The proprietorship firms are required to file an income tax return just like Limited Liability Partnership firms and Companies which are registered in India. Since the proprietorship firms are usually considered to be similar as the proprietor which means the proprietor is treated like an individual only, the income tax return filing of the proprietorship firm is the same as that of the proprietor. According to the Income Tax Act, all of the proprietors who are below the age of 60 years are required to file an income tax return if their total income exceeds the amount of Rs. 2.5 lakhs. In the case of the proprietors who are over the age of 60 years but below the age of 80 years, the filing of income tax becomes compulsory if total income exceeds Rs.3 lakhs. The proprietors who are over the age of 80 years and above are required to file an income tax return provided that the total income exceeds Rs.5 lakhs. There is a need to file income tax return filing for small and medium sized proprietorship firms across the country as any business which runs in a country is required to provide the requisite amount of revenue to the Government as every business whether small or large, is a part of the economy.
THE TAX AUDIT FOR A PROPRIETORSHIP
An audit is an official inspection of the accounts of a particular organisation which is usually done by an independent body. It is required for a proprietorship firm if the turnover of the total sales is over Rs.1 crore during a particular financial year. In the matter of a professional, an audit would be required if the total gross receipts are way more than Rs.50 lakhs during a particular financial year which is under assessment. Moreover, an audit is required for any of the proprietorship firms which are under presumptive taxation scheme irrespective of turnover if the income claimed is lower than the deemed profits and gains under the scheme. In The Income-tax Act 1961, Section 44AB contains the provisions for the tax audit of any concerned entity. According to these provisions, the tax audit has to be conducted only by a Chartered Accountant (CA) who clearly ensures that the taxpayer has maintained a proper records of books of account and has completely complied with the provisions of the Income-tax Act.The tax audit which is conducted by a Chartered Accountant is generally reported to the Income-tax department in Form number 3CA/3CB and Form number 3CD along with the income tax return.
WHAT IS THE DUE DATE FOR FILING INCOME TAX RETURN FOR THE PROPRIETORSHIP?
The income tax return of a particular proprietorship which does not require audit is due on 31st July. In case the income tax return of a proprietorship has to be audited according to the Income Tax Act, the income tax return would become due on 30th September. The proprietorship firms are usually required to file Form ITR-3 or Form ITR-4-Sugam. The Form ITR-3 can be filed by a proprietor or a Hindu Undivided Family who is carrying out a proprietary profession or business. The Form ITR-4-Sugam can, however, be filed by a proprietor who would like to pay income tax under the presumptive taxation scheme. The presumptive taxation scheme is designed to help ease the compliance burden of small businesses by assuming a set profit margin on the total income of the business or profession. Presumptive taxation scheme (PTS) allows individuals to calculate their tax on an estimated income or profit. The scheme can easily be used by any of the businesses which are having a turnover of total of less than Rs2 crore and are eligible professionals with gross receipts of less than Rs50 lakh in a particular financial year. Individuals those who adopt PTS to file their returns are however not required to maintain a record of books of accounts.
HOW TO FILE AN INCOME TAX RETURN AS A PROPRIETOR?
The income tax return of a proprietorship firm in specified Form ITR 3 or ITR 4 Sugam can easily be filed online on the e-filing portal of the government by using the digital signature of the proprietor or by generating a CV or generating an Aadhar OTP or by sending a signed copy of the ITR-V to Post Bag No. 1, Electronic City Office, Bengaluru 560100, Karnataka. However, if the income tax return is filed manually, then e-verification is not at all possible. In such a case, the proprietor is required to take a print out of two copies of Form ITR-V. This particular return has to be submitted to the AO of a concerned jurisdiction. The complete return needs to be submitted and the ITO will issue a stamped acknowledgement. Any of proprietorship which operating in India has to pay Income Tax with all due procedures concerned. Also, any entity which is paying Income Tax is also required to file an Income Tax Return. It has been discussed before as well that as per the Income Tax laws, a proprietorship firm is considered the same as the proprietor for tax purposes and hence, the filing procedure for the proprietorship is quite similar to the filing procedure prescribed for an individual.
WHAT ARE THE REASONS OF COMPLIANCE FOR A PROPRIETOR?
The proprietorship firms are required to maintain compliances like Limited Liability Partnership and companies both Public or Private limited company. The compliance of proprietorship firm mainly includes income tax return filing however the Limited Liability Partnership and other companies are required to submit both the reports of Income tax return filing to the Income Tax Department and the annual filing to the Ministry of Corporate Affairs respectively. The sole proprietorship firms has also to comply with TDS regulations, GST regulations, ESI regulations etc. The requirements of the compliance highly differs depending upon the type of entity, industry, state of incorporation, number of employees and the turnover of the sales. It has very minimum statutory (legal) compliance in comparison to public or a private limited company. In case of sole-proprietorship, a sole proprietor does not enjoy the benefit of separate legal entity and limited liability. The annual income of sole proprietor is considered as the annual income of the proprietorship firm. There is no need to file any annual report or financial statement to MCA. The major compliances of sole proprietorship firms are tax related periodic and annual compliance. A sole proprietorship firm is also known as a sole tradership, proprietorship or individual entrepreneurship. It is that type of business or enterprise or firm which is solely owned by a single person leaving no distinction between the owner and the business entity. This means that there is no difference between an individual owner and an entity which is doing business. They become inseparable. The registration of a sole proprietorship firm usually takes around five to seven days. Because of its simple structure and lesser compliance features, the sole proprietorship firm is very famous amongst sole proprietorship small and medium scale enterprises and business. The act of obedience towards the policies, norms and rules and regulations is always compulsory in sole proprietorship just like any other businesses.
It has been observed that no entity can be exempted from filing income tax returns, not even an individual for that matter. Just like an individual, a proprietorship firm is required to make the payments of the income tax in order to simply contribute to the economy of the nation. Each and every business, whether small or big, is a part of the economic structure of a particular country. This means that every individual and the enterprises who are working in an economy is required to contribute to the revenue of the country. Hence, it is compulsory for a sole proprietor also to file the income tax return according to the set procedures.