Income Tax Return filing for Proprietorship

In India, Proprietorships are subject to the same tax obligations as their owners. Since a Proprietorship is an extension of the owner, it follows a tax system that is mostly comparable to that of a person. Proprietorships are subject to the same income tax regulations as individual proprietors.

Like Partnerships and Corporations, Proprietorships must pay taxes according to their income.

Owners and their companies are treated as one entity for tax purposes. For Proprietorships, the income tax filing procedure corresponds with the Proprietor’s tax returns.

A proprietorship lacks a distinctive tax identification number because it is not regarded as a separate legal entity. Rather, the proprietorship files its own tax returns using the proprietor’s Permanent Account Number.

Is it necessary for a Proprietorship to file an ITR?

Yes, proprietorship businesses are required to file income tax returns in accordance with the Income Tax Act of India, depending on the proprietor’s age and income.

Under 60 Years: If a Proprietor’s total income is more than Rs. 3 lakh, they have to file an income tax return.

Between 60 and 80 Years Old: If a proprietor’s total income surpasses Rs. 3 lakh, they are required to file an income tax return.

Over 80: If a Proprietor’s income is above Rs. 5 lakh, they are required to file an ITR (income tax return).

It is essential to file your ITR by the deadline in order to enable the carryover of business losses for future use. It should be noted that several deductions under sections 10A, 10B, 80-IA, 80-IAB, 80-IB, and 80-IC are only available if the proprietorship files its ITR by the deadline.

Income Tax Slab Rate for Proprietorship Firms

Significant modifications have been made to the income tax situation for Proprietorship enterprises in the budgets for 2023 and 2024. A higher tax rebate threshold of Rs. 3 lakh has been implemented for both taxpayers and salaried individuals under the amended income tax regime. Furthermore, under this revised income tax structure, tax refunds for both salaried and individual taxpayers have been increased from Rs. 5 lakh to Rs. 7 lakh.

Rates of surcharge under alternate tax regime

If a Proprietor picks the alternative tax regime under Section 115BAC for the Assessment Year 2024–25, the surcharge rate will be 25% instead of 37% like it was before.

Presumptive Taxation Scheme for Proprietorship

A provision in the Income Tax Act called the Presumptive Taxation Scheme for proprietorship was created to lessen the tax burden on India’s small taxpayers. Its goal is to free up small enterprises from onerous compliance requirements so they can operate. Companies that choose to participate in this program can use Section 44AD to estimate their income. With the help of this plan, taxpayers can pay taxes at a minimum rate and are no longer need to keep thorough accounting records.

Deadline for Proprietorship Tax Return Filing

The Income Tax Act of 1961 specifies several elements that determine when an Indian proprietorship must file its income tax return.

If your proprietorship does not require an audit, you must file your income tax return by July 31st.

Audit Requirement: September 30th is the deadline for filing your income tax return if your proprietorship needs an audit.

foreign Transactions or Specific Entities: For proprietorships involved in foreign transactions or specific domestic entities, the deadline for filing the income tax return is November 30.

Required Documents for Proprietorship Income Tax Return Filing

To file an Income Tax Return (ITR) for your proprietorship firm, if you are a lone owner, make sure you have the following necessary paperwork ready:

Details of the PAN Card Bank Account

Advance Tax Payment Challan for Aadhar Card Forms 16, 16A, and 26AS

Filing an Income Tax Return for a Proprietorship

It is important to remember that proprietorships are normally required to file their ITRs annually, unless they are exempt. A proprietorship’s income tax is calculated as personal income for the owner.

You will use one of two forms, depending on your proprietorship’s structure:

Form ITR-3

When filing income taxes, proprietorships managed by Hindu Undivided Families (HUFs) or any other type of proprietor use the ITR-3 form.

Form ITR-4 Sugam

Specifically designed for proprietorships under presumptive tax schemes, Form ITR-4 aims to reduce the compliance burden on small businesses.

It’s important to note that the income tax of a proprietorship is considered the same as that of the Proprietor. This means that the business income is added to the Proprietor’s personal income, making the business taxes equivalent to those of the Proprietor. The Proprietor remains eligible for all tax deductions applicable to individuals or Hindu Undivided Families (HUF), as relevant.

TDS Return Filing

Owners who have a valid TAN are required to file TDS returns. According to the reason for the deduction, a different type of TDS return must be completed. Examples of these are Form 24Q for TDS on Salary, Form 27Q for TDS involving non-resident foreign corporations, Form 26QB for TDS on property transactions, and Form 26Q for TDS in other situations.

GST Return Filing

If a sole proprietorship’s annual revenue exceeds Rs. 20 lakhs, the proprietor must register the business for GST. They are required by law to file GSTR-1 and GSTR-3B returns under GST, which include information on the inward and outgoing supplies of taxable goods and services as well as tax payments. The chosen GST plan determines the frequency of filing.

EPF Return Filing

Registration with the Employees’ Provident Fund (EPF) is mandatory for proprietors who have a workforce exceeding 20 members. This requires the submission of EPF returns.

Accounting and Bookkeeping

In the three years prior to the aforementioned event, sole proprietors are obligated to uphold accurate accounting records when their sales, turnover, or gross receipts surpass Rs. 25,000,000 or when their business income exceeds Rs. 2,50,000.

Proprietorship Firm Audit

The audit procedure for a proprietorship is contingent upon its annual revenue and particular circumstances. The following three situations necessitate an audit:

Annual Turnover In excess of Rs 5 Crore: An audit is required of a proprietorship whose annual turnover exceeds Rs 5 crore during the assessment year. This regulation pertains to enterprises engaged in commerce or trade.

Professional Proprietorships with Receipts Exceeding Rs 50 Lakh: Consultancies and service-based businesses that surpass Rs 50 Lakh in total receipts are obligated to undergo an audit.

Proprietorship Subject to Presumptive Tax Scheme: An audit is mandatory for proprietorships falling within any presumptive tax scheme, irrespective of their annual turnover.

The audit requirements for a proprietorship are specified in the Income Tax Act of 1961, which mandates the involvement of a certified Chartered Accountant (CA) in the audit process. This audit verifies the accuracy and legal compliance of the proprietorship’s financial information.