An overview of sole proprietorship firms
Essentially, a sole proprietorship is a business owned and managed by its owner. In the eyes of law, they are treated together as a single entity.
Sole proprietorship compliance checklist
Ownership firms need to comply with the following requirements depending on their type and turnover:
Getting Your Sole Proprietorship Firm Compliant
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Details of Compliances for Sole Proprietorship Firms
Statement of Income Taxes
If they are not exempt, sole proprietorships must file annual income tax returns. Further, this sole proprietorship firm is subject to the same income tax rate as a proprietorship firm.
Depending on the type of business, sole proprietorship firms can file their income tax return either physically or online via an online e-filing portal.
The ITR-3 form is as follows:
A proprietor with income under the head ‘Profits or Gains of Business or Profession’ must file an ITR-3 Form.
A Form ITR-4 is required:
In the case of sole proprietorship firms with taxable income up to $50 lakh and a presumptive income from business and profession, the ITR-4 form or SUGAM form should be used itr for sole proprietor
The slab tax rate on income
Because a sole proprietor and a sole proprietorship firm are the same under the law, the Income Tax rate will be the same for the firm as well.
There is no difference in surcharge, marginal relief, and SHE Cess rates under either tax regime, and they will be levied/provided, as appropriate, under both tax regimes.
A resident individual whose income is less than *5,00,000 is also eligible for a rebate of 100% of Income Tax, or *12,500, whichever is the lower. This rebate is available under both tax regimes.
Filling out the TDS return
When a proprietor has a valid TAN, he must file a TDS Return; the type of return he must file depends on the purpose of the deduction.
Tax Deducted from Salary – Form 24Q
Deductees that are non-resident, foreign companies must use Form 27Q
TDS form 26QB – immovable property transfer
If any other type of TDS is required, use Form 26Q.
GST Return filing
When the business turnover of the sole proprietorship exceeds Rs. 20 lacs, the proprietor must register for GST and file GST returns in accordance with the GST Act.
For sole proprietorship firms registered under GST, GSTR-1 and GSTR-3B are required to be filed. In addition to containing details of outward and inward supplies of taxable goods and services, these returns also contain payments for taxes, and they are to be filed monthly or quarterly, depending on the scheme.
Filing of the EPF return
EPF registration becomes mandatory for employers who employ more than 20 employees, and accordingly, EPF returns must be filed with the IRS.
Accounting and bookkeeping
In any of the three previous years, the sole proprietor was required to maintain books of account if the income from the business exceeded Rs. 2,50,000 or the turnover exceeded Rs. 25,00,000.
It is normally required for a sole proprietor to have a tax audit carried out if their sales, turnover or gross receipts exceed Rs. 1 crore in a financial year. However, he may also have to have their accounts audited in other circumstances.
Questions and Answers
- Do sole proprietorship firms have to pay a penalty for late or non-filing income tax returns? In the event that the income tax return is not filed on or before the due date, a penalty of Rs. 200 will be applied.
- Audits of proprietorship firms can be conducted by whom? Firms with proprietorships can only be audited by a chartered accountant who is a practicing chartered accountant.
What is the procedure for filing proprietorship tax returns?
The proprietor may file income tax returns online or offline. In the case of offline filing, the proprietor should print two copies of ITR-V and submit one of them be signed by the proprietor and be sent by ordinary post to Post Bag No. 1, Electronic City Office, Bengaluru–560100 (Karnataka) and another copy is to be kept for his personal records.