How to file Income Tax Return for Sole Proprietorship

Introduction

Sole Proprietorship is the most common form of business in India and crores of taxpayers are running their businesses in the sole proprietorship model. A sole proprietor (Individual) is liable to file his/her income tax return if his/her total income is above the threshold limit prescribed by the Income Tax Act, 1961. There is no distinction between the individual and proprietorship business while filing ITR online. The Income Tax Department considers the individual and his business as a single entity from the income tax point of view. This article discusses the issue “How to file Income Tax Return for Sole proprietorship?”

ITR form for Sole Proprietorship

Which ITR forms are applicable for a sole proprietorship?

The Income Tax Department has prescribed two ITR forms for filing of income tax return of a sole proprietor. These are as below:

• ITR-3: ITR-3 is the ITR form prescribed for the taxpayers engaged in the business or profession. In ITR-3, the details of the Balance Sheet and Profit & Loss A/c of the taxpayer are also required to be filled.
• ITR-4: ITR-4 form is prescribed for those taxpayers who want to choose the presumptive income scheme as per sections 44AD, 44ADA, and 44AE. The Presumptive Income Scheme is a simple tax scheme prescribed by the IT department for the small traders which saves them from the cost & time involved in maintaining books of accounts.

What are the due dates for filing ITR of a sole proprietorship?

The due dates for filing of ITR have been prescribed by the Income Tax Act, 1961 according to which following are the due dates relevant to a sole proprietor business:

• Where Audit is not required: The last date of filing ITR for sole proprietor business is 31^st July of every year.
• Where Audit is required: The Last date of filing tax audit report & ITR is 30^th September of every year.

When the audit is required for a sole proprietorship firm?

The criteria of audit under the Income Tax Act are based upon the turnover of any business or profession. The audit under the Income Tax Act is known as “Tax Audit” and is required to be conducted by a Chartered Accountant u/s 44AB of the IT Act. Following are the threshold limits for tax audit as per section 44AB:

• In the case of a business entity, the tax audit is compulsory where the gross turnover, receipts, or sales exceeds Rs. 1 crore.
• In the case of the profession, the limit is Rs. 50 Lakhs instead of Rs. 1 crore.

Note:

• An audit is also mandatory (irrespective of turnover) in the case of a proprietorship where it declares a profit below the rate as prescribed in the presumptive taxation scheme for business or profession covered under section 44AE or section 44BB or section 44BBB or section 44ADA.
•  Please note that a proprietor can opt for the presumptive taxation scheme even where his turnover is above Rs. 1 crore but below Rs. 2 crores. In this case, the proprietor needs to declare a profit of at least 8% or 6% (sales through banking route) of the turnover.
• Further, to demotivate the cash economy, the Government has relaxed the requirement of audits where more than 95% of transactions are through banking channels and the turnover is not more than Rs. 10 crores.

How to file ITR for Sole Proprietorship in India?

Steps to File an Income Tax Return for a proprietorship using efiling of Income Tax Portal:

• ITR is filed using PAN credentials. So, if you don’t have a PAN card, first apply PAN card through NSDL or UTITSL. Once you have received PAN, you may proceed with ITR filing.
• Register your PAN on the e-filing portal of the Income Tax Department. If you are already registered, you must log in with PAN details and password.
• Go on the ‘E-File’ tab and click on ‘File Income Tax Return’
• Select Assessment Year; For example: For ITR of FY 2021-22 select Assessment Year 2022-23
• Select Mode of filing ‘Online’ and click on ‘Continue’, a new window opens where click on ‘Start New Filing’
• Select status as ‘Individual’ and click on ‘Continue’
• Select a suitable ITR Form from the dropdown either ITR-3 or ITR-4 (as per our discussion above), a new window opens where click on ‘Let’s get started’.
• Fill the relevant details in the ITR Form online and click on ‘Proceed’
• Click on ‘Preview Return’, and a new window opens where you are required to make a declaration of correctness and completeness of data filled in the Form. Click on “Proceed to Preview”
• Check the preview of ITR and if found to be correct click on “Proceed to Validation”
• ITR can be validated either through Aadhar OTP or an electronic verification code (EVC). You can also choose ‘E-verify later’ within 120 days or may also send a signed copy of ITR-V to the department. It is better to verify returns to get faster Income Tax refunds.

What are the consequences of non-filing of ITR of a proprietor?

Non-filing of ITR of a proprietor may result in a penalty/ late fee as per section 234F of the Income Tax Act. The minimum penalty u/s 234F is Rs. 1000 which may extend up to Rs. 5,000.

Conclusion:

Though a sole proprietor is the simplest form of carrying any business or profession, it is also required to comply with the income tax requirements and file income tax return timely on or before the due date prescribed. Filing of ITR carries many benefits for any person in India. So, you must not avoid ITR filing intentionally as it may lead you to trouble in the form of notices and penalties.

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For any assistance for ITR filing online you may connect at 9660930417