How to file income tax for Sole Proprietorship Business
Sole proprietorship registration is the registration of a “One Man Business Entity”. All the investments for the Sole Proprietorship business are done by the single proprietor who bears all the losses and enjoys all the profits. The overall control of the business, as well as its management, is in his hands. He can appoint individuals for conducting the business, but the ownership will rest solely with him. Sole proprietorship registration is the most simple one with minimal compliance procedures. Any individual who wants to start a business from home or on a premise with a minimum amount can opt for Sole proprietorship registration. It can be started within the time span of 10-15 days
This type of business is one of the most popular types of business to begin in the unsystematic sector, specifically among micro and small businessmen, traders or merchants due to its simple structure and slab-wise tax benefit. The majority of the unorganized sectors prefer Sole Proprietorship registration.
How Sole Proprietors are taxed?
Sole proprietorship registration business structure has minimal legal, regulatory and registration requirements and therefore is the simplest business structure as for incorporation and setting up is concerned and is extensively popular among small business owners.
The income tax returns of Sole Proprietors’ are to be filed every year unless there is an exemption. Since the proprietor and the proprietorship firms are considered as one single person, its income is added to that of the proprietor and the individual's tax return is filed according to the applicable slab rates. Two forms are to be filed depending on the nature of the proprietorship.
Form
ITR-3
This form should be used to file Income tax if the proprietorship firm is run by a Hindu Undivided Family (HUF) or by any proprietor.
Form
ITR-4 Sugam
The proprietorship firm uses this form for proprietorship tax filing under a presumptive tax scheme. This is done to reduce the burden of compliance of small businesses.
As mentioned before the income tax of a firm having sole proprietorship registration is the same as that of the proprietor meaning, the business income of the proprietorship is added into the income of the proprietor himself. Therefore the business taxes become the personal taxes of the proprietor. He is still entitled to all tax deductions offered to individuals or Hindu Undivided Family (HUF) as the case may be.
Income Tax Slab Rate (FY 2020-21 onwards) for firms with sole proprietorship registration
|
Income range (Rs) |
Rate (New regime) |
Rate (Old regime) |
|
0- 2,50,000 |
NIL |
NIL |
|
2,50,001-
5,00,000 |
5 percent |
5 percent |
|
5,00,001-
7,50,000 |
10 percent |
20 percent |
|
7,50,001-
10,00,000 |
15 percent |
20 percent |
|
10,00,001-
12,50,000 |
20 percent |
30 percent |
|
12,50,001-
15,00,000 |
25 percent |
30 percent |
|
Above 15,00,000 |
30 percent |
30 percent |
Tax slab rates for sole proprietorship income tax
return filing wherein the proprietor's age is above 60 years but less than 80
years at any time during the previous year.
|
Tax slab |
Rate |
|
Up to Rs. 3,00,000 |
NIL |
|
Rs 3,00,000 to Rs 5,00,000 |
5 percent of the total income above Rs
3,00,000. |
|
Rs 5,00,000 to Rs 10,00,000 |
Rs 10,000 + 20% of the total income above ₹
5,00,000. |
|
Above Rs 10,00,000 |
Rs 1,10,000 + 30% of the total income above ₹
10,00,000. |
Tax slabs for proprietorship firms where the age of the proprietor is above 80 years.
|
Tax slab |
Income Tax Rate |
|
Up to ₹ 5,00,000 |
NIL |
|
₹ 5,00,000 to ₹
10,00,000 |
20 percent of the
total income above ₹ 5,00,000. |
|
Above ₹ 10,00,000
|
₹ 1,00,000 + 30
percent of the total income above ₹ 10,00,000 |
Tax slab for firm with sole proprietorship registration where the proprietor is a non-resident individual ( Irrespective of the proprietor's age)
|
Tax slab
|
Tax Rate
|
|
Up to ₹ 2,50,000 |
NIL |
|
₹ 2,50,000 to ₹
5,00,000 |
5 percent of the
total income above ₹ 2, 50,000. |
|
₹ 5,00,000 to ₹
10,00,000 |
₹ 12,500 + 20
percent of the total income above ₹
5,00,000. |
|
Above ₹ 10,00,000 |
₹ 1,12,500 + 30
percent of the total income above ₹ 10,00,000. |
Surcharge
The surcharge is
payable over and above the income tax calculated as per the income tax rate
provided below. The applicable surcharge for Financial Year 2020-21 is detailed
below.
|
Particulars
|
Surcharge Rates |
|
Total income
above ₹ 50 Lakhs but less than ₹ 1 Crore |
10% of the income
tax |
|
Total income
above ₹ 1 Crore |
15% of the income
tax |
Steps For Sole Proprietorship Firm Income Tax Return e filing
Income tax return for firms with Sole Proprietorship registration is complete online. Once the financial statement for the proprietary business is ready, prepare for the firm's computation sheet.
Step 1
- Register yourself at the e-filing portal; if already
registered you have to log in using your PAN.
Step 2
- Download Income Tax Return Form
Step 3
- Prepare Financial statements of the firm and Computation
sheet of the firm
Step 4
- Fill details in the Income Tax Return form
Step 5
- Validate tax return form & generate xml file
Step 6
- Upload xml file at income tax site
Step 7
- E verify ITR with evc / otp / post
The due date for ITR return filing
The deadline for filing the income tax return for sole proprietors is dependent upon whether it needs to be audited under the Income Tax Act,1961 and whether it has conducted any international transactions.
-
Proprietorship that doesn’t
require an audit has to file their returns by the 31st July.
- Proprietorship that requires to be audited needs to file their returns by the 30th of September.
-
Proprietorships that have
conducted any international transactions or certain specified domestic entities
have to file their returns by 30th November.
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