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Proprietorship Firm Compliance Company in India

ITR File for a Proprietorship Firm

Proprietorships in India need to file income tax return each year. As proprietorships are treated to be same as the owner, the income tax return filing process for a proprietorship is similar to filing individual income tax return.

Financial year begins from 1st April and completes on 31st March. Assessment year is the year immediately following the financial year in which income of the financial year is assessed. Therefore, in the assessment year 2019 – 20, the income tax for the period from 1st April 2018 to 31st March 2019 will be assessed.

Rate of income tax for proprietorship is similar as the income tax rate for individuals. Unlike the income tax rate for LLP or Company which are charged against flat rates, proprietorships are taxed on slab rates.

Proprietorship Tax Rate for the Assessment Year 2019-20 when Proprietor's age is less than 60 years


Taxable Income Rate of Tax
Up to Rs 250000 N.A.
Between Rs 250000 and Rs 500000 5%
Between Rs 500000 and Rs 1000000 20%
More than Rs 1000000 30%

Proprietorship Tax Rate for the Assessment Year 2019-20 when Proprietor's age is between 60 and 80 years


Taxable Income Rate of Tax
Up to Rs 300000 Nil
Between Rs 300000 and Rs 500000 5%
Between Rs 5,00,000 and Rs 10,00,000 20%
More than Rs 10,00,000 30%

Proprietorship Tax Rate for the Assessment Year 2019-20 when Proprietor's age is more than 80 years


Taxable Income Rate of Tax
Up to Rs. 5,00,000 NA
Rs. 5,00,000 to Rs. 10,00,000 20%
Exceeding Rs. 10,00,000 30%

Besides calculation of Income Tax depending on the above tax slabs, individuals need to pay Cess and Surcharge.

Surcharge - 10% of income tax, where total income is more than Rs 50 lakh to maximum Rs 1 crore

Surcharge - 15% of income tax where the total income crosses Rs 1 crore

Education and Health Cess - 4% of Income Tax

Why Income Tax Return should be filed by Proprietorship Firms?

According to Income Tax Act, all proprietors below the age of 60 years need to file income tax return when total income is more than Rs 2.5 lakhs. If proprietor's age exceeds 60 years but below 80 years, income tax filing is compulsory when total income is more than Rs.3 lakhs. Proprietors more than the age of 80 years and above must file income tax return if the total income is more than Rs.5 lakhs.

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

Audit for Proprietorship

An audit would be necessary for a proprietorship firm if the total sales turnover exceeds Rs.1 crore during the financial year. In case of a professional, audit would be needed when total gross receipts crosses Rs 50 lakhs in the financial year under assessment.

Also, an audit is a must for any proprietorship firm under presumptive taxation method regardless of turnover if the income claimed is under the deemed profits and gains under the method.

Audit for proprietorship for income tax should be conducted by a practicing Chartered Accountant.

Due Date for Filing Tax Return of Proprietorship Firm

Income tax return of a proprietorship for which audit is not needed is due on 31st July

If the income tax return of a proprietorship requires to be audited under Income Tax Act, then the return would be due on 30th September

When proprietorship involves into any international transaction with related entities or particular domestic transaction, then Form No 3 CEB must be filed. For proprietorship firms that are necessary to file Form No 3 CEB, income tax return must be filed on 30th November

Which ITR Form should be used by a Proprietorship Firm?

Form ITR-3

Form ITR-3 can be filed by a proprietor or a Hindu Undivided Family who is running a proprietary business.

If an Individual or HUF is having income as a partner of a partnership business that is running business or profession, ITR-3 cannot be filed by him. In such case, he needs to file ITR-2.

Filing Tax Return of a Proprietorship Firm

Income tax return of a proprietorship firm in form ITR 3 can be filed online using manual or digital signature of the proprietor.

If the income tax return is filed manually, then the proprietor must print out two copies of Form ITR-V.

One copy of ITR-V, appropriately signed by the proprietor, requires to be sent by ordinary post to Post Bag No. 1, Electronic City Office, Bengaluru–560100 (Karnataka).

The other copy may be taken by the proprietor for his or her records.

ITR-1

Who can use Form ITR 1?

ITR 1 can be used by an individual taxpayer who is having income from :

House property excluding brought forward loss under this head

Salary or pension

Income from other sources excluding winnings from lotteries or income from horse races or losses under this category

Who can't do filing in Form ITR 1?

Return in ITR 1 cannot be used by an individual when he :

Is resident and generally resident of India and has

Any asset that includes financial interest in any entity located outside India

Or

Signing power in any account situated outside India

Or

Income from any source outside India

Earned income from business or capital gains or profession

Gets income from more than 1 house property

Bears losses under the head income from other sources

Has a total income of more than Rs 50 lakhs

Has dividend income exceeds Rs 10 lakhs taxable under Section 115BBDA

Possesses unexplained investment or credit subject to be taxed at 60% under Section 115BBE

Has agricultural income more than Rs 5000

Gets income from horse race or lottery

Stated any relief u/s. 90 or 90A or 91A

ITR-2

Who is applicable to use Form ITR 2?

ITR-2 can be utilized by all individuals and HUFs not running Proprietary business or profession.

Who can't apply Form ITR 2?

ITR 2 cannot be used by an individual and HUF having taxable income under the head 'Proprietary business or profession'

ITR-3

Who can use Form ITR 3?

ITR-3 can be filed by a person or HUF generating income from proprietary business or profession.

ITR-3 can also be filed by an Individual or HUF who is a partner in a business getting his income by way of salary, any interest, commission, bonus, or remuneration from business.

ITR-4 SUGAM

Who can use Form ITR 4 SUGAM?

Return in ITR 4 must be filed by a person or HUF or a business excluding a LLP-limited liability partnership firm when his total income is including :

Presumptive Income calculated according to the provisions of section 44AD, 44ADA and 44AE and

Salary or pension Or

Income from one house property excluding brought forward loss under this head Or

Income from other sources excluding winnings from horse races or lotteries or losses under this category

Who can't use Form ITR 4 SUGAM?

Return in ITR 4 cannot be filed by an individual who :

Is resident and normally resident of India and has

Any asset that includes financial interest in any entity situated outside India

Or

Signing power in any account situated outside India

Or

Income from any source outside India.

Has income under the category capital gains

Has income from profession as stated in Section 44AA

Possess income from commission or brokerage or agency business

Has dividend income more than Rs 10 lakhs taxable u/s 115BBDA

Gets unexplained credit or investment taxable at 60% u/s 115BE

Claimed relief u/s 90 or 90A or Section 91

Has income from more than 1 house property

Has agricultural income that exceeds Rs 5000

Has income from speculative business and other specific business.

ITR-5

Who Can Use ITR 5?

If you are an AOI, LLP, BOI, firm, artificial judicial person under section 2(31(vii)) and 160(1(iii)(iv)), cooperative society, local authority and registered society, it is recommended to file ITR 5 with income tax return.

Who can't use ITR 5?

If you are a person or company or HUF or have to do filing of ITR 7, then ITR 5 is not applicable for you. Also for individuals who want to file u/s 139(4A), (4B), (4C) , (4D) or (4F), then ITR 5 is appropriate for you.

ITR-6

Who Can Use ITR 6?

ITR 6 must be filed by all companies as part of their income tax return.

Who can't use ITR 6?

For companies claimed exemption U/S 11 (Income from property for charitable or religious purpose) do not need to file ITR 6.

ITR-7

Who Can Use ITR 7?

ITR 7 must be filed by companies who requires filing u/s 139 (4A), (4B),(4D),(4E) or (4F) for their income tax returns.

139 (4A) – For income from property under trust or other legal representative for religious or charitable purposes

139 (4B) – Political party whose income is more than threshold limit of income tax

139(4C) – Anyone belong to an association of news agency, scientific research, medical institute, hospital, education institute, university

139 (4D) – Colleges, universities, or institutions that are not needed to file their tax return or report any losses under this or any other section.

Who Can't use ITR 7?

For companies that do not need to file under the above-mentioned sections, they do not need to file ITR 7.

Vital information needed to file ITR

PAN card is compulsory for all the Assessees

Aadhaar card has been considered now as mandatory for individual tax filers. In case of non-individual tax payers, Aadhaar card of the authorized individual is needed to be offered

Income from agriculture, salary, house property, other sources, capital gains, profession etc.

Personal details such as name, address, mobile number, type of employment etc.

Deductions under chapter 10, chapter VI-A and other sections like Section 80U, 80C, 80D

Bank account details like branch name, IFSC code, account number and others

Payment of self-assessment tax, advance tax, TCS and TDS will be automatically updated

Details of cash deposited of the old, demonetized notes between 9th November to 31st December 2016 and more than Rs 2 lakh



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