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ClearTax condensed the ITR-4 document into an interactive format where users answer a series of questions.
ClearTax condensed the ITR-4 document into an interactive format where users answer a series of questions.

ClearTax: This startup is trying to make tax filing easier for small businesses and freelancers

Tax filing platform ClearTax is introducing a new product for small businesses and practicing professionals that allows them to file income tax returns through a series of simple steps

Hyderabad: Filing an income tax return is a taxing affair in itself.

Now imagine if you’re a small business or a freelancer who has to fill and file a 28-page tax return called ITR-4. Understanding the business category you fall into, calculating asset depreciation, preparing profit and loss statement, assets and liabilities, and comprehending the countless other numbers and complicated income tax laws can be frustrating and time-consuming if you don’t have the luxury of employing a few accountants or at least hiring the services of a chartered accountant.

One start-up is trying to make life easier for proprietary businesses and practicing professionals.

Tax filing platform ClearTax, run by Defmacro Software Pvt. Ltd., is introducing a new product for small businesses and practicing professionals that allows them to file income tax returns through a series of simple steps.

“We will not give you tax department logic. We will give you human way of understanding your tax filing process," Archit Gupta, founder and chief executive officer of ClearTax, said in a phone interview on Monday. “Our software will walk you through the process based on the inputs. It gives visual cues."

ClearTax condensed the ITR-4 document into an interactive format where users answer a series of questions. Depending on the answers provided, the software automatically populates the income tax return form that can be submitted to the taxman.

The company incorporated inputs from 20,000 businesses to develop the software in about six months. ClearTax expects its self-filing tax platform to come in handy for India’s 50 million businesses and practitioners.

ClearTax, which helps 1 million salaried taxpayers file their income tax returns, has condensed the 28-page long ITR-4 document into four easy steps.

First, it asks the user about the nature of his/her business. ClearTax has customised e-filing for different segments such as doctors, engineers, derivative traders, commission agents, insurance agents, retailers and wholesalers, among others.

It then seeks to understand the revenue and income opportunities from different sources such as rent, interest income, profit from sale of assets, and profits made from currency fluctuation.

Next, expenses are broken down into different types –salaries, rents, repairs, taxes and duties, insurance, advertisements, travel, consultancy fees, royalties, and other expenses. As users fill in the details on ClearTax’s interface, the software fills in the relevant blanks in the tax return form.

With ITR-4, entrepreneurs are required to maintain all the books of expenses and revenues as per tax laws and they are required to differentiate personal expenses from their business expenses.

Profit and loss account and balance sheet are automatically prepared by ClearTax’s software.

The software then calculates assets and liabilities, by understanding bank balance, outstanding loans, and value of the company’s or individual’s assets.

Interestingly, ClearTax’s software automatically calculates asset depreciation. The company has encoded income tax department’s asset depreciation chart into its software that automatically calculates depreciation of an asset based on the quarter in which it was bought.

“We are taking human intelligence and encoding it in software," Gupta said. “We are providing a real-time tax return without having to do lot of back and forth."

Gupta estimates the entire process to take about 17-18 minutes if the information required for ITR-4 is kept handy.

The service is free to use during the initial launch period. Going forward, the company plans to charge 999 per business. About 100 businesses have been filing their returns using the product every day, according to Gupta.

Founded in 2011, ClearTax was the first India-focused investment of American seed accelerator Y Combinator. Max Levchin, Scott Bannister, Neeraj Arora, Ruchi Sanghvi and Naval Ravikant are its other investors.

Gupta expects the offering to have 100,000 users by March 2017.

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