Proprietorship Return Filing

Just like LLPs and companies incorporated in India, proprietorship businesses must file a Proprietor Income Tax Return. The proprietorship and the owner are regarded as one in a legal sense. As a result, the proprietor and the proprietorship file the same income tax returns.

The owners of a sole proprietorship submit their business taxes alongside their personal returns because they are not taxed as a separate legal entity. According to the current Income Tax laws and in accordance with the slab rates applicable to his income, a proprietorship firm has the same rights to a proprietorship tax deduction as any other individual taxpayer.

While registered businesses are subject to flat-rate income tax assessments.

Due to the fact that proprietorship firms are modest, independent companies with just one owner. These unregistered companies are among the simplest to run.

Income Tax Slab Rate

From FY2020–2021, a new tax regime has been established, allowing individuals to pay taxes according to the new slabs under certain restrictions.

When submitting a sole proprietorship income tax return, the tax slab rates apply if the proprietor was older than 60 but younger than 80 at any point in the prior year.

Tax slabs for proprietorship firms where the age of the proprietor is above 80 years

Regardless of the owner's age, the tax rate for sole proprietorship businesses where the owner is a non-resident individual.

A surcharge is payable over and above the income tax calculated as per the income tax rate provided above.

How to file Income tax returns for proprietorship firms?

Ownership tax returns must be submitted annually, unless there is an exception. As previously said, the owner and proprietorship businesses are regarded as one single person. Depending on how the proprietorship is structured, two forms must be submitted.

Form ITR-3

If a Hindu Undivided Family (HUF) or any other proprietor is in charge of the proprietorship firm, income tax must be filed using this form.

Form ITR-4

In order to file proprietorship tax returns, the proprietorship firm uses this form as part of a presumed tax arrangement. This is being done to lessen the compliance burden on small enterprises.

The profits of the individual's company have enhanced the owner's personal salary. In this approach, the proprietor's business taxes are converted to personal taxes. The owner of the firm is still qualified for all tax benefits offered to individuals and Hindu Undivided Families.

Is it necessary for Proprietorship Firms to File Income Tax Return?

All proprietors who are under 60 must file an income tax return if the total income is greater than Rs. 3 lakhs, according the Income Tax Act.

If the total revenue is greater than Rs. 3 lakhs, income tax filing is necessary for business owners over the age of 60 who are still under the age of 80.

In the event that their income exceeds Rs. 5 lakhs, proprietors who are 80 years of age or older are required to file proprietorship tax filings.

Losses, if any, incurred by the business may be carried forward if the proprietor files an income tax return before to the deadline. Sections 10A, 10B, 80-IA, 80-IAB, 80-IB, and 80-IC deductions need the proprietorship income tax return to be submitted on or before the deadline in order to be eligible.

Due date of filing of an income tax return for sole proprietorship firm

Presumptive Taxation scheme

The Income Tax Act contains a clause known as a presumptive taxation plan that offers small taxpayers assistance. The Indian government wanted to free small firms from onerous compliance-related regulations so they could continue doing business.

Under Section 44AD, entities registered in the presumptive taxation scheme may compute income on an estimated basis. The presumptive taxation system enables taxpayers to pay a minimal amount of tax. Additionally, the entities included in the plan are exempt from keeping books of accounts. An efficient tool that taxpayers can utilize to lessen the burden of compliance is a presumptive taxation scheme.

Audit of Proprietorship

It may be essential to conduct an audit depending on the proprietorship's annual turnover. An audit would be necessary under these three circumstances:

1. If a sole proprietorship company's annual revenue exceeds Rs. 1 crore.
2. An audit is necessary in a professional situation if total gross receipts surpass Rs 50 lakh.
3. Regardless of the annual turnover, an audit is required if the proprietorship is covered by any presumptive tax scheme.

The Income Tax Act of 1961 establishes the guidelines for how the audit must be conducted. A licensed Chartered Accountant must conduct the audit. The CA is responsible for making sure that the books of accounts are kept up to date and adhere to all regulations.