PROPRIETORSHIP TAX RETURN FILING & IT’S COMPLIANCES
In India, filing tax returns is a basic requirement for all firms that operate as sole proprietorships. To maintain compliance with Indian tax regulations and optimise tax benefits, business owners need to have a thorough understanding of the tax return filing procedure.
This through blog covers all the necessary information to do a proprietorship tax return filing in India, including deadlines, permitted deductions, documentation requirements, and tax liabilities.
WHAT IS PROPRIETORSHIP?
The term “proprietorship” can be used to describe a single person’s unincorporated business or a land gift to a single person or group of individuals.
WHAT IS SOLE PROPRIETORSHIP?
One person owns and operates a sole proprietorship, often referred to as a sole tradership, individual entrepreneurship, or proprietorship, in which the owner and the business entity are the same legally.
Proprietorship Taxes in India
In India, proprietorships have the same tax-related responsibilities as their owners. Because a proprietorship is viewed as an extension of the proprietor, it must file taxes in a manner akin to that of a person. Ownerships are subject to the same income tax regulations as individual proprietors.
Prior cash payments for preventative health checkups were not eligible for deduction; however, they are now.
1.Proprietorships and Taxation:
- Like partnerships and corporations, proprietorships are required to pay taxes on their income.
- For proprietorships, the income tax filing process is in line with the proprietors’ tax returns.
- Businesses and proprietors are treated as separate legal entities for taxation purposes.
- The owner assumes all tax liabilities and duties and is individually in charge of meeting the business’s tax requirements.
2.Linked Tax Responsibilities:
- Sole proprietors need to realise that their personal tax liabilities are linked to those of their business.
- Respecting the government’s income tax guidelines and regulations is essential.
3.Donations
- The owner’s tax return must include the income the proprietorship received.
- This covers the company’s earnings as well as any additional revenue derived from the proprietorship.
- Both personal and proprietorship income are included in the proprietor’s tax return.
4.Tax Identification Number:
The proprietorship lacks a unique tax identification number since it is not regarded as a separate legal entity. Rather, the proprietorship uses its Permanent Account Number (PAN) for filing returns and other tax-related transactions.
The necessity for proprietorship firms to file Income Tax Returns
- f the total income exceeds Rs. 3 lakhs, all owners under the age of 60 are required under the Income Tax Act to file an income tax return.
- When a proprietor’s total income is above Rs. Three lakhs, income tax filing becomes necessary for those over 60 who must file income below 80.
- If a proprietor’s income surpasses Rs. 5 lakhs, they must file proprietorship tax returns if they are 80 years of age or older.
- Losses from the firm could be carried forward if the owner submits an income tax return by the deadline. To be eligible for the deduction under sections 10A, 10B, 80-IA, 80-IAB, 80-IB, and 80-IC, the proprietorship income tax return must be filed on or before the deadline.
Importance of Filing Income Tax Returns for Proprietorship Firms
The Deep Effect of Income Tax Return Filing for Sole Proprietorship Businesses: A Path of Accountability and Success.
- Embracing Financial Responsibility: Tax return filings convey a strong sense of obligation and a commitment to compliance, reflecting a profound commitment to financial responsibility.
- Creating Possibilities: It enlivens and empowers, creating avenues for exciting prospects for a rich future.
- Triumph by Compliance: By submitting our returns, we lay the groundwork for future growth and prosperity and honour the success of moral behaviour.
Tax Audit for Proprietorship
A proprietorship’s annual turnover and a few other conditions must be met before the audit can take place. An audit is necessary for the following three specific scenarios:
- Turnover exceeding Rs 1 crore: If the proprietorship firm’s yearly turnover surpasses Rs 1 crore in the assessment year, an audit is required. This standard applies to companies that deal in goods or services.
- Professional proprietorship with receipts over Rs 50 lakh: If the proprietorship’s total receipts surpass Rs 50 lakh, an audit is necessary. Examples of these types of businesses include consultation and service-based enterprises.
- Proprietorship under presumptive tax scheme: If a proprietorship is subject to any presumptive tax scheme, an audit is required regardless of the yearly turnover.
The Income Tax Act of 1961 establishes the guidelines for a proprietorship’s audit procedure. A certified chartered accountant (CA) is required by law to perform the audit of a proprietorship business.
The proprietorship’s financial information is deemed accurate and compliant by the authorities and stakeholders, as confirmed by the audit. To make sure that the established rules and norms are followed, proprietors must hire a competent chartered accountant to conduct the audit. The proprietorship exhibits accountability, openness, and compliance with relevant tax rules by carrying out an audit.
Scheme of Presumptive Taxation on Proprietorship
The Income Tax Act contains a mechanism known as a presumptive taxation plan that offers small taxpayers assistance.
The Indian government wanted to free small companies from onerous regulations connected to compliance so they could continue in operation. Under Section 44AD, entities covered by the presumptive taxation regime are able to estimate their income.
A minimum tax rate can be paid by taxpayers under the presumptive taxation plan. Moreover, the firms included in the programme are exempt from keeping books of accounts. One efficient way for taxpayers to lessen the burden of compliance is through the use of presumptive taxation schemes.
Proprietorship Tax Rate AY 2024-25| FY 2023-24 under Normal Tax Regime
Ownership Tax Rate: AY 2024–25| FY 2023–24 – The proprietor is under 60 years old
| Net Income Range | Rate of income-tax % |
|---|---|
| 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 |
2.Proprietorship Tax Rate AY 2024-25| FY 2023-24–Proprietor’s age is between 60 and 80 years
If a proprietor turns sixty during the preceding year and was under eighty on the last day of the preceding year, they are subject to the following tax rate:
| Net Income Range | Rate of income-tax % |
|---|---|
| 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 |
3.Proprietorship Tax Rate AY 2024-25| FY 2023-24–Proprietor’s age is above 80 years
This applies to proprietors who were 80 years of age or older at any point in the preceding year.
| Net Income Range | Rate of income-tax % |
|---|---|
| Up to Rs. 5,00,000 | - |
| Rs. 5,00,001 to Rs. 10,00,000 | 20 |
| Above Rs. 10,00,000 | 30 |
4.Tax rates for Proprietors opting for an Alternate Tax Regime under Section 115BAC
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 rate of income tax for a proprietor choosing the alternative tax regime is as follows:
| 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. 12,00,00 | 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 |
Documents Needed to File a Proprietary Income Tax Return
The following paperwork is needed for a lone proprietor to file an ITR for a proprietorship firm:
- Adhar card PAN card
- Details of bank accounts for Forms 16, 16A, and 26AS
- Challan for advance tax payment
A Proprietorship's Income Tax Return Submission
Unless they are exempt, proprietorships must file tax returns on a yearly basis. A proprietorship’s income tax is handled similarly to the proprietor’s. The proprietor’s electronic signature can be used to file the tax return electronically via an e-filing portal or physically. Depending on the proprietorship’s structure, two separate forms must be submitted:
Form ITR-3:
Any proprietorship, whether owned by a Hindu Undivided Family or not, must use this form to file income taxes.
Form ITR-4:
Sugam: This particular ITR-4 form is specifically made for sole proprietorships that are subject to presumptive tax schemes. Its goal is to lessen small enterprises’ burden of compliance.
How to File an Electronic Income Tax Return for a Sole Proprietorship
The steps below provide a detailed explanation of how to electronically file an income tax return for a proprietorship:
Step 1: Prepare your PAN card: Your PAN card is your pass to pay your taxes on time. Make sure you have this crucial Income Tax Department document. It provides you with a special Permanent Account Number (PAN) that you need to pay taxes.
Step 2: Make Use of Your PAN to File: Recall that you must use your PAN to file returns and pay income tax because a proprietorship lacks a separate legal entity. It’s a smooth process that guarantees your compliance with taxes.
Step 3: Sign up on the electronic filing portal: If you haven’t already, use your PAN to register on the e-filing portal. Log in if you have already registered, then get set to start your tax filing journey.
Step 4: Go to the “Income Tax Return” page. Find the “Income Tax Return” option from the menu on the electronic filing portal. To go to the next stage of your tax filing process, click on it.
Step 5: Choose the Correct Information. Here, you must carefully choose the pertinent details:
Year of assessment: Select the appropriate year to file your tax return. ITR form: Depending on your proprietorship’s structure, choose the correct form.
Sort of Filing: Choose if this is a revised or initial return.
Submission mode: Select “get ready and send in” to move forward.
Step 6: Complete the Required Information: This is the part when being meticulous is important. Please carefully fill out all the requested information. While some fields are required, others are optional based on your unique situation. Be patient and careful to ensure accuracy.
Step 7: Select Your Method of Verification: Next, choose the verification method that you desire. Three choices are available to you:
- E-verify right away: Obtain immediate verification to ensure a smooth transaction.
- E-verify within 120 days: Kindly update any information that changes within that time.
- Manual verification: Choose “I don’t want to e-verify” and move forward with manual verification if you’d rather have a more hands-on experience.
Step 8: Preview and Submit: Before submitting, check your return. You can evaluate your work again for mistakes or omissions by selecting the “Preview and Submit” option. Use this chance to make sure everything is correct and organised.
Step 9: Last-Minute Check It’s time for the last verification after submission. Select between EVC and OTP verification. As always, timing is of the essence. In order to finish the verification procedure, enter the OTP/EVC within 60 seconds.
FilingsFirst can help you efficiently complete the proprietorship return filing.