Proprietorship Compliance

Proprietorship Compliance

Running a Sole Proprietorship in India comes with a set of crucial financial and legal responsibilities. Compliance with various tax and regulatory requirements is essential to ensure your business’s smooth operation and growth. This includes filing Income Tax Returns, TDS Returns, GST Returns, EPF Returns, maintaining accurate accounting records, and sometimes undergoing a Tax Audit.

Filing tax returns is an essential obligation for businesses operating as sole proprietorships in India. At EYC International, we understand the significance of Compliance with Indian tax laws and the potential benefits that come with it. Our comprehensive services are designed to assist business owners in navigating intricate compliance requirements. By partnering with EYC International, you can fulfill your tax obligations and explore opportunities to optimize your tax benefits, allowing your business to succeed while following tax rules.

Proprietorship

A sole proprietorship in India is the most basic business setup, where a single individual owns and runs the business.

Income Tax Return Filing for Proprietorship

In India, proprietorships have the same tax responsibilities as their owners. A proprietorship is an extension of the owner, meaning the tax process is similar to what individuals go through. The income tax rules that apply to individual proprietors also apply to proprietorships.

Proprietorships, like partnerships and companies, must 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 must file an income tax return if their total income exceeds Rs. 3 Lakhs.
• 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 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.

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.

Tax Rates for Proprietors Opting for an Alternate Tax Regime under Section 115BAC

An alternative tax regime for proprietors was introduced by the Finance Act 2020 as Section 115BAC. Assesses must give up specified exemptions and deductions to take advantage of this tax regime.

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.

Rates of Surcharge under Alternate Tax Regime

Simplifying Proprietorship Compliance in India with EYC International

In addition to the Income Tax amount calculated, proprietors must also pay Surcharge and Cess based on the tax slabs outlined below for the Assessment Year 2024-25:

Surcharge Rates under Alternate Tax Regime

For the Assessment Year 2024-25, if a proprietor opts for the alternate tax regime as per Section 115BAC, the surcharge rate is 25%, compared to the previous rate of 37%.

Presumptive Taxation Scheme for Proprietorship

The Presumptive Taxation Scheme, outlined in Section 44AD of the Income Tax Act, is designed to ease the tax burden on small businesses in India. This scheme allows small businesses to calculate income on an estimated basis, simplifying tax calculations and reducing compliance requirements. It enables taxpayers to pay taxes at a minimum rate without maintaining detailed accounting records.

Deadlines for Proprietorship Tax Return Filing

The filing deadline for a proprietorship’s income tax return in India varies based on specific conditions:

• No Audit Required: File by July 31st.
• Audit Required: File by September 30th.
• International Transactions or Specific Entities: File by November 30th.

Essential Documents for Proprietorship Income Tax Return Filing

Ensure you have the following documents ready to file your Income Tax Return (ITR):

• PAN Card
• Bank Account Details
• Aadhaar Card
• Advance Tax Payment Challan
• Form 16, 16A, and 26AS

Filing Income Tax for a Proprietorship

Proprietorships typically file annually unless exempted. The income tax of a proprietorship is considered the proprietor’s personal income. Depending on your business type, you will use:

• Form ITR-3: For proprietorships run by a Hindu Undivided Family (HUF) or other proprietors.
• Form ITR-4 Sugam: For proprietorships under the presumptive tax scheme.

TDS Return Filing

TDS returns are mandatory for proprietors with a valid TAN. Depending on the deduction purpose, the return types include Form 24Q for TDS on Salary, Form 27Q for non-resident foreign companies, Form 26QB for property transfers, and Form 26Q for other cases.

GST Return Filing

Proprietors must register for GST if their turnover exceeds Rs. 20 lakhs. GST filing includes GSTR-1 and GSTR-3B returns, detailing outward and inward supplies, along with tax payments. The filing frequency depends on the GST scheme chosen.

EPF Return Filing

Proprietors with more than 20 employees must register for EPF and file EPF returns, ensuring compliance with employee provident fund regulations.

Accounting and Bookkeeping

Maintain proper books of accounts if your sales/turnover/gross receipts exceed Rs. 25,00,000 or your business income exceeds Rs. 2,50,000 in any of the preceding three years.

Proprietorship Firm Audit

An audit is required under these conditions:

• Turnover Exceeds Rs 5 Crore: For businesses involved in trade or commerce.
• Professional Proprietorship with Receipts Over Rs 50 Lakh: For consultancies or service-based businesses.
• Under the Presumptive Tax Scheme: Regardless of turnover, an audit is mandatory.

A certified Chartered Accountant (CA) must conduct the audit to ensure compliance with the Income Tax Act of 1961.

Streamline Your Proprietorship Compliance with EYC International

EYC International is your trusted partner in managing the compliance needs of your Sole Proprietorship. We simplify Income Tax Returns, ensuring timely submissions and adherence to tax regulations. Our services extend to TDS Return filing, GST Return filing, and EPF Return filing, ensuring your business stays compliant with all regulatory requirements.

With EYC International, focus on growing your business while we handle your compliance needs, safeguarding your financial health and legal standing.

Ready to file your Proprietorship Income Tax Return with ease? Get started with EYC International today!

Our Services: Zero Late Fee on Compliance