If an individual or HUF (Hindu Undivided Family) is earning income through a business or a profession as a sole proprietorship, they need to file returns as one legal entitiy. Essentially, in legal terms, the proprietor ans the proprietorship business are one in the same entity.
Since the proprietorship and proprietor are treated as one, the laws that apply for eligibility for individual income tax also apply to sole proprietorships. In essence:
Moreover, the eligibility to carry forward losses is also dependent on filing returns on or before the due date to file such returns. Further, deductions, such as those under Section 10A, 10B, 80-IA, 80-IB, 80-IC are disallowed if returns have been filed after the due date.
Broadly, Sole Proprietorships can either file an ITR 3 or an ITR 4.
ITR 4 Sugam, under the presumptive taxation scheme, can be used by Sole Proprietorships that are earning less than Rs. 2 crores a year through business or Rs. 50 lakhs per year through porfession. This option exists to reduce the compliance burden of small business as no Profit and Loss Statement or Balance Sheet needs to be furnished in the returns.
As as ITR 3 is concercened, this form should be used to file income tax if the proprietorship is run by a Hindu Undivided family or any other proprietor.
For sole proprietorships, subject to certain conditions the individual slab rates apply, which are as follows:
Net Income in a Financial Year | Tax rate |
0-2,50,000 | Nil |
2,50,001 - 5,00,000 | 5% |
5,00,001 - 7,50,000 | 10% |
7,50,001 - 10,00,000 | 15% |
10,00,001 - 12,50,000 | 20% |
12,50,001 - 15,00,000 | 25% |
15,00,001 and Above | 30% |
When a Sole Proprietor is aged between 60 years and 80 years the following slabs apply:
Net Income in a Financial Year | Tax rate |
Upto Rs. 3,00,000 | Nil |
3,00,001 - 5,00,000 | 5% on net income above 3,00,000 |
5,00,001 - 10,00,000 | Rs. 10,000 + 20% of net income above Rs. 5,00,000 |
10,00,001 and Above | Rs. 1,10,000 + 30% of net income above Rs. 10,00,000 |
If a Sole Proprieotr is aged above 80 years, the following slab rates will apply:
Net Income in a Financial Year | Tax rate |
Upto Rs. 5,00,000 | Nil |
Rs. 5,00,001 - Rs. 10,00,000 | 20% of net income above Rs. 5,00,000 |
Rs. 10,00,001 and Above | Rs. 1,00,000 + 30% of net income above Rs. 10,00,000 |
Further a surcharge applies when net incomes are very high, such as:
Net Income in a Financial Year | Tax rate |
Rs. 50,00,000 - Rs. 1,00,00,000 | 10% on income tax |
Rs. 1,00,00,001 - Rs. 2,00,00,000 | 15% on income tax |
Rs. 2,00,00,001 - Rs. 5,00,00,000 | 25% on income tax |
Rs. 5,00,00,001 and above | 37% on income tax |
Audit Requirements for a Sole Proprietorship
Under certain circumstances, sole proprietorships need to get their returns audited by a certified Chartered Accountant. These are as follows:
Type of Business | Deadline |
Proprietorships that don’t require an Audit | 31st July |
Proprietorships that require an Audit | 30th September |
Proprietorships that have undertaken certain foreign transactions or dealt with certain specified domestic entities | 30th November |
Type (As Applicable) | Documents Required |
Business Income |
|
Salary Income |
|
Rental Income |
|
Capital Gains |
|
Income from Other Sources |
|
General Documents |
|
If an individual or HUF (Hindu Undivided Family) is earning income through a business or a profession as a sole proprietorship, they need to file returns as one legal entitiy. Essentially, in legal terms, the proprietor ans the proprietorship business are one in the same entity.
Since the proprietorship and proprietor are treated as one, the laws that apply for eligibility for individual income tax also apply to sole proprietorships. In essence:
Moreover, the eligibility to carry forward losses is also dependent on filing returns on or before the due date to file such returns. Further, deductions, such as those under Section 10A, 10B, 80-IA, 80-IB, 80-IC are disallowed if returns have been filed after the due date.
Broadly, Sole Proprietorships can either file an ITR 3 or an ITR 4.
ITR 4 Sugam, under the presumptive taxation scheme, can be used by Sole Proprietorships that are earning less than Rs. 2 crores a year through business or Rs. 50 lakhs per year through porfession. This option exists to reduce the compliance burden of small business as no Profit and Loss Statement or Balance Sheet needs to be furnished in the returns.
As as ITR 3 is concercened, this form should be used to file income tax if the proprietorship is run by a Hindu Undivided family or any other proprietor.
For sole proprietorships, subject to certain conditions the individual slab rates apply, which are as follows:
Net Income in a Financial Year | Tax rate |
0-2,50,000 | Nil |
2,50,001 - 5,00,000 | 5% |
5,00,001 - 7,50,000 | 10% |
7,50,001 - 10,00,000 | 15% |
10,00,001 - 12,50,000 | 20% |
12,50,001 - 15,00,000 | 25% |
15,00,001 and Above | 30% |
When a Sole Proprietor is aged between 60 years and 80 years the following slabs apply:
Net Income in a Financial Year | Tax rate |
Upto Rs. 3,00,000 | Nil |
3,00,001 - 5,00,000 | 5% on net income above 3,00,000 |
5,00,001 - 10,00,000 | Rs. 10,000 + 20% of net income above Rs. 5,00,000 |
10,00,001 and Above | Rs. 1,10,000 + 30% of net income above Rs. 10,00,000 |
If a Sole Proprieotr is aged above 80 years, the following slab rates will apply:
Net Income in a Financial Year | Tax rate |
Upto Rs. 5,00,000 | Nil |
Rs. 5,00,001 - Rs. 10,00,000 | 20% of net income above Rs. 5,00,000 |
Rs. 10,00,001 and Above | Rs. 1,00,000 + 30% of net income above Rs. 10,00,000 |
Further a surcharge applies when net incomes are very high, such as:
Net Income in a Financial Year | Tax rate |
Rs. 50,00,000 - Rs. 1,00,00,000 | 10% on income tax |
Rs. 1,00,00,001 - Rs. 2,00,00,000 | 15% on income tax |
Rs. 2,00,00,001 - Rs. 5,00,00,000 | 25% on income tax |
Rs. 5,00,00,001 and above | 37% on income tax |
Audit Requirements for a Sole Proprietorship
Under certain circumstances, sole proprietorships need to get their returns audited by a certified Chartered Accountant. These are as follows:
Type of Business | Deadline |
Proprietorships that don’t require an Audit | 31st July |
Proprietorships that require an Audit | 30th September |
Proprietorships that have undertaken certain foreign transactions or dealt with certain specified domestic entities | 30th November |
Type (As Applicable) | Documents Required |
Business Income |
|
Salary Income |
|
Rental Income |
|
Capital Gains |
|
Income from Other Sources |
|
General Documents |
|