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.


Originally published at http://superca179969711.wordpress.com on December 22, 2021.

SuperCa

Online GST Registration | Online GST Return Filing | Online Company Registration | Online Sole Proprietorship Registration


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