Proprietorship Compliance

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Proprietorship Compliance

As a sole proprietorship, your business and personal finances are treated as a single entity for tax purposes. This means your business income is added to your personal income, and you’re taxed at the applicable individual income tax slab rates. Filing the correct tax returns and meeting other compliance requirements are essential for legal operation.

Income Tax for Sole Proprietorships

The core principle of a sole proprietorship is that the business has no separate legal identity from its owner. This simplifies sole proprietorship tax return filing as you use your own PAN.

Filing Thresholds: A proprietor must file an income tax return if their total income exceeds the basic exemption limit, which varies by age:
- Below 60 years: ₹2.5 lakhs
- Between 60-80 years: ₹3 lakhs
- Above 80 years: ₹5 lakhs
Tax Slabs: The sole proprietorship tax rate follows the same slab rates as individual taxpayers. You can choose to be taxed under the old tax regime or the new, simplified tax regime.
- Old Regime: Has higher exemption limits but allows for various deductions (e.g., under Section 80C).
- New Regime: Has lower tax rates and a higher rebate threshold (currently up to ₹7 lakhs) but requires you to forgo most deductions.
ITR Forms:
- ITR-3: Used by a proprietor who has income from a business or profession and maintains regular books of accounts.
- ITR-4 (Sugam): Used by small proprietors who opt for the Presumptive Taxation Scheme (under Section 44AD/44ADA) and have a total income up to ₹50 lakhs.
Due Dates: The deadline for filing your ITR depends on whether your business requires an audit.
- Without Audit: The due date is July 31st.
- With Audit: The due date is October 31st.

Proprietorship Tax Audit

A proprietorship audit is mandatory if your business crosses certain turnover thresholds. An audit ensures that your financial information is accurate and legally compliant.

For Businesses: An audit is required if the annual turnover exceeds ₹1 crore. This limit is increased to ₹10 crores if cash transactions do not exceed 5% of the total receipts and payments.
For Professionals: An audit is required if the gross receipts from the profession exceed ₹50 lakhs.
Under Presumptive Scheme: Even if your turnover is below the limits, an audit is required if you opt for the presumptive scheme but declare a profit lower than the minimum prescribed percentage, and your total income exceeds the basic exemption limit.

Other Key Compliance Filings

Sole proprietors may have additional filing obligations depending on their business activity:

GST Return Filing: Required if your annual turnover exceeds ₹20 lakhs for services or ₹40 lakhs for goods (in most states).
TDS Return Filing: Mandatory if your business has a TAN and is required to deduct tax at source (TDS). This applies to proprietors whose turnover exceeded ₹1 crore (business) or ₹50 lakhs (profession) in the previous financial year.
EPF Return Filing: Required if you employ 20 or more individuals.

Simplify Your Compliance with FileMyFirm

Staying on top of these varied compliance requirements can be complex. FileMyFirm offers comprehensive services to help you manage your proprietorship compliance effortlessly. From filing your income tax returns to handling GST and TDS filings, we ensure you meet all deadlines and adhere to legal regulations. We provide expert guidance so you can focus on growing your business with confidence.

Frequestly asked questions ( FAQ )

Is annual Income Tax Return (ITR) filing mandatory for a Proprietorship Firm?

Yes. Every individual who runs a proprietorship must file an ITR annually. The tax liability of the business is treated as the personal liability of the proprietor.

Which ITR form does the proprietor use for the business income?

The proprietor typically files Form ITR-3 if the business income is calculated based on standard accounting rules. They may use Form ITR-4 if they opt for the Presumptive Taxation Scheme (Section 44AD/AE).

When is a Tax Audit mandatory for a Proprietorship Firm?

A Tax Audit is mandatory in two main scenarios:

If the firm’s total sales, turnover, or gross receipts exceed ₹1 crore in the financial year.
If the proprietor has opted for the Presumptive Taxation Scheme (ITR-4) but declares profits lower than the minimum prescribed limit (6% or 8% of turnover).

What registrations are typically required for a Proprietorship?

Unlike companies or LLPs, proprietorships do not require mandatory registration with the Ministry of Corporate Affairs (MCA). Key registrations are tax-based:

PAN: The proprietor’s personal PAN is used for the business.
GST: If applicable (see below).
UDYAM Registration: Voluntary registration with the Ministry of MSME, often beneficial for government schemes.

Does a Proprietorship need to file TDS Returns?

Yes, if the firm has a TAN (Tax Deduction and Collection Account Number) and makes payments from which tax is deductible at source (TDS), such as rent, commission, or professional fees. These returns are filed quarterly.

Is Professional Tax (PT) compliance required?

Yes, Professional Tax is a state-level compliance. As the owner (PTEC registration) or an employer (PTRC registration), the proprietor must comply with the specific state’s rules for payment and filing.