How are sole proprietorship businesses taxed in India?

Last Updated at: January 07, 2020
2225
How are sole proprietorship businesses taxed in India_

Simply put, a sole proprietorship is a small and independent business owned and managed by a single individual. Moreover, these are unregistered businesses and are one of the easiest to maintain. This sheer ease of operations makes sole proprietorship businesses very popular across the unorganized business sector, particularly among the small merchants and traders.

Sole proprietorship income tax calculation

In India, a sole proprietorship business is not taxed as a different legal entity. Rather, the business owners file their business taxes as parts of their individual tax returns. However, the business income of a sole proprietor is added to his individual income after deducting the business expenses, tax deductions and other relevant income, if any, from his gross receipts. Like any other individual assessee, such a business is also entitled to receive the sole proprietorship tax deduction, as per prevailing IT rules and depending upon the slab rates applicable to his taxable income. This is in contrast to the registered companies, for whom income taxes are assessed on flat rates.

Sole proprietorship tax rates for AY 2019-20 (FY 2018-19)

The different slab rates applicable for sole proprietorship taxes 2019 are further simplified in the following tables-

A) For sole proprietors below the age of 60 years

Income Tax Slabs Tax Rate Health and Education Cess
Up to Rs.2.5 lakh Nil Nil
Rs.2,50,001 to Rs.5 lakh* 5% 4% of Income Tax
Rs.5,00,001 to Rs.10 lakh 20% 4% of Income Tax
Above Rs.10 lakh 30% 4% of Income Tax

*The last interim budget has effectively provided a full tax rebate for individuals having a net taxable income (post deductions) of Rs 5 lakhs or below. This is so because the earlier limit of maximum tax rebate u/s 87 A has been extended from Rs 2,500 to Rs 12,500. Therefore, a sole proprietor with a net taxable income up to Rs 5 lakhs will now be able to claim a tax refund up to Rs 12,500 and thus will not be paying any tax whatsoever.

register for sole proprietorship 

B) For sole proprietors above 60 years but below 80 years

Income Tax Slabs Tax Rate Health and Education Cess
Up to Rs. 3 lakh Nil Nil
Rs.3,00,001 to Rs.5 lakh 5% 4% of Income Tax
Rs.5,00,001 to Rs.10 lakh 20% 4% of Income Tax
Above Rs.10 lakh 30% 4% of Income Tax

c) For sole proprietors above 80 years

Income Tax Slabs Tax Rate Health and Education Cess
Up to Rs. 5 lakh Nil Nil
Rs.5,00,001 to Rs.10 lakh 20% 4% of Income Tax
Above Rs.10 lakh 30% 4% of Income Tax

In addition to the income tax amount levied as per the above-mentioned slabs, sole proprietors are also required to pay the surcharge as given below-

  • 10% of the income tax amount, if the total income is in the range of Rs 50 lakhs to 1 crore
  • 15% of the income tax amount, if the total income exceeds Rs 1 crore

Another important feature of the sole proprietorship income tax the calculation is that the losses of his business, if any, will be allowed to be carried forward if he files the IT return on or before the stipulated deadline. Also, the tax deductions allowed u/s 10 A and B and u/s 80-IA, IB and IC will not be considered if he fails to file his proprietorship IT return on or before the deadline.

How can a sole proprietor file his IT return?

Before filing an IT return for his business, the sole proprietor must obtain a PAN (Permanent Account Number). But, he cannot be issued a separate PAN for his business as a sole proprietorship business does not have a separate legal identity. Therefore, the PAN allotted to the business owner will be used for all IT related purposes related to his sole proprietorship business.

Individuals operating a sole proprietorship business in India need to file the ITR-3 form. It can also be filed by the proprietor online by using the digital signature. The last date to file the Income Tax return for a sole proprietorship business that does not require audit is on or before 31st July. In case the IT return of the sole proprietorship requires an audit as per the Income Tax Act, the last date for filing would be 30th September.  Please note that an audit for a sole proprietorship business for IT purposes must be carried out by a registered chartered accountant.

Check on the advantages, requirements and FAQs on Sole Proprietorship.

In case the sole proprietorship business enters into any foreign transaction, then it needs to furnish the Form ITR-3 CEB additionally. In this case, the last date of filing the IT return would be extended to 30th November.

To know more about Sole Proprietorship: Click here

You should also read:
0

 How are sole proprietorship businesses taxed in India?

2225

Simply put, a sole proprietorship is a small and independent business owned and managed by a single individual. Moreover, these are unregistered businesses and are one of the easiest to maintain. This sheer ease of operations makes sole proprietorship businesses very popular across the unorganized business sector, particularly among the small merchants and traders.

Sole proprietorship income tax calculation

In India, a sole proprietorship business is not taxed as a different legal entity. Rather, the business owners file their business taxes as parts of their individual tax returns. However, the business income of a sole proprietor is added to his individual income after deducting the business expenses, tax deductions and other relevant income, if any, from his gross receipts. Like any other individual assessee, such a business is also entitled to receive the sole proprietorship tax deduction, as per prevailing IT rules and depending upon the slab rates applicable to his taxable income. This is in contrast to the registered companies, for whom income taxes are assessed on flat rates.

Sole proprietorship tax rates for AY 2019-20 (FY 2018-19)

The different slab rates applicable for sole proprietorship taxes 2019 are further simplified in the following tables-

A) For sole proprietors below the age of 60 years

Income Tax Slabs Tax Rate Health and Education Cess
Up to Rs.2.5 lakh Nil Nil
Rs.2,50,001 to Rs.5 lakh* 5% 4% of Income Tax
Rs.5,00,001 to Rs.10 lakh 20% 4% of Income Tax
Above Rs.10 lakh 30% 4% of Income Tax

*The last interim budget has effectively provided a full tax rebate for individuals having a net taxable income (post deductions) of Rs 5 lakhs or below. This is so because the earlier limit of maximum tax rebate u/s 87 A has been extended from Rs 2,500 to Rs 12,500. Therefore, a sole proprietor with a net taxable income up to Rs 5 lakhs will now be able to claim a tax refund up to Rs 12,500 and thus will not be paying any tax whatsoever.

register for sole proprietorship 

B) For sole proprietors above 60 years but below 80 years

Income Tax Slabs Tax Rate Health and Education Cess
Up to Rs. 3 lakh Nil Nil
Rs.3,00,001 to Rs.5 lakh 5% 4% of Income Tax
Rs.5,00,001 to Rs.10 lakh 20% 4% of Income Tax
Above Rs.10 lakh 30% 4% of Income Tax

c) For sole proprietors above 80 years

Income Tax Slabs Tax Rate Health and Education Cess
Up to Rs. 5 lakh Nil Nil
Rs.5,00,001 to Rs.10 lakh 20% 4% of Income Tax
Above Rs.10 lakh 30% 4% of Income Tax

In addition to the income tax amount levied as per the above-mentioned slabs, sole proprietors are also required to pay the surcharge as given below-

  • 10% of the income tax amount, if the total income is in the range of Rs 50 lakhs to 1 crore
  • 15% of the income tax amount, if the total income exceeds Rs 1 crore

Another important feature of the sole proprietorship income tax the calculation is that the losses of his business, if any, will be allowed to be carried forward if he files the IT return on or before the stipulated deadline. Also, the tax deductions allowed u/s 10 A and B and u/s 80-IA, IB and IC will not be considered if he fails to file his proprietorship IT return on or before the deadline.

How can a sole proprietor file his IT return?

Before filing an IT return for his business, the sole proprietor must obtain a PAN (Permanent Account Number). But, he cannot be issued a separate PAN for his business as a sole proprietorship business does not have a separate legal identity. Therefore, the PAN allotted to the business owner will be used for all IT related purposes related to his sole proprietorship business.

Individuals operating a sole proprietorship business in India need to file the ITR-3 form. It can also be filed by the proprietor online by using the digital signature. The last date to file the Income Tax return for a sole proprietorship business that does not require audit is on or before 31st July. In case the IT return of the sole proprietorship requires an audit as per the Income Tax Act, the last date for filing would be 30th September.  Please note that an audit for a sole proprietorship business for IT purposes must be carried out by a registered chartered accountant.

Check on the advantages, requirements and FAQs on Sole Proprietorship.

In case the sole proprietorship business enters into any foreign transaction, then it needs to furnish the Form ITR-3 CEB additionally. In this case, the last date of filing the IT return would be extended to 30th November.

To know more about Sole Proprietorship: Click here

You should also read:
0

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