Annual Compliances For Sole Proprietorship

Sole Proprietorship is a kind of business entity managed and owned by just 1 individual. The owner of a proprietorship is personally liable for the debts and losses of the business as the identity of the business is considered to be the identity of the owner.

The annual compliances of a Sole Proprietorship include the filing of Income Tax Return (ITR) and preparing the Tax Audit. A sole proprietorship needs to file an ITR if the annual turnover is more than Rs. 2.5 lakhs. A tax audit is required if the annual turnover of the proprietorship is more than Rs. 1 crore or if the business is under presumptive taxation scheme irrespective of turnover if the income claimed is lower than the deemed profits and gains under the scheme.

Sole Proprietorship Annual Compliance Filing

Documents Required for Annual Compliances for Proprietorship

  1. Invoices of purchases and sales during the year
  2. Invoices of expenses incurred during the year
  3. Bank Statements for all bank accounts in the name of firm
  4. Copy of TDS challans, if any

Process of filing Annual Compliances of Sole Proprietorship

After the documents are submitted, the balance sheet of the business is prepared. On the basis of the accounts of the business, the Income Tax Return of the proprietorship is filed if the annual turnover is more than Rs. 2.5 lakhs. The tax audit is required if the annual turnover of the business is more than Rs. 1 crore. The ITR must be filed before July 31 in case no audit is required. If a tax audit is required, the ITR must be filed before September 30.

FAQs

What is a Sole Proprietorship?
A sole proprietorship is a kind of business entity owned, managed and controlled by one person. The business does not have a separate legal identity and the owner has unlimited liability.
Is GST registration mandatory for a Sole Proprietorship?
A sole proprietorship will have to get its GST registration done if it falls under any of the following criteria: 1. If the business has an aggregate turnover of more than Rs. 20 lakhs. For dealers in North-Eastern states of India, GST is compulsory if the business has an aggregate turnover of more than Rs. 10 lakhs. 2. If the business is selling on any online platform. 3. If the business is engaged in inter-state supply of products or services.
Who can start a Sole Proprietorship?
Any Indian citizen with a current bank account number in the name of his business can start sole proprietorship.
Can a Foreigner or NRI register a Sole Proprietorship in India?
No, a sole proprietorship cannot be started by an NRI or foreign national.
Can there be partners in a Sole Proprietorship?
A Sole Proprietorship is managed and owned by one individual only. There cannot be any partners, shareholders or investors.
What is the capital required to start a Proprietorship?
There is no minimum capital requirement for starting a Sole Proprietorship.
Is a Tax Audit required for a Sole Proprietorship?
A tax audit is required for a Sole Proprietorship if the annual turnover of the business is more than Rs. 1 crore.
Can other people invest in a Sole Proprietorship?
A Proprietorship cannot issue shares or have investors as the business is completely managed and owned by a single individual.
Does a Sole Proprietorship have a separate legal identity?
No, the Proprietorship firm and the Proprietor are one and the same.
Do all Sole Proprietorships need to file an ITR?
Only the Sole Proprietorships which have the annual turnover of more than Rs. 2.5 lakhs need to file an ITR.