The sole proprietorship is a business which is run by an individual only. The liability of a sole proprietor is unlimited which means that the person is solely and individually liable. There is no joint and several liability which a sole proprietor would share with anybody else as in the case of the private limited company in a partnership firm. However the proprietors in India have to file an income tax return each year. Since, sole proprietorships are considered to be one and the same as that of the proprietor only, the income tax filing procedure for a particular proprietor is similar to the individual income tax return filings. This implies that the income tax payment of a sole proprietor is completely similar to that of an individual filing income tax returns. It becomes important to note that the financial year begins from 1st April itself and ends on 31st March. For instance; the financial year 2018-19 would be from 1st April 2018 to 31st March 2019. The assessment year of the financial is the very next year. That means that the in assessment year 2019-2020, 1st April 2018 to 31at March 2019 would be analysed. The details of the income tax rate for proprietorship is described below.
THE TAX RATE OF PROPRIETORSHIP IN AY 2019-2020- WHEN THE AGE OF PROPRIETOR IS BELOW 60 YEARS
There is the analysis of the data of financial year 2018-2019 pertaining to the proprietor below the age of 60 years.
- The taxable income which was upto Rs. 2,50,000 there was no tax rate for the same.
- For the taxable income from Rs. 2,50,000 to Rs. 5,00,000 the tax rate was 5%
- The taxable income which was from Rs. 5,00,000 to 10,00,000, the tax rate was 20%
- For the taxable income above Rs. 10,00,000 the tax rate was 30%
THE TAX RATE OF PROPRIETORSHIP IN AY 2019-2020- WHEN THE AGE OF PROPRIETOR IS BETWEEN 60 YEARS TO 80 YEARS
The analysis of the data of financial year 2018-19 pertaining to the proprietorship between the age 60 to 80 years is mentioned below:
- The taxable income which was upto Rs. 3,00,000, the tax rate was nil.
- For the taxable income which was between Rs. 3,00,000 to Rs. 5,00,000, the income tax rate was 5%
- The taxable income of Rs. 5,00,000 to Rs. 10,00,000 has income tax rate of 20%
- For the taxable income above Rs. 10,00,000, the tax rate was 30%
THE TAX RATE OF PROPRIETORSHIP ON AY 2019-2020- WHEN THE AGE OF PROPRIETOR IS ABOVE 80 YEARS
Given below is the analysis of tax rate of proprietorship of the financial year 2018-19:
- When the taxable income was up to Rs. 5,00,000, the tax rate was nil.
- The taxable income between Rs.5,00,000 to Rs. 10,00,000 the income tax rate was 20%
- When the taxable income was above Rs. 10,00,000, the tax rate was 30%
There also exists certain surcharge and cess payment. The surcharge is 10% of the income tax where the total income exceeds Rs. 50 Lakh and upto Rs. 1 Crore. The health and education cess is 4% of income tax.
THE NEED TO FILE INCOME TAX RETURNS BY PROPRIETORSHIP FIRMS
According to the Income Tax Act, all the proprietors who are below the age of 60 years are required to file an income tax return if the total taxable income exceeds Rs. 2.5 Lakhs. Similarly in the case of the proprietor who is between 60 to 80 years of age is required to mandatorily file an income tax return if the total income exceeds Rs. 3 lakhs. Proprietors above the age 80 years are required to file an income tax return when the income exceeds Rs. 5 lakhs. Under Section 87A Income Tax Act, 1961, the tax rebate has been increased and for the financial year 2019-1020, maximum rebate available is Rs. 12,500. Hence there exists a strong need to file an income tax return for a proprietor as the he or she has to pay income tax through tax slabs that is similar to individual paying tax. There is an extra advantage wherein if the proprietor files an income tax return before the deadline, ther losses which may occur would be allowed to be carried forward. Also deduction under section 10A, 80-1a, 80-1AB, 80-1B and 80-1C cannot be allowed unless the proprietorship income tax return has been filed on or before the due date.
Audit refers to the official financial inspection done which is usually done by the companies. In the case of the proprietorship, an audit would be required for the firm if the total sales turnover of over Rs. 1 Crore during the financial year. In the case of professional, an audit is required when the total gross receipts are more than Rs. 50 Lakhs during the financial year under the assessment. Moreover, an audi would be required for any proprietorship firm under presumptive taxation scheme irrespective of the turnover if the income claimed is lower than the deemed profits and gains under the provided scheme. The audit for the prorietoshiop for income tax matters should be conducted bvt a practising Chartered Accountant.
THE DUE DATE FOR FILING TAX RETURN FOR PROPRIETORSHIP FIRM
The income tax return of a proprietorship that did not require the audit is usually due on 31st July. If the case is such that Income tax return of a proprietorship is need to be audited as per the Income Tax Act, then the return becomes due to 30th September. In case the proprietorship has entered into many of the international transaction with a particular associated entities or specified domestic transactions, the n the Form No. 3 of CEB must be furnished. For the propri
torshop firms that are required to file Form No. of CEB, the return is due to 30th November.
WHICH FORM IS REQUIRED TO BE USED IN PROPRIETORSHIP FIRM?
The FORM ITR- 3 can be filed by a Hindu undivided family who carries out a proprietary business or profession pertaining to proprietorship. If a particular individual is having income as a partner of a partnership firm that is carrying out the business, the person cannot file ITR-3 in such case and he is required to file ITR- 2. Those persons who wish to avail section 44AD benefit for their income tax calculation can also use Income Tax Return 4S for filing their IT return. Income Tax Return 4 has been prescribed for all other sole proprietorship business. The details such as PAN number, date of birth, name, current address are required to be provided along with all the other crucial details that are required as per the Income Tax Act.
FILING A PROPRIETORSHIP FIRM TAX RETURN
An income tax return of a proprietorship firm in form Income Tax Return 3 can be filed online using the digital signature of the proprietor or manually. If the income tax return is filed in manual manner, the proprietor should print out two copies of the form Income Tax Return- V, which should be duly signed by the proprietor himself, gas to sent by ordinary post to Post Bag No. 1, Electronic City Office, Bangalore- 560100, Karnataka. The other copy must be retained by the proprietor for his/her records. There should be a Permanent Account Number(PAN) as it is required for all income tax related matters of the sole proprietorship business. If the proprietorship business gross receipts or incomes have exceeded Rs. 10,00,000 or Rs. 1,20,000 respectively in any of the three preceding years for which the IT return is being filed , then the books of accounts have to be maintained under the IT act.
In order to sum up, the sole proprietorship business are very crucial in any of the economy. Hence the question pertaining to income tax return becomes extremely important. Various major information has been discussed with the explanation of the income tax return in the sole proprietorship business. The income tax which has to be compulsorily filed by the person running proprietorship business is divided into slabs as any individual is required to file the returns from time to time. Similar siu the acse with the sole proprietorship which is completely n from that that of the partnership firms and companies.