What is a Sole Proprietorship?

In India, sole proprietorship is a widely embraced business structure. In sole proprietorship, a single individual assumes complete ownership, management, and control of the enterprise.

Benefits of a sole proprietorship firm

#1 Only sole proprietorship registration and one person company allow to be sole beneficiary of profits.

#2 Compliance requirements for proprietorship firms are minimal and income tax filing required only for taxable income over certain thresholds.

#3 Sole proprietors can avail tax deductions permitted to individuals to reduce income tax liability

#4 Proprietorship firms offer more privacy as compared to registered entities like companies or LLPs

#5 The process of Sole Proprietorship Firm Registration is quick and easy.

Procedure for sole proprietorship registration

#1 Choose a name for your business

#2 Obtain the necessary licenses and permits required to operate a business in your state or city

#3 Apply for Shop and Establishment Act License in your city

#4 Open a current bank account in the name of your business

#5 Register for taxes, such as GST, and obtain any necessary tax identification numbers

Document required sole proprietorship registration

- ID proof

Aadhaar Card

PAN Card

- Office Address Proof

The rental agreement for registered office proof.

Sale deed or utility bill for the self-owned property.

- Passport Size Photo

Sole Proprietorship Vs One Person Company

Taxation on Sole Proprietorship Firm

If you run a business alone in India as a sole proprietorship firm, you don't need to file a separate income tax return for the profit you earned from your business.

Sole proprietors are required to declare business profit in his/her personal income and tax as per individual tax slabs in its own income tax return.

Thus, the tax rates for sole proprietorships in India are the same as those for individuals

Income Tax

#1 If you generate income through a profession or a proprietorship business and belong to the category of Hindu Undivided Families (HUFs) or resident individuals, you will need to use the ITR-3 Form to file your income tax return.

#2 If you own a sole proprietorship firm and your total income is up to ₹50 lakh, and your Income from Business and Profession is computed on a presumptive basis, then you need to use the ITR-4 or SUGAM form to file your income tax return.

GST

It is mandatory for Sole Proprietorship Firm to apply GST Registration for its business in following scenarios:

#1 When annual turnover exceeds ₹40 Lakhs and ₹20 Lakhs in Special Category States.

#2 If you're selling products or services across state borders whether on your own or through an e-commerce portal.

#3 When a sole proprietorship firm wishes to claim input tax credit for inputs on a purchase voluntarily.

Understand in Detail: What Is The Eligibility Criteria For GST Registration?

Annual Compliances for sole proprietorship firm

Proprietorship firms are simple businesses but are still subject to certain compliance requirements. These include:

#1 ITR Filing

#2 GST Return Filing

#3 TDS Return Filing

#4 EPF Return Filing after getting EPF Registration

#5 Accounting and Bookkeeping

#6 If you are a sole proprietor and your business's sales, turnover or gross receipts exceed Rs. 1 crore in the financial year, you must have a tax audit done. Additionally, there may be other circumstances where you are required to get your accounts audited.

#7 FSSAI Registration and FSSAI Return Filing if involved in Food Business

#8 MSME Registration to claim benefits from the government