PROPRIETORSHIP COMPLIANCE

PROPRIETORSHIP RETURN FILING

Proprietorship firms file their income tax return just like the LLPs and the Companies registered in India. In legal terms, the proprietorship firm and the proprietor are considered to be one. Therefore, the tax return filing procedure of the proprietor and the proprietorship are the same. As a sole proprietorship is not treated as a different legal entity in terms of tax, the business owners file their business taxes like their individual returns. Just like any other individual taxpayer, a proprietorship firm is also entitled to tax deductions as per the Income tax rules and depending on the slab rates applicable to his income. Whereas the income tax rates for the registered companies are levied on specifically prescribed rates. As the proprietorship firms are small in size and independent businesses owned by a single person. These unregistered businesses are one of the easiest to manage.

INCOME TAX SLAB RATE

A new tax regime has been announced where the individuals can pay taxes as per the new slabs entitled to some certain conditions from FY2020-2021 onwards.

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 is as below:

Tax slabs for proprietorship firms where the age of the proprietor is above 80 years is as below:

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 is as below:

A surcharge is payable over and above the income tax calculated as per the income tax rate provided above, which is as below:

HOW TO FILE INCOME TAX RETURNS FOR PROPRIETORSHIP FIRMS?

Proprietorship firms are entitled to file tax returns every year unless there is an exemption. As mentioned before, the proprietor and the proprietorship firms are considered as single legal entity. There are two forms needed to be filed depending on the nature of the proprietorship.

• 1. FORM ITR-3

  Form ITR-3 should be used to file Income tax if the proprietorship firm is operating by a Hindu Undivided Family (HUF) or by any proprietor.

• 2. FORM ITR-4

  Proprietorship firm use form ITR-4 for filing tax under a presumptive tax scheme. This scheme is launched to reduce the burden of compliance of small businesses.
  
  The business income of the proprietor has been added to the payment of the proprietor himself. This way, the income of the business consider as the personal income of the proprietor. The proprietor is entitled to all tax deductions offered to individuals or Hindu Undivided Family.

IS IT NECESSARY FOR PROPRIETORSHIP FIRMS TO FILE INCOME TAX RETURN?

Under the Income Tax Act, all proprietors below the age of 60 are needed to file an Income tax return if their total income is more than Rs. 3 Lakhs.

In the case of proprietors over the age of 60 years are needed to file income tax return, in case of below 80 years, then income tax filing is mandatory if the total income exceeds Rs. Three lakhs.

Proprietors over the age of 80 years and above should file the proprietorship tax returns if the income exceeds Rs. 5 lakhs.

If the proprietor files an income tax return before the deadline, any losses, if any, in the business would be allowed to be carried forward. The deduction under sections 10A, 10B, 80-IA, 80-IAB, 80-IB, and 80-IC cannot be permitted unless the proprietorship income tax return has been filed on or before the due date.

DUE DATE OF FILING OF AN INCOME TAX RETURN FOR SOLE PROPRIETORSHIP FIRM

PRESUMPTIVE TAXATION SCHEME

A presumptive taxation scheme is a provision within the Income Tax At that provides relief to the small taxpayers. The Government of India aimed at allowing the small businesses to carry on the trade without being burdened by the excessive compliance-related requirements.

Entities enrolled under the presumptive taxation scheme can calculate their income on an estimated basis under Section 44AD. The presumptive taxation scheme allows the taxpayers to pay tax at a minimum rate. Also, the entities opt for this scheme need not maintain books of accounts. A presumptive taxation scheme is an effective scheme that taxpayers can use to reduce the compliance-related burden.

AUDIT OF PROPRIETORSHIP

Depending upon the annual turnover of the proprietorship, an audit is necessary to be carried. Under these three conditions, an audit would be required:

• If the turnover of the proprietorship firm carrying business is exceeding Rs.1 crore during the financial year.

• In a professional case, an audit is required if total gross receipts are exceeding Rs.50 lakh.

• If the proprietorship is under any presumptive tax scheme regardless of the annual turnover, an audit is required.

• For the audit to be carried on, the rules are set out under the Income Tax Act, 1961. The audit is to be done by a certified Chartered Accountant. The CA has to ensure that all the books of accounts are correctly maintained and complied with all the compliances.