Compliances Required For Sole Proprietorship Firms
The following compliances apply to proprietorship firms based on their type and turnover:
Sole Proprietorship Firm Compliance Details
- Income Tax Return
Unless exempt, sole proprietorships must file an annual income tax return during each financial year. Furthermore, the income rate for sole proprietorships is the same as that for proprietorships.
A sole proprietorship firm’s income tax return can be filed either physically or online through the Income Tax e-filing portal.
The proprietor filing the ITR-3 form must declare his or her business or profession’s profits or gains.
In the case of sole proprietorship firms with total incomes up to $50 lakh, the ITR-4 form is used as it is based on a presumptive calculation of the income from business and profession.
Slab rate of income tax
As Due to the same legal status as a sole proprietorship, the Income Tax rate applicable to a sole proprietorship firm will also be the same as that of a proprietorship firm.
– SHE Cess, Marginal Relief, and Surcharge are the same under both tax regimes and shall be levied/provided, as necessary.
– Rebate under Section 87-A of the Income Tax Act for resident individual whose total income is not more than ₹5,00,000 is also eligible for a rebate of 100% of Income Tax or ₹12,500, whichever us less. Both tax regimes offer this rebate.
2.TDS Return Filing
Whenever the proprietor has a valid TAN, the TDS Return must be filed, and the type of return to be filed depends on the purpose of deduction. The types of TDS Return are:
Form 24Q – TDS on Salary
Form 27Q – Deductions where the deductee is a non-resident, foreign company
Form 26QB – Tax deducted on immovable property transfers
Form 26Q – TDS in all other cases.
GST Return filing
A sole proprietor must register for GST if his business turnover exceeds Rs. 20 lacs. As per the GST Act, the taxpayer must file a GST return if he is registered for GST.
Sole proprietorship Tax Return Filing firms that are registered under GST must file GSTR-1 and GSTR-3B returns. As per the scheme availed by the proprietor, these returns include information about outward and inward supplies of taxable goods and services, as well as tax payments.
4.EPF Return filing
If the proprietor employs more than 20 people, it is required to register with the EPF and file an EPF return accordingly.
5.Accounting and bookkeeping
Books of account must be maintained by the sole proprietor when sales/turnover/gross receipts exceed Rs. 25,00,000 or income exceeds Rs. 2,50,000 in any three years.
When the sales, turnover, or gross receipts of a sole proprietorship exceed Rs. 1 crore, the business is required to undergo a tax audit. However, it may also be required in other circumstances.
During AY 2020-2021, the threshold limit for tax audits will be raised to Rs. 5 crore, provided cash receipts of the proprietor are limited to 5% of gross revenues or turnover. Moreover, in the Finance Bill, 2021, this limit will be raised by 10% to Rs. 10 crores for taxpayers who are using digital services.
In order to comply with sole proprietorship laws, the following documents are required
In order to become a sole proprietor, the following documents must be submitted:
– PAN Card
– Aadhaar Card
– GST number, if applicable
– Details of sales and purchases
– MSME registration, if applicable
– Bank statements
– Credit card statements, if any