or professional services
- Profits from intraday or F&O share trading
- Manufacturing business revenue
All these are taxable as business income.
Also Read: Your Salary Isn’t Just Take-Home Pay: What the Taxman Sees Behind the Payslip!
Presumptive Taxation Scheme – For Small Business Owners
If your income does not exceed ₹50 lakh during the FY, you might be eligible to declare business income under the presumptive taxation scheme (Section 44ADA/44AD).
Under this:
- You declare 50% of your total receipts as profit (for professionals)
- Or 8% (or 6% for digital receipts) for small businesses
- No need to maintain books of account or get a tax audit
- Only file ITR-4, making your life much easier
Example: If a consultant earns ₹30 lakh in a year, they can show ₹15 lakh (50%) as presumptive income & pay tax accordingly.
How is Business Income Calculated?
The basic formula to calculate business income:
Gross Receipts – Business Expenses = Net Profit (Business Income)
Expenses include:
- Rent paid for office/shop
- Electricity bills
- Salary for employees
- Phone/internet costs
- Advertising expenses
- Depreciation on assets
- Travel or conveyance
- Loan interest (business-related)
The final figure—net profit a business generates after all expenses, costs, & paid taxes—is the income on which tax is calculated.
Which ITR to File for Business Income?
- ITR-3: If you maintain books of account or have audit requirements
- ITR-4: If you opt for presumptive taxation and the income is within ₹50 lakh (for professionals) or ₹2 crore (for small businesses)
Note: Professionals like doctors, lawyers, architects, & CAs can file under Section 44ADA using ITR-4, if income ≤ ₹50 lakh.
Also Read: Is Your Business Deal “Real” or a Tax Evasion Trap?
Can You Claim Deductions?
Yes, business owners can claim deductions for all business-related expenses. But make sure:
- All expenses are genuine and necessary for the business
- Proper bills and proofs are maintained
- Payments above ₹10,000 are done via digital means (to avoid disallowance)
These deductions reduce your taxable income, and that’s legal & smart tax planning!"
Books of Account & Audit Requirements
You must maintain books of accounts if:
- Your turnover exceeds ₹25 lakh (in certain professions) or ₹1 crore (in business)
- Or your income exceeds ₹2.5 lakh (in some cases)
Audit is required if:
- Turnover > ₹1 crore (or ₹10 crore if digital receipts > 95%)
- Or if you declare a lower than 6%/8% profit under presumptive taxation
Common Mistakes to Avoid
- Using ITR-1 instead of ITR-3/4
- Not disclosing all income sources
- Ignoring GST income (if applicable)
- Claiming personal expenses as business expenses
- Not filing ITR on time (can’t carry forward losses)
Also Read: ITR Filing FY 2024-25: New Tax Rules, Capital Gains Changes & What You Must Know Before Filing
Deadline to File Business Income ITR
For most businesses and professionals:
- Without audit: 31st July 2025
- With audit: 31st October 2025
Don’t miss this! Late filing may lead to penalties and interest."
Final Thoughts
Understanding what business income is in income tax is crucial if you’re self-employed, a freelancer, or a small business owner. By filing under the correct scheme, maintaining proper records, & using ITR-3 or ITR-4, you can avoid notices and optimise your tax outgo.
Make sure to consult a tax expert if your income is complex—or if you're dealing with multiple income sources. The right strategy now can save you lakhs later.
Confused about how to file your business income tax return correctly? Let our experts at Callmyca.com take the hassle off your plate—file it right, the smart way.
