Proprietorship Tax Return Filing

Overview:

Just as partnerships and corporations are obligated to pay taxes on their earnings, so too must sole proprietorships. Legally, the proprietorship is considered an extension of the owner, meaning the tax filing process mirrors that of the individual owner. Consequently, the same tax regulations that apply to the owner’s income tax also apply to the business. Proprietorship Tax Return Filing is also as important as others. 

Audit Requirements for Proprietorships

Sole proprietorships may be required to undergo an audit based on specific revenue thresholds and other conditions.

Revenue-Based Audit Requirement: An audit is mandatory for a sole proprietorship if its annual turnover exceeds ₹1 crore in a fiscal year. This threshold applies to businesses engaged in trade, manufacturing, or any other commercial activities. For sole proprietorships providing professional services, the audit requirement is triggered when the annual receipts exceed ₹50 lakh. In both cases, the audit ensures that the financial statements accurately reflect the business’s financial position and comply with statutory requirements.

Presumptive Taxation Scheme Audit Requirement: Sole proprietorships that are enrolled in any presumptive taxation scheme under sections 44AD, 44ADA, or 44AE of the Income Tax Act, 1961, must also undergo an audit. This requirement applies irrespective of the turnover or gross receipts. The presumptive taxation scheme allows businesses to declare income at a prescribed rate without maintaining detailed accounts. However, if the proprietor’s declared income is lower than the presumptive income and exceeds the basic exemption limit, an audit becomes necessary to validate the financial claims.

Compliance with Income Tax Act Requirements: As mandated by the Income Tax Act, 1961, audits must adhere to the specified regulations and guidelines. A qualified Chartered Accountant (CA) must conduct these audits. The CA is responsible for examining the financial records to ensure their accuracy and completeness. They also verify that the business complies with all applicable statutory obligations, including the proper maintenance of books of accounts and other relevant financial documentation.

Qualified Chartered Accountant’s Role: The CA plays a crucial role in the audit process. They are responsible for conducting a thorough examination of the financial statements, internal controls, and accounting practices of the sole proprietorship. The CA ensures that the financial records are accurate and reflect the true financial status of the business. They also provide recommendations for improving financial management and ensuring compliance with all regulatory requirements. The CA’s audit report is submitted along with the tax return to the Income Tax Department, providing assurance of the business’s financial integrity.

Verification of Audit Conditions: Sole proprietors must regularly verify whether their business meets any of the conditions that necessitate an audit. This involves monitoring turnover, professional receipts, and participation in presumptive taxation schemes. If any of these conditions apply, the proprietor must ensure that an audit is conducted in accordance with the stipulated guidelines and within the prescribed timelines.

Conditions 

Any individual who runs a proprietorship business must file their income tax returns. The tax filing deadline for proprietorship businesses is usually July 31st of every year, but it may be extended in some cases.

Guidelines for e-Filing Income Tax Returns for Sole Proprietorships

Register or Log In to the E-filing Portal: Visit the official e-filing portal of the Income Tax Department at [https://www.incometax.gov.in/iec/foportal/](https://www.incometax.gov.in/iec/foportal/). If you are a first-time user, register using your PAN, which will serve as your user ID. If you already have an account, simply log in using your PAN and password.

Choose ‘Income Tax Return’ from the E-filing Menu: Once logged in, navigate to the ‘E-file’ menu and select ‘Income Tax Return.’ This will initiate the process of filing your return online.

Select the Appropriate Options on the Form: On the income tax return form, you will need to make several selections: choose the assessment year for which you are filing the return, select the appropriate ITR form number based on your income sources (for sole proprietorships, this is typically ITR-3 or ITR-4), indicate whether you are filing an original return or a revised return if you are correcting any errors in a previously filed return, and opt for the ‘prepare and submit’ mode to fill out the form online.

Fill in All Required Details Meticulously: Proceed to the next page where you will enter all necessary details. Complete the mandatory fields first, which typically include personal information, income details, deductions, and tax payment information. Additional fields should be filled out based on their relevance to your specific financial situation.

Complete Mandatory Fields and Review Other Relevant Sections: Ensure that all mandatory fields are accurately completed. Review the other sections to determine which ones are relevant to your financial activities and complete them as needed. Accuracy is critical to avoid any issues with your tax return.

Select a Verification Method: After entering all the required information, you will need to choose a verification method for your tax return. The options include immediate e-verification (authenticate your return instantly using an OTP or EVC sent to your registered mobile number or email), e-verify later (you can choose to e-verify your return within 120 days of filing it), or manual verification (if you opt out of e-verification, you will need to send a signed physical copy of the ITR-V to the Centralised Processing Centre within 120 days).

Review Your Return Using ‘Preview and Submit’: Before final submission, use the ‘Preview and Submit’ option to review your tax return thoroughly. This step is crucial to check for any errors or omissions that might have occurred while filling out the form.

Submit and Verify the Return: After ensuring all information is correct, submit your tax return. If you choose e-verification, authenticate your filing immediately using the OTP or EVC received within 60 seconds. If you opted to e-verify later or use manual verification, ensure that the verification process is completed within the stipulated 120-day period.

Checklist:

To ensure that you file your proprietorship tax returns accurately and on time, you should follow this checklist:

1. Gather all your financial documents such as your balance sheet, profit and loss statement, and other relevant documents.
2. Determine your taxable income and calculate your tax liability using the tax rates applicable to your income.
3. Make sure you have obtained all the necessary tax forms and schedules.
4. Verify that all the information in your tax return is accurate and complete.
5. Sign and date your tax return before submitting it to the income tax department.

Documents Required:

To file your proprietorship tax returns, you will need the following documents:

1. PAN Card of the proprietorship business
2. Bank statements
3. Balance sheet and profit and loss statement
4. Receipts of income and expenses
5. Tax forms and schedules

Filing Income Tax Returns for a Sole Proprietorship

Sole proprietorships must file annual tax returns unless legally exempt. The proprietor’s income tax is synonymous with the business’s tax. Returns can be submitted in person or online using the proprietor’s digital signature. The type of proprietorship determines the form required:

Form ITR-3: Utilised by Hindu Undivided Families or proprietors running a business. 

Form ITR-4 Sugam: For proprietorships under presumptive taxation, simplifying compliance for small enterprises. The proprietorship’s income is integrated with the proprietor’s personal income, making business taxes equivalent to personal taxes. The proprietor retains eligibility for all individual or HUF tax deductions.

Guidelines for e-Filing Income Tax Returns for Sole Proprietorships

To e-file tax returns for a proprietorship, follow these steps:

1. Obtain a PAN card from the Income Tax Department, which assigns a unique Permanent Account Number (PAN) necessary for tax payments.
2. Use the proprietor’s PAN for tax payments and filings, as proprietorships aren’t separate legal entities.
3. Register or log in at the e-filing portal with your PAN.
4. Choose ‘Income Tax Return’ from the e-filing menu.
5. On the form, select the assessment year, ITR form number, and filing type (original/revised), then opt for ‘prepare and submit’ mode.
6. Continue to the next page, fill in all required details meticulously.
7. Mandatory fields must be completed; others depend on relevance.
8. After entering information, select a verification method: immediate e-verification, e-verify later within 120 days, or manual verification if you opt out of e-verification.
9. Use ‘Preview and Submit’ to review your return for errors before final submission.
10. If using e-verification, authenticate the filing with an OTP or EVC within 60 seconds.

Income Tax Return Submission Deadlines for Sole Proprietorships

The submission deadlines for a sole proprietorship’s income tax return hinge on the need for an audit as per the Income Tax Act, 1961, and any international dealings:

• Proprietorships not subject to audit must file returns by July 31st.
• Those needing an audit have until September 30th.
• Proprietorships with international transactions or specific domestic activities face a November 30th deadline.

Common Deductions Available for Sole Proprietorships

Choose Corporate Raasta Consulting for Proprietorship Tax Return Filing

Corporate Raasta Consulting assists proprietorship businesses in devising effective tax planning strategies. This includes identifying eligible deductions, exemptions, and incentives that can minimise the tax liability while ensuring compliance with tax laws. Our expert team helps you plan your finances in a way that optimises tax efficiency throughout the financial year.

We handle the entire process of preparing and filing tax returns for proprietorship businesses. This includes gathering all required financial information, calculating tax liabilities, and filling out the appropriate tax forms. Our expertise ensures that the returns are prepared accurately and filed on time, helping to avoid penalties and interest charges for late or incorrect submissions. Understanding that each proprietorship business is unique, Corporate Raasta Consulting offers personalised support tailored to your specific needs.