Proprietorship Tax Return Filing, Proprietorship Firms File Income Tax Return

Proprietorships operating in India are required to file income tax return each year. Since proprietorships are considered to be one and same as the proprietor, the income tax return filing procedure for a proprietorship is similar to individual income tax return filing. In this article, we look at the proprietorship tax return filing procedure in detail.

2017 Income Tax Rate for Proprietorship Firm

The income tax rate for proprietorship is the same as the income tax rate for individuals. Unlike the income tax rate for LLP or Company which are flat rates, proprietorships are taxed on slab rates as follow.

Why Should Proprietorship Firms File Income Tax Return?

Under Income Tax Act, all proprietors below the age of 60 years are required to file income tax return if total income exceeds Rs. 2.5 lakhs. In the case of proprietors over the age of 60 years but below 80 years, income tax filing is mandatory if total income exceeds Rs.3 lakhs. Proprietors over the age of 80 years and above are required to file income tax return if the total income exceeds Rs.5 lakhs.

Also, only if the proprietor files income tax return before the deadline, losses if any in the business would be allowed to be carried forward. Also, the deduction under sections 10A, 10B, 80-IA, 80-IAB, 80-IB and 80-IC cannot be allowed unless the proprietorship income tax return has been filed on or before the due date.

Audit for Proprietorship

An audit would be required for a proprietorship firm if the total sales turnover is over Rs.1 crore during the financial year. In the case of a professional, audit would be required if total gross receipts is more than Rs.50 lakhs during the financial year under assessment.

Also, an audit would be required for any proprietorship firm under presumptive taxation scheme irrespective of turnover if the income claimed is lower than the deemed profits and gains under the scheme.

Audit for proprietorship for income tax purposes must be conducted by a practising Chartered Accountant.
Due Date for Filing Proprietorship Firm Tax Return
The income tax return of a proprietorship that doesn’t require audit is due on 31st July.
In case the income tax return of a proprietorship needs to be audited as per Income Tax Act, then the return would be due on 30th September.
In case the proprietorship entered into any international transaction with associated entities or specified domestic transaction, then Form No.3 CB must be furnished.
For proprietorship firms that are required to file Form No.3 CEB, the income tax return is due on 30th November.

Income Tax Return for Proprietorship Firms

For the assessment year2017-18 only, which relates to income earned in Financial Year 2016- 17, proprietorship firms would be required to file Form ITR-3 or Form ITR-4-Sugam.

Form ITR-3

Form ITR-3 can be filed by a proprietor or a Hindu Undivided Family who is carrying out a proprietary business or profession.

Form ITR-4-Sugam

Form ITR-4-Sugam can be filed by a proprietor who would like to pay income tax under the presumptive taxation scheme. Presumptive taxation scheme is designed to help ease the compliance burden of small businesses by assuming a set profit margin on the total income of the business or profession.

Filing a Proprietorship Firm Tax Return

The income tax return of a proprietorship firm in form ITR 3 or ITR V Sugam can be filed online using the digital signature of the proprietor or manually. If the income tax return is filed manually, then the proprietor should print out two copies of Form ITR-V. One copy of ITR-V, duly signed by the proprietor, has to be sent by ordinary post to Post Bag No. 1, Electronic City Office, Bengaluru–560100 (Karnataka). The other copy may be retained by the proprietor for his/her records. To file income tax return for a proprietorship firm, get in touch with an filings Advisor. Sole Proprietorship: Advantages, Requirements & FAQs A sole proprietorship is a business that is owned and managed by a single person. Most of the businesses in India are unregistered and many are being operated as a sole proprietorship firm business. A sole proprietorship is one of the simplest and the easiest form of business entity to register and maintain in India .You could have one up and running within 15 days, which makes it very popular among the unorganised sector, particularly small traders and merchants. There is no formal/strict sole proprietorship registration required and to start a proprietorship only the PAN number for the Proprietor, a few licenses and a capital is required. Proprietorships are recognised by other registrations, such as a service tax registration or sales tax registration. As you would imagine with a business that’s so easy to set up, though, its shortcomings are severe: the liability of the proprietor is unlimited and it does not have a continuous existence. There are no government registrations needed to start the sole proprietorship business in India. Nor are you required to go to an online registration portal and then fill up a form or are required to submit any documents. Nevertheless, you are required to open a current account with any bank in the name of the business. A current account in turn necessitates that one has a specified location from which they are doing the business. The bank asks you to submit at least two documents as a proof of the business location in the form of government registrations like the shop act license, service tax, CST/VAT, etc. In this article, let us look at the process that goes into the formation of a sole proprietorship in India.

Sole Proprietorship Registration
A sole proprietorship in India is considered as an extension of the Proprietor, hence there are no formal procedure to register it. There is only a requirement of opening a bank account in the name of the proprietorship firm or obtaining the licenses required for conducting the business.

To open a bank account for a sole proprietorship, the RBI’s KYC norms dictate that any of the two of following document must be submitted to the Bank:

1. A certificate/license issued by Municipal authorities under the Shop & Establishment Act, 2. The license issued by Registering authority like the Certificate of Practice issued by the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India, Institute of Company Secretaries of India, the Indian Medical Council, Food and Drug Control Authorities.
3. The registration/licensing document issued in name of the proprietary concern by the Central Government or the State Government Authority/ Department, etc.
4. The banks may also accept the IEC (Importer Exporter Code) issued to the proprietary concern by office of the DGFT as an identity document for opening of the bank account etc.
5. Complete Income Tax return (not just the acknowledgement) in name of the sole proprietor where the firm’s income is reflected, duly authenticated and acknowledged by the Income Tax Authorities.
6. The utility bills such as the electricity, water, and the landline telephone bills in the name of the proprietary concern.
7. GST Registration/Certificate.

Advantages of a Proprietorship

Minimal Compliance
Sole Proprietorships are only recognised via their government and tax registrations, so the extent of their compliance is limited to the annual filing of their service, professional or sales taxes. Easy to Start
Proprietorship needs only minimal registration. Hence, it is one of the easiest forms of business entity to start. A sole proprietorship could take 15 days to start if all you need is a Service Tax Registration, but this would stretch to even 45 days if you need Sales Tax Registration. Either way, the process is uncomplicated. PAN card and identity and address proofs are enough to get them done. Relatively Inexpensive
A Sole Proprietorship is inexpensive as compared to a One Person Company (OPC) and, thanks to the minimal compliance requirements, is inexpensive even over the long-term. You would not need to hire an auditor, for example. This is why, despite its severe shortcoming (unlimited liability), small merchants and traders opt for it. Business Name
Since name of a proprietorship is not registered, a proprietorship can choose to have any name – till such time as it does not infringe on a registered trademark. Conversely, since the name is not registered, other people can also use the same business name unless the trademark registration is obtained. Lower Taxes
A proprietorship with less than Rs. 3 lakh of income isn’t required to pay any income tax, as the proprietorship’s are taxed as the individual owing the business. Nevertheless, unlike in a company or LLP, a proprietorship cannot have some of the tax deductions, which may possibly increase the tax liability. Single Promoter
A proprietorship is the only type of business entity that can be registered and be operated by one person. All one needs to register a one person company, is a nominee Director, while for all other types of entities like a company or LLP or a partnership firm, two or more promoters are required. Easy to Close
For all legal requirement and purpose, the proprietor and the proprietorship are one and the same. Hence, there are no formality needed for winding up or in closing a proprietorship. In most of the cases, to close a proprietorship, there is only a requirement for the cancellation of the tax registrations obtained in the name of the proprietor.

FAQs on Sole Proprietorship

Who can start a sole proprietorship?

Any Indian citizen with a current account in the name of their business can start a sole proprietorship. Registration may or may not be required, depending on what business you are planning to establish. However, to open a current account, banks typically require a Shops & Establishments Registration.

What documents are needed for opening a current account in the name of my sole proprietorship?
To open a current account, you need proof of the existence of your business. Most banks will ask for a Shops & Establishments Act Registration. In addition, you will need a PAN card and address and identity proofs.

How long does it take to establish a business with sole proprietorship?

A sole proprietorship business does not take more than 15 days to open-up and get running. This simplicity makes it popular among the small traders and merchants. It’s also much cheaper, of course. This is the other reason why it’s the most widely used business structure.

What businesses are commonly run as sole proprietorships?

Most local businesses are run as sole proprietorships, from your grocery store to a fast food vendor, and even small traders and manufacturers. This is not to say that larger businesses do not operate as sole proprietors. Even some jewellery shops are sole proprietors, but this is not recommended.

What documents are required for starting a sole proprietorship?

To start a sole proprietorship, you would need address and identity proofs, PAN card, all KYC documents and rental agreement or sale deed (in case of Shops & Establishment Act Registration).

Aside from a current account, is there no need for any other registration?

This depends on the business you’re in. If you’re running a departmental store, then you would also need a VAT Registration once your turnover is over Rs. 5 lakh per annum. If you’re running a air-conditioned restaurant, you would need a VAT Registration and Service Tax Registration.

Can I apply for any of these registrations online?

The registrations controlled by the central government — service tax, for example — can be availed of online, whereas the state-government-controlled ones may or may not be. In some technologically advanced states, such as Karnataka, they are, whereas in others they may not be.

What if I wish to convert from sole proprietorship to private limited company or partnership?

You can always choose to do so. The procedure is a little tedious, but it is possible. It is very common for sole proprietors to convert into partnerships and private limited companies at a later stage.

What are the benefits of registering as a sole proprietor as compared to registering a Partnership, LLP, or a Private limited company?

Sole proprietorship, is defined by the Govt. Of India, as a “one-man organisation where a single individual owns, manages and controls the business.” Hence one of the main benefit is that there are no formal rules required as a government sanction is not needed. Apart from that, there is no requirement to pay fees for the registry and there are no government regulatory paperwork and compliances to be fulfilled. There are no minimum capital investment requirements.

Furthermore one gets to keep whatever profit or income that is generated and the tax benefits of the sole proprietorship prevent a double taxation of the firm.
What is required to start a sole proprietorship business in India?

One can legally start a business in India quite easily. There are only two things that are required to be done for starting a sole proprietorship business in India. First is to choose a business name and second is to select a location as the place of doing business. Why is sole proprietorship registrations best suited only for the unorganised and small business?

A sole proprietorship is a kind of unregistered business entity that is owned, managed and controlled by one single person. Sole proprietorship’s are used by most micro and small businesses operating in the unorganised sectors. Proprietorships are very easy to start, however, after the start-up phase, the proprietorship’s doesn’t offer the promoter a host of benefits like the limited liability proprietorship, corporate status, a separate legal entity, an independent existence, transferability, perpetual existence – which are the desirable features for any business. Hence, a proprietorship registration is suited only for the unorganised, small businesses that remain small and/or have a limited period of existence. Why is a Proprietorship Registration important?

There are no formal mechanism provided by the Government of India for the registration of a Proprietorship. Thus, the existence of a proprietorship has to be established through tax registrations and the other business registrations that a business is needed to have as per the rules and regulations. For instance, the GST Tax or GST Registration can be obtained in name of the Proprietor to establish the fact that the Proprietor is operating a business as a sole proprietorship. Therefore, all the registrations for a proprietorship are in the name of the Proprietor, thus, making the Proprietor personally liable for all liabilities of the Proprietorship. Filing return on income from partnership firms

The person or HUF (Hindu United Family) engaged in business or profession in a partnership firm can file the income tax return on ITR-3 form. The form is not valid for those engaged in business or profession under any proprietorship.

One has to be careful in choosing the right tax return form. Only those who fall under this category would be able to file in this form and this would be a crucial factor that would be considered in the process.

.Eligibility

The forms ITR -1 and ITR -2 are for people with salaried income along with other types of income.

A person with income from business or profession would not be able to use these two forms even if he had salary income. Once business income is included in the total income, he would have to use some other form.

If the person earning income from business or profession is carrying this on through a partnership firm then he will be able to use ITR-3 because it is designed to get information related to such a structure.

Overall details

The basic details and flow of information to be mentioned like name, address, permanent account number (PAN), category of employer, type of return, residential status and other personal information is in the same manner as other forms.

Even the details about income — salaries, income from house property, capital gains and income from other sources — are exactly the same as in Form ITR –2. The details have to be mentioned in the schedule provided.

If there are losses then they have to be adjusted against the income figures, including the losses that have been carried forward. The tax to be paid is then determined and the taxes already paid are adjusted against this.

Income from business or profession

This is a slightly long process because some additional bit of the information will have to be mentioned to arrive at the final income under this head. First of all the individual has to give details of the number of firms in which they are partners. For each of the firm, the name of the firm, permanent account number of the firm, amount of share in the profit and the capital balance on the last day of the financial year has to be mentioned.

The next detail to be mentioned is the income from the firm in which a person is a partner in the form of salary, bonus, commission or remuneration received from the firm. There will also be interest that is received from the firm. The total and the net income from this will be mentioned and then this will be taken to the summary where the final figure will be taxed as income.

Tax-free component

This kind of working is necessary because there is a specific tax treatment given to the income from this source.

Any profit received as a share of the partnership profit is tax-free in the hands of the partner. However any salary or interest or other receipt would be taxed. The form enables a person to add up all the taxable items and then this is added to the head of income from business or profession.

Sole Proprietorship Firm is one of the best & popular legal entity in India but when income tax season is coming in the month of July or Sept in every year, that time some entrepreneurs confuse about the How to file the income tax return as a Sole Proprietorship Firm in India. so in this guide, we learn about How How Sole Proprietorship Firm Income Tax Return Works.

if you don’t know about the Sole Proprietorship Firm Overview then suggest you check here about the Sole Proprietorship Firm in India. How Sole Proprietorship Firm Income Tax Return Works

Sole Proprietorship Firm is one of the best & popular legal entity in India but when income tax season is coming in the month of July or Sept in every year, that time some entrepreneurs confuse about the How to file the income tax return as a Sole Proprietorship Firm in India. so in this guide, we learn about How How Sole Proprietorship Firm Income Tax Return Works.

if you don’t know about the Sole Proprietorship Firm Overview then suggest you check here about the Sole Proprietorship Firm in India.

In the case of Sole Proprietorship Firm Income Tax Return, a proprietor is a person who owns his business exclusively and he is the one who is entitled to keep all the profits and liable for all the loss in his business. You can carry on the business either on your own or by employing people to work for you. So you are required to pay the taxes that you earn from the sole proprietorship. Although you are not required to file a separate business tax report but within your individual tax return. The additional costs of tax filing and accounting are saved.

The personal income rates will be applicable on sole proprietor and not the corporate tax rates. That means that he is not taxed as a spate legal entity like a company but the sole proprietor has to file their profit from a business on their personal tax returns. They are taxed as an individual and their net taxable income includes their business income after deducting related business expenses, deductions under income tax and other income if any. The income tax has to be calculated before the due date of filing of income tax return.

Requirements For Sole Proprietorship Firm Income Tax Return

Permanent Account number:

PAN is the must for all income tax matters. So you must have a PAN and if not then you should obtain PAN. They don’t need a separate PAN for the business as it is not a separate legal entity like a company in the case of sole proprietorship firm income tax return. So you require the PAN of the owner of a sole proprietor.

Income tax return Form (ITR)

To file income tax return one must have to fill form according to your nature like Sole proprietorship, company, HUF, LLP etc. different forms are provided under Income tax for different forms of business. In a case of the sole proprietorship.

 if your main business is plying, hiring or leasing goods carriage and you don’t own more than 10 goods carriage during the year at any time and you want to apply section 44AE i.e. Presumptive Taxes (taxes as per the Specified percentage of total turnover) then you have to fill ITR 4S for income tax return.

 if your main business is plying, hiring or leasing goods carriage and you don’t own more than 10 goods carriage during the year at any time and you want to apply section 44AE i.e. Presumptive Taxes (taxes as per the Specified percentage of total turnover) then you have to fill ITR 4S for income tax return.

 In a case of any other business, other than mentioned above, in the sole proprietorship, you can fill the form ITR 4 for filling the income tax.

Books of Accounts

Under section 44AA of Income Tax Act You have to maintain books of accounts of your business’s income in following situations:
 If the business income exceeds Rs 1,20,000 or total sale, turnover or gross receipts thereof are in excess of 10,00,000 in any of the 3 years immediately preceding the PY.
 If the business is newly set up and your income or turnover or total sales or gross receipts are likely to exceed the above-said amount.
If you do not exceed the above-given limit then you are not required to maintain books of account under section 44AA.

Income tax audit:
If your businesses have a turnover in excess of Rs 1 Crore during the Financial year then you have to get your books of account audited from a CA in practice. This audit report has to be filed along with the ITR before 30th September of the Assessment year for the financial year for which audits were done. You also have to fill Form 3CB and 3CD which will be two reports as given by the CA who conducted your audit.

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