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A sole proprietorship firm is a business structure where an individual owns and manages the business on their own. Unlike other entities such as partnerships or companies, a sole proprietorship is not a separate legal entity from its owner. This means that the income or loss from the firm is treated as the individual owner’s income. Therefore, filing an Income Tax Return (ITR) for a sole proprietorship is crucial for compliance with tax laws.
Key Benefits of Filing ITR for Sole Proprietorship
Tax Compliance: Avoid penalties and interest for non-compliance.
Loan Approval: Proper filing helps in smooth loan processing, as ITR acts as proof of income.
Carrying Forward Losses: Filing on time allows you to carry forward business losses to future years for offsetting.
Claiming Refunds: If excess TDS has been deducted, filing ITR ensures you can claim refunds.
Government Tenders & Licenses: An ITR is often required to bid for government tenders or obtain licenses.
PAN Card
Aadhaar Card
Bank statements
Profit & Loss statement
Balance sheet
Form 16A (TDS Certificate)
Investment proof for claiming deductions (if applicable)
The typical due date for filing ITR for a sole proprietorship firm (without audit requirement) is July 31st.
If an audit is required under Section 44AB of the Income Tax Act (for firms with a turnover exceeding Rs. 1 crore or Rs. 50 lakh for professionals), the due date is September 30th.
Under the Old Income Tax Regime, proprietorship businesses and professionals below 60 years of age are taxed based on the following slab rates
| Income Range (₹) | Tax Rate |
|---|
| Up to ₹2.5 lakhs | No tax |
| ₹2,50,001 – ₹5 lakhs | 5% |
| ₹5,00,001 – ₹10 lakhs | 20% |
| Above ₹10 lakhs | 30% |
10% surcharge if income exceeds ₹50 lakhs but is up to ₹1 crore.
15% surcharge if income exceeds ₹1 crore but is up to ₹2 crores.
25% surcharge for income above ₹2 crores but up to ₹5 crores.
37% surcharge for income above ₹5 crores.
Under the Old Income Tax Regime, senior citizens (aged 60 to 80 years) who are sole proprietors or
professionals are taxed as per the following slab rates
| Income Range (₹) | Tax Rate |
|---|
| Up to ₹3 lakhs | No tax |
| ₹3,00,001 – ₹5 lakhs | 5% |
| ₹5,00,001 – ₹10 lakhs | 20% |
| Above ₹10 lakhs | 30% |
10% surcharge for income between ₹50 lakhs and ₹1 crore.
15% surcharge for income between ₹1 crore and ₹2 crores.
25% surcharge for income between ₹2 crores and ₹5 crores.
37% surcharge for income above ₹5 crores.
| Company Type | Income Tax Rate |
|---|
| Companies with turnover up to ₹400 crore (in FY 2021-22) | 25% |
| Companies with turnover above ₹400 crore (in FY 2021-22) | 30% |
Under certain conditions, domestic companies can choose lower tax rates by giving up certain exemptions and deductions:
Business Turnover or Gross Receipts Exceeding Limit:-
If the turnover or gross receipts of the proprietorship business exceed ₹1 crore in a financial year.
For professionals, if gross receipts exceed ₹50 lakhs in a financial year.
In certain cases, the turnover limit is increased to ₹10 crore if 95% of the receipts and payments are through digital transactions or banking channels (non-cash mode).
Presumptive Taxation Scheme:-
If the proprietor opts for the presumptive taxation scheme under Section 44AD (business) or 44ADA (profession) and declares a profit lower than the specified percentage (6% or 8%) and total income exceeds the basic exemption limit, an audit is required.
Carrying Forward of Losses:-
If the proprietor wishes to carry forward business losses, an audit may be required even if they fall under the presumptive taxation scheme.
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Certain individuals are legally disqualified from being appointed as designated partners in a Limited Liability Partnership (LLP) under the LLP Act, 2008. These disqualifications ensure that only eligible and compliant individuals take on the role.
ITR Filing for Proprietorship Firm
A proprietorship firm is a business entity owned, managed, and controlled by a single individual. It is not considered a separate legal entity, and the proprietor is personally liable for all business operations.
Yes, proprietorship firms must file an Income Tax Return (ITR) if their total income exceeds the basic exemption limit. Even if income is below the limit, filing ITR is advisable for carrying forward losses and to maintain compliance.
Yes, proprietors can claim business expenses such as rent, salaries, office expenses, travel, and depreciation, which reduces the taxable income.
Yes, proprietorships engaged in business or profession must maintain proper books of accounts as per the Income Tax Act, especially if turnover or gross receipts exceed certain limits.
GST registration is mandatory if the turnover exceeds ₹20 lakhs for service providers and ₹40 lakhs for goods suppliers. Even if turnover is below this threshold, proprietors can opt for voluntary registration.
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