How to File Income Tax Return for Sole Proprietorship in India

Introduction

A proprietorship, similar to other unincorporated businesses like partnerships and corporations, is required to pay taxes on its earnings. Legally, a proprietorship is considered identical to its owner, and the Income Tax Returns are filed in the same manner as the owner’s filings. Consequently, the tax laws governing the proprietor’s income tax also apply to the proprietorship.

The due date for filing a Sole Proprietorship Income Tax Return

The deadline for filing an Income Tax Return for a proprietorship depends on whether the business requires an audit under the Income Tax Act of 1961 and whether it has engaged in international activities.

• For proprietorships not subject to audit requirements, the deadline for filing income tax returns is July 31st.

• Proprietorships subject to audit requirements must file their income tax returns by September 30th.

• Proprietorships involved in international transactions or designated domestic companies must file their income tax returns by November 30th.

How to File Income Tax Return for Sole Proprietorship in India?

Steps to file an Income Tax Return for a proprietorship using eFiling:

1. Obtain a PAN card from the Income Tax Department, which provides a unique Permanent Account Number (PAN) necessary for tax payments.

2. Since a proprietorship does not have a separate legal entity, the proprietor’s PAN card is used for tax payments and filing returns.

3. Register on the e-filing portal if you haven’t already, or log in using your PAN.

4. Navigate to the e-filing menu and select ‘Income Tax Return.’

5. Choose the assessment year, ITR form, type of filing (original/revised), and select ‘prepare and submit’ as the submission mode.

6. Fill in all required information carefully on the new page. Some fields may be optional depending on relevance.

7. After completing all required fields, choose a verification method:

• Select ‘e-verify’ for immediate verification.

• Choose ‘e-verify later’ within 120 days if updates are needed.

• Opt for ‘I do not want to e-verify’ for manual verification.

8. Click ‘Preview and Submit’ from the dropdown menu to review the return before final submission.

9. After submission, validate the filing using OTP or EVC (Electronic Verification Code) within 60 seconds for successful verification.

Auditing for a Sole Proprietorship Firm

Depending on the annual turnover of a proprietorship, an audit may be necessary under three different circumstances:

1. If during the assessment year, the turnover of the proprietorship exceeds Rs 1 crore for businesses or Rs 50 lakh for professional services, an audit is required.

2. An audit is mandated if the proprietorship opts for any presumptive tax scheme, irrespective of annual turnover.

3. The Income Tax Act of 1961 specifies the audit procedures. It requires a certified Chartered Accountant to ensure proper maintenance of books of accounts and compliance with all relevant regulations by the proprietorship.

Conclusion

A sole proprietorship is a small, independent business owned and managed by one person. These enterprises are unregistered and among the simplest to operate. Due to their straightforward nature, sole proprietorships are prevalent in the unorganized business sector, especially among small merchants and traders. In India, a sole proprietorship is not taxed as a separate legal entity. Instead, business owners include their income as part of their tax filings. A sole proprietor's business income is combined with their personal income after deducting business expenses, tax deductions, and other applicable revenues.

eStartIndia is one of the leading cloud-based platforms that help you to file your ITR (Income tax return) without any hassle at an affordable cost.

Author:

Akansha Upadhyay
Rajasthan
B.A.LL.B 4th year student of Banasthali Vidyapith, Rajasthan