Proprietorship Compliance in India
PROPRIETORSHIP COMPLIANCE AT FILINGIN
Running a Sole Proprietorship in India comes with crucial financial and legal responsibilities. Compliance with various tax and regulatory requirements is essential for ensuring the smooth operation and growth of your business. This includes filing Income Tax Returns, TDS Returns, GST Returns, EPF Returns, maintaining accurate accounting records, and sometimes undergoing a Tax Audit.
At FilingIn, we understand the importance of compliance with Indian tax laws and the potential benefits it brings. Our expert services are designed to assist business owners in navigating complex compliance requirements. With FilingIn, the process becomes efficient, hassle-free, and completely transparent for Sole Proprietors.
By partnering with FilingIn, you can easily fulfill your tax obligations, explore tax optimization opportunities, and ensure that your business runs smoothly while adhering to all tax rules.
Proprietorship:
A Sole Proprietorship in India is one of the simplest business structures, where a single individual owns and runs the business.
Income Tax Return Filing for Proprietorship:
In India, the tax responsibilities for a proprietorship are similar to those of its owner. Since a sole proprietorship is not a separate legal entity, its tax liabilities are directly tied to the owner's personal tax return.
Just like individual taxpayers, proprietorships are taxed based on the owner's earnings. The process of filing income tax returns for a proprietorship mirrors that of individual income tax filing.
Since a proprietorship does not have its own tax identification number, the owner's PAN number is used for filing the returns on behalf of the business.
To file your Income Tax Return, ensure the following documents are ready:
- PAN Card
- Bank Account Details
- Aadhar Card
- Advance Tax Payment Challan
- Form 16, 16A, 26AS
The deadline for filing tax returns varies depending on certain factors:
- No Audit Required: File by 31st July.
- Audit Required: File by 30th September.
- International Transactions/Specific Entities: File by 30th November.
The 2023-2024 budget introduced significant changes to income tax slabs. The revised tax rebate threshold for both salaried individuals and proprietors has been enhanced to ₹3 lakh, with rebates increasing from ₹5 lakh to ₹7 lakh.
Tax Slab Rates for Proprietors (Individual Income Tax):
|
Age of Proprietor
|
Income Range
|
Income Tax Rate
|
|---|---|---|
|
Below 60 Years
|
₹2,50,001 - ₹5,00,000
|
5%
|
|
₹5,00,001 - ₹10,00,000
|
20%
|
|
|
Above ₹10,00,000
|
30%
|
|
|
60 to 80 Years
|
₹3,00,001 - ₹5,00,000
|
5%
|
|
₹5,00,001 - ₹10,00,000
|
20%
|
|
|
Above ₹10,00,000
|
30%
|
|
|
Above 80 Years
|
₹5,00,001 - ₹10,00,000
|
20%
|
|
Above ₹10,00,000
|
30%
|
Alternate Tax Regime for Proprietors (Section 115BAC):
Under Section 115BAC, an alternate tax regime for proprietors offers a reduced tax rate. However, certain exemptions and deductions must be waived to take advantage of this scheme.
Tax Rates for the Alternate Regime (Section 115BAC):
|
Net Income Range
|
Tax Rate (FY 2023-24)
|
|---|---|
|
₹10,00,001 - ₹12,00,000
|
15%
|
|
₹12,00,001 - ₹12,50,000
|
20%
|
|
₹12,50,001 - ₹15,00,000
|
20%
|
|
Above ₹15,00,000
|
30%
|
Surcharge Rates Under the Normal Tax Regime:
In addition to the income tax calculated, individuals must pay surcharge and cess based on the tax slabs mentioned above.
For the Assessment Year 2024-25, the surcharge rates applicable to proprietors are as follows:
|
Nature of Income
|
Up to Rs. 50 Lakhs (%)
|
Rs. 50 Lakhs to Rs. 1 Crore (%)
|
Rs. 1 Crore to Rs. 2 Crores (%)
|
Rs. 2 Crores to Rs. 5 Crores (%)
|
More than Rs. 5 Crores (%)
|
|---|---|---|---|---|---|
|
Unexplained Income (Section 115BBE)
|
25
|
25
|
25
|
25
|
25
|
|
Other Income
|
Nil
|
10
|
15
|
25
|
37
|
Is it Necessary for a Proprietorship to File ITR?
Yes, proprietorships must file Income Tax Returns (ITR) based on the age and income of the owner:
- Below 60 Years: Must file ITR if total income exceeds ₹3 Lakhs.
- Between 60 and 80 Years: Must file ITR if total income exceeds ₹3 Lakhs.
- Above 80 Years: Must file ITR if income exceeds ₹5 Lakhs.
Filing the return before the due date ensures that business losses are carried forward, and certain deductions under sections like 80-IA, 80-IB, and 80-IC can be claimed.
Presumptive Taxation Scheme for Proprietorships:
The Presumptive Taxation Scheme under Section 44AD provides small businesses with an easier way to calculate income by using an estimated basis, allowing businesses to pay taxes at a lower rate without the need for detailed accounting records.
Filing ITR for a Proprietorship:
Proprietorships must file ITR annually unless exempted. Depending on the type of business, proprietors must use ITR-3 or ITR-4 Sugam forms:
- ITR-3: For proprietors running businesses like HUFs or others.
- ITR-4 Sugam: For proprietorships under the presumptive tax scheme.
TDS Return Filing:
Proprietors with a valid TAN must file TDS returns based on the type of deduction. This includes Form 24Q (Salary), Form 27Q (Non-residents), Form 26QB (Property Transactions), and more.
GST Return Filing:
If your business turnover exceeds ₹20 Lakhs, registering for GST is mandatory. You will need to file GSTR-1 and GSTR-3B returns based on the GST scheme chosen.
EPF Return Filing:
If your business employs more than 20 individuals, EPF registration and return filing is required.
Accounting and Bookkeeping:
Sole proprietors must maintain proper books of accounts if their annual turnover exceeds ₹25 Lakhs or if business income exceeds ₹2.5 Lakhs in any of the previous three years.
Proprietorship Firm Audit:
An audit is mandatory if:
- Turnover Exceeds ₹5 Crore.
- Receipts for Professional Services Exceed ₹50 Lakhs.
- If the firm is under the Presumptive Tax Scheme.
At FilingIn, we make it easier for you to meet your compliance obligations. From Income Tax Returns to TDS filing, GST returns, and EPF filings, we ensure you stay on top of all requirements. Let us handle your compliance, while you focus on growing your business.
Ready to file your Proprietorship Income Tax Return with ease? Get started now with FilingIn.
Frequently Asked Questions in India
What is a Sole Proprietorship?
A Sole Proprietorship is a simple business structure in which an individual owns and operates the business. The proprietor is personally liable for all aspects of the business, and the business does not have a separate legal identity.
Is it necessary for a Proprietorship to file Income Tax Returns (ITR)?
Yes, a proprietorship must file Income Tax Returns (ITR) based on the total income of the proprietor. If the income exceeds the prescribed limits (₹3 Lakhs for individuals below 60 years, ₹3 Lakhs for those between 60-80 years, and ₹5 Lakhs for those above 80 years), ITR must be filed.
What are the income tax slab rates for Proprietorships?
The income tax rates for proprietorships follow individual tax slabs. For the financial year 2023-2024, the tax rates are:
- Up to ₹2.5 Lakhs: Nil
- ₹2.5 Lakhs to ₹5 Lakhs: 5%
- ₹5 Lakhs to ₹10 Lakhs: 20%
- Above ₹10 Lakhs: 30%
Tax rates differ based on the proprietor’s age and income range.
What is the Presumptive Taxation Scheme (Section 44AD)?
The Presumptive Taxation Scheme under Section 44AD allows small businesses to calculate income on an estimated basis, simplifying tax compliance and reducing the need for detailed accounting. It is available for businesses with a turnover of up to ₹2 Crore.
What are the filing deadlines for Income Tax Returns for Proprietorships?
The deadline for filing an ITR depends on whether an audit is required:
- No Audit: File by 31st July.
- Audit Required: File by 30th September.
- International Transactions: File by 30th November.
What documents are needed for filing Income Tax Returns for a Proprietorship?
The essential documents required are:
- PAN Card
- Bank Account Details
- Aadhar Card
- Advance Tax Payment Challan
- Form 16/16A/26AS (if applicable)
Do I need to file GST Returns for my Proprietorship?
Yes, if your annual turnover exceeds ₹20 Lakhs, you must register for GST. Once registered, you must file regular GST returns, including GSTR-1 (for outward supplies) and GSTR-3B (for tax payments).
What is the EPF compliance for a Proprietorship?
If your business employs more than 20 individuals, you are required to register for Employee Provident Fund (EPF) and file EPF returns monthly. This ensures your employees receive their mandatory retirement benefits.
Do I need to undergo an audit for my Proprietorship?
An audit is required if:
- Annual turnover exceeds ₹5 Crore.
- Receipts for professional services exceed ₹50 Lakhs.
- If opting for the Presumptive Tax Scheme, an audit is mandatory regardless of turnover.
How does FilingIn help with Proprietorship compliance?
FilingIn simplifies the entire process of Income Tax Returns, TDS filing, GST returns, EPF filing, and more. We ensure that you meet all the compliance deadlines and optimize your tax obligations, helping you focus on growing your business.
