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 2021 – 22, the income tax for the period from 1st April 2020 to 31st March 2021 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.
| 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% |
| 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% |
| 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
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.
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.
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
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.
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.
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
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'
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.
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.
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.
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.
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.
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
