Compliance Proprietorship
Compliance Proprietorship
Annual Compliances for Proprietorships in India
Proprietorship Compliance
Income Tax Return filing for Proprietorship
In India, when it comes to taxes, proprietorships have the same responsibilities as their owners. A proprietorship is an extension of the owner, meaning the tax process is quite similar to what individuals go through. The income tax rules that apply to individual proprietors also apply to proprietorships.
- Proprietorships, much like partnerships and companies, are required to pay taxes based on their earnings.
- For tax purposes, proprietors and their businesses are viewed as single entities. The income tax filing process for proprietorships aligns with the tax returns of the Proprietor.
- Since a proprietorship isn't considered a distinct legal entity, it has no unique tax identification number. Instead, the Proprietor's Permanent Account Number is used for filing returns on behalf of the proprietorship.
Is it necessary for Proprietorship to File ITR?
Yes, under the Income Tax Act in India, proprietorship firms must file income tax returns based on the age and income of the Proprietor:
- Below 60 Years: Proprietors below 60 years of age must file an income tax return if their total income exceeds Rs. 3 Lakhs.
- If your total income before deductions is above the basic taxable limit you need to compulsorily file your income tax return irrespective of profit or loss in your business.
- Between 60 and 80 Years: Proprietors aged between 60 and 80 must file an income tax return if their total income exceeds Rs. 3 Lakhs.
- Above 80 Years: Proprietors aged 80 years and above must file an income tax return if their income exceeds Rs. 5 Lakhs.
Filing ITR before the deadline is crucial because it allows business losses to be carried forward for future use. Additionally, certain deductions under sections like 10A, 10B, 80-IA, 80-IAB, 80-IB, and 80-IC can only be claimed if the proprietorship's ITR has been filed on or before the due date.
Rates of Surcharge Under Alternate Tax Regime
For the Assessment Year 2024-25, if a Proprietor chooses the alternate tax regime under Section 115BAC, the surcharge rate will be 25% instead of the earlier 37%.
Presumptive Taxation Scheme for Proprietorship
The Presumptive Taxation Scheme is introduced to reduce the compliance burden on small taxpayers in India.
Businesses opting for this scheme can calculate income on an estimated basis under Section 44AD.
This scheme allows taxpayers to pay tax at a minimum rate and removes the need to maintain detailed books of accounts.
Deadline for Proprietorship Tax Return Filing
The due date for filing income tax returns for proprietorship firms depends on the type of business and audit applicability.
No Audit Required: 31st July
Audit Required: 30th September
International Transactions / Specific Domestic Entities: 30th November
Required Documents for Proprietorship ITR Filing
Sole proprietors should keep the following documents ready while filing ITR:
PAN Card
Bank Account Details
Aadhaar Card
Advance Tax Payment Challan
Form 16, Form 16A & Form 26AS
Filing an Income Tax Return for a Proprietorship
Proprietorship businesses are generally required to file income tax returns annually unless specifically exempted.
The income earned from the proprietorship business is treated as the personal income of the proprietor.
Form ITR-3
Form ITR-3 is used for proprietorship businesses run by an individual or Hindu Undivided Family (HUF).
Form ITR-4 Sugam
Form ITR-4 is specifically designed for small businesses opting for presumptive taxation schemes.
Proprietors remain eligible for all deductions applicable to individuals or HUFs.
TDS Return Filing
TDS return filing is mandatory for proprietors having a valid TAN.
The type of TDS return depends upon the nature of deduction:
Form 24Q – TDS on Salary
Form 27Q – TDS for Non-Resident Foreign Companies
Form 26QB – TDS on Property Transactions
Form 26Q – TDS in Other Cases
GST Return Filing
Proprietorship firms must register for GST if turnover exceeds Rs. 20 lakhs.
Registered proprietors are required to file:
GSTR-1
GSTR-3B
Filing frequency depends upon the selected GST scheme.
EPF Return Filing
EPF registration is mandatory for proprietorship firms employing more than 20 employees.
Such businesses are required to file EPF returns regularly.
Accounting and Bookkeeping
Sole proprietors must maintain proper books of accounts if:
Sales/turnover/gross receipts exceed Rs. 25,00,000
Business income exceeds Rs. 2,50,000 in any of the previous three years
Proprietorship Firm Audit
Audit applicability for proprietorship firms depends upon turnover and nature of business.
Turnover Exceeds Rs. 5 Crore
Businesses involved in trade or commerce with turnover above Rs. 5 crore require audit.
Professional Proprietorship
Professional firms such as consultancies require audit if gross receipts exceed Rs. 50 lakh.
Presumptive Taxation Scheme
Proprietorships under presumptive taxation schemes may also require audit depending on conditions.
Audits must be conducted by a certified Chartered Accountant (CA) as per the Income Tax Act, 1961.
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Income Tax Slab Rate for Proprietorship Firms
The income tax landscape for proprietorship firms has witnessed significant changes in the 2023-2024 budgets. The revised income tax regime has introduced an enhanced tax rebate threshold of Rs. 3 lakh for both salaried individuals and taxpayers. Moreover, the tax rebates for individual and salaried taxpayers have been elevated from Rs. 5 lakh to Rs. 7 lakh under this updated income tax framework.
| Proprietor's Age | Net Income Range | Rate of Income Tax (%) |
|---|---|---|
| Below 60 Years |
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| 60-80 Years |
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| Above 80 Years |
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Tax rates for Proprietors opting for an Alternate Tax Regime under Section 115BAC
An alternative tax regime for proprietors was introduced by Finance Act 2020 as Section 115BAC. Assesses must give up specified exemptions and deductions to take advantage of this tax regime.
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 |
Rates of surcharge under the Normal Tax Regime
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:
| Particulars | 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 | Nill | 10 | 15 | 15 | 15 |
| Long-term capital gain is covered under Section 112A or Section 115AD, or Section 112 | Nill | 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 | Nill | 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 |
