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There are important legal and financial obligations associated with operating a sole proprietorship in India. Ensuring compliance with tax and regulatory obligations is crucial for the seamless operation and expansion of your organisation. In addition to keeping correct accounting records and occasionally going through a tax audit, this entails filing income tax returns, TDS returns, GST returns, and EPF returns.
In India, businesses that operate as sole proprietorships are required to file tax returns. At TaxHint, we recognise the value of abiding by Indian tax regulations and the possible advantages that do so. Our all-inclusive services are intended to help company owners navigate the complex Compliance. TaxHint provides Sole Proprietors with efficient and hassle-free processes by providing expert advice and an easy-to-use platform to help them navigate these compliance needs.
Working together with TaxHint will enable you to meet your responsibilities and look for ways to maximise your tax advantages, enabling your company to grow while abiding by tax laws.
A sole proprietorship in India is the most basic business setup, where a single individual owns and runs the business.
In India, proprietorships are subject to the same tax obligations as their owners. Since a proprietorship is an extension of the owner, it follows a tax system that is mostly comparable to that of a person. Proprietorships are subject to the same income tax regulations as individual proprietors.
Yes, under the Income Tax Act in India, proprietorship firms must file income tax returns based on the age and income of the Proprietor:
Since business losses can be carried forward for future use, it is imperative to file your ITR by the deadline. Furthermore, if the proprietorship's ITR is submitted on or before the due date, certain deductions under provisions such as 10A, 10B, 80-IA, 80-IAB, 80-IB, and 80-IC cannot be claimed.
Significant modifications have been made to the income tax situation for proprietorship enterprises in the budgets for 2023 and 2024. A higher tax rebate threshold of Rs. 3 lakh has been implemented for both taxpayers and salaried individuals under the amended income tax regime. Furthermore, under this revised income tax structure, tax refunds for both salaried and individual taxpayers have been increased from Rs. 5 lakh to Rs. 7 lakh.
| Proprietor's Age | Net Income Range | Rate of Income Tax (%) |
|---|---|---|
| Below 60 Years | Up to Rs. 2,50,000 | - |
| Rs. 2,50,001 to Rs. 5,00,000 | 5 | |
| Rs. 5,00,001 to Rs. 10,00,000 | 20 | |
| Above Rs. 10,00,000 | 30 | |
| 60-80 Years | Up to Rs. 3,00,000 | - |
| Rs. 3,00,001 to Rs. 5,00,000 | 5 | |
| Rs. 5,00,001 to Rs. 10,00,000 | 20 | |
| Above Rs. 10,00,000 | 30 | |
| Above 80 Years | Up to Rs. 5,00,000 | - |
| Rs. 5,00,001 to Rs. 10,00,000 | 20 | |
| Above Rs. 10,00,000 | 30 |
Section 115BAC of the Finance Act 2020 provided an alternative tax structure for owners. To benefit from this tax scheme, assesses must forfeit certain exemptions and deductions.
The Income tax rate for a Proprietor who opts for the alternate tax regime:
| Net Income Range | Rate of income-tax (%) (FY 2022-23) | Rate of income-tax (%) (FY 2023-24) |
|---|---|---|
| Up to Rs. 2,50,000 | - | - |
| Rs. 2,50,001 to Rs. 3,00,000 | 5 | - |
| Rs. 3,00,001 to Rs. 5,00,000 | 5 | 5 |
| Rs. 5,00,001 to Rs. 6,00,000 | 10 | 5 |
| Rs. 6,00,001 to Rs. 7,50,000 | 10 | 10 |
| Rs. 7,50,001 to Rs. 9,00,000 | 15 | 10 |
| Rs. 9,00,001 to Rs. 10,00,000 | 15 | 15 |
| Rs. 10,00,001 to Rs. 12,00,000 | 20 | 15 |
| Rs. 12,00,001 to Rs. 12,50,000 | 20 | 20 |
| Rs. 12,50,001 to Rs. 15,00,000 | 25 | 20 |
| Above Rs. 15,00,000 | 30 | 30 |
In addition to the Income Tax amount calculated, individuals must pay Surcharge and Cess based on the above-mentioned tax slabs.
In respect of a Proprietor, the rate of surcharge for the Assessment Year 2024-25 is tabulated here:
| Nature of Income | Range of Total 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 | |
| Short-term capital gain as per under Section 111A or Section 115AD | Nil | 10 | 15 | 15 | 15 |
| Long-term capital gain is covered under Section 112A or Section 115AD, or Section 112 | Nil | 10 | 15 | 15 | 15 |
| Dividend income not being dividend income chargeable to tax at the special rate under sections 115A, section 115AB, section 115AC, section 115ACA | Nil | 10 | 15 | 15 | 15 |
| Unexplained income chargeable to tax under Section 115BBE | 25 | 25 | 25 | 25 | 25 |
| Any other income | Nil | 10 | 15 | 25 | 37 |
In contrast to the former rate of 37%, the surcharge rate for the Assessment Year 2024–25 will be 25% if a proprietor elects to use the alternate tax system under Section 115BAC.
A provision in the Income Tax Act called the Presumptive Taxation Scheme for proprietorship was created to lessen the tax burden on India's small taxpayers. Its goal is to free up small enterprises from onerous compliance requirements so they can operate. Companies who choose to participate in this program can use Section 44AD to estimate their income. This plan does away with the need for taxpayers to keep thorough accounting records and permits minimum tax payments.
The deadline for filing an income tax return for a proprietorship in India varies depending on certain factors outlined in the Income Tax Act of 1961:
The deadline for filing an income tax return for a proprietorship in India varies depending on certain factors outlined in the Income Tax Act of 1961:
If you're a sole proprietor looking to file an Income Tax Return (ITR) for your Proprietorship Firm, make sure you have the following essential documents ready:
When it comes to filing ITR for proprietorships, it's important to note that these businesses are typically required to file annually unless exempted. The income tax of a proprietorship is treated as the owner's personal income.
Depending on the nature of your proprietorship, you will use one of two forms:
ITR-3 form is used to file income tax for proprietorships run by a Hindu Undivided Family (HUF) or any other proprietor.
Specifically designed for proprietorships under presumptive tax schemes, Form ITR-4 aims to reduce the compliance burden on small businesses.
The income tax of a proprietorship is regarded as being the same as that of the proprietor, it is vital to remember. This implies that the business taxes become the proprietor's personal taxes after the business income is deducted. All applicable tax deductions for individuals or Hindu Undivided Families (HUF), when applicable, continue to apply to the proprietor.
All proprietors having a current TAN are required to file TDS returns. Form 24Q for TDS on Salary, Form 27Q for TDS involving non-resident foreign corporations, Form 26QB for TDS on property transactions, and Form 26Q for TDS in other circumstances are the forms of TDS returns that must be filed based on the reason for the deduction.
If a sole proprietorship's annual revenue surpasses Rs. 20 lakhs, the proprietor must register the business for GST. They are required by law to file GSTR-1 and GSTR-3B returns under GST, which include information on the inward and outgoing supplies of taxable goods and services as well as tax payments. The frequency of filing is determined by the selected GST plan.
EPF (Employees' Provident Fund) registration is required for proprietors employing more than 20 individuals. This mandates the filing of EPF returns.
If a sole proprietorship's revenue surpasses Rs. 2,50,000 in any of the three years before to the current one, or if sales, turnover, or gross receipts surpass Rs. 25,00,000, they are required to keep accurate books of accounts.
The audit of a proprietorship depends on its annual turnover and specific circumstances. Here are three scenarios that require an audit:
The Income Tax Act of 1961 specifies the requirements for auditing a proprietorship and mandates that the audit be carried out by a certified Chartered Accountant (CA). This audit verifies that the proprietorship's financial data is correct and compliant with legal requirements.
TaxHint is your dependable partner for meeting your sole proprietorship's compliance requirements. Our services streamline the process of filing income tax returns, guaranteeing that you fulfil all deadlines and comply with tax laws.
In order to help you correctly report deductions, we also support the submission of TDS returns. Our services include the hassle-free filing of GSTR-1 and GSTR-3B GST Returns for firms that are registered under the GST.
In order to ensure compliance with employee provident fund laws, TaxHint can help with the filing of EPF returns. With TaxHint, you can concentrate on expanding your sole proprietorship while we take care of your compliance requirements, guaranteeing the stability of your company's finances and legal position.
Are you prepared to effortlessly file your proprietorship income tax return? Launch right now!