22 Oct



What is Sole Proprietorship?

The Sole Proprietorship firm is one of the best and most popular legal entities in India but when the income tax season comes in July or September every year, some entrepreneurs are confused about how to file an income tax return as the sole proprietorship in India. So in this guide, we learn how the only proprietary company income tax return works.

In the case of a sole proprietorship firm's income tax return, a proprietor is a person who is the sole owner of his business and is the one who is entitled to keep all profits and be responsible for all losses in his business. You can run the business on your own or by hiring people for you. So you have to pay the tax on the sole proprietorship. Although you do not need to file a separate business tax report but in your personal tax return. The additional cost of paying taxes and accounting is saved.

Personal income tax rates will apply to sole proprietors, not corporate tax rates. This means that it is not taxed as a separate legal entity like the company but the sole owner has to file his profit from the business on his personal tax return. They are taxed as an individual and their net taxable income includes related business expenses, deductions under income tax and any other income if their business income. Income tax has to be calculated before the last date for filing income tax returns.

Tax Rate Under New Sl

0- 2, 50,000                            NIL

2, 50,001- 5, 00,000                          5%

5, 00,001- 10,00,000                        20%

10, 00,001- above                                                30%

Suit (under section 87A)

Recently, the tax exemption has been increased/amended under Section 87A of the Income-tax Act, 1961. For the financial year 2020-21, the maximum tax exemption under Section 87A is 12,500.

Tax exemption is available only to resident persons/owners earning net taxable income up to Rs. 5 lakhs. A total tax deduction is applied before adding 'surcharge' and 'health and education cess'.

Books of accounts maintained


Under Section 44AA of the Income-tax Act, you are required to keep a record of your business income in the following circumstances:

1)   If the business income is more than Rs.1, 20,000 or the total sales, turnover or total receipts are more than Rs.10, 00,000 in the previous 3 years of PY.

2)   If the business is newly set up and your income or turnover or total sales or total receipts are likely to be higher than the amount stated above.

3)   If you do not exceed the limit given above, you do not need to keep books of account under Section 44AA.

Income tax audit:

If your business has a turnover of more than Rs.1 crore during the financial year then you have to get your books of accounts audited from a CA firm.

This audit report is to be submitted with ITR before 30th September of the assessment year for the financial year for which the audit was conducted.

You will also need to fill out Form 3CB and 3CD which will be two reports as per the audit given by CA.

ITR Forms Filing of income tax return

The ITR filing forms, applicable to sole proprietorship companies, are detailed below:

ITR 3 applies to individuals and HUFs who own a business or income from a proprietary business.

ITR 4 Applicable to business or individual/owner doing business under presumptive income.

Due to date of filing of income tax return:

The due date is the same for the individual. The last date for filing ITR for assessment years 2021-22 is 31st December 2021. But if it is necessary to audit the accounts under Section 44AB of the Income-tax Act, the last date for filing ITR will be January 15, 2022 of the assessment year.

Does the proprietorship firm have to file an income tax return?

According to the Income Tax Act, the total income of an owner below the age of 60 years  Is more than Rs.2.5 lacs, then an income tax return must be filed.

If the owner files an income tax return before the deadline, business losses, if any, will be allowed to be carried forward. Deductions under Sections 10A, 10B, 80-IA, 80-IAB, 80-IB and 80-IC may not be permitted unless the proprietor tax return is filed on or before the due date.


It is hoped that this article will help you to file an income tax return as a sole proprietorship company. If you have any questions you can ask our legal experts by email at santoshpatil@alltaxfin.com



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