This article will help you understand various aspects related to filing ITR for a Proprietorship Firm.
Overview on ITR For Proprietorship Firm: The answer is— a big YES! Because in India a sole proprietor does not have to pay taxes as a different entity. Therefore, just like any other individual— they also have to file for an Income Tax Return.
On further reading, you will realise why ITR isn’t simply important because it is mandatory. But, also because it has many advantages for you. Read below to find out.
Let’s quickly understand ITR in simple terms, Sole proprietor means ‘Only Owner’. So, an individual who wishes to start a business on his/her own is called a sole proprietor. Now, whether an individual is a salaried person or a business person— everyone has to pay taxes in India.
‘But an individual will mostly start a small business’ You will say. Yes, that’s right and to reduce the compliance burden, the department has created a presumptive taxation scheme. Let’s read on to find out its advantages:
Presumptive Taxation Scheme
Presumptive taxation scheme was introduced under the Income Tax (IT) Act. This scheme was introduced for the benefit of small and medium enterprises.
So that they get some time to audit and maintain their accounts. Following are the criterias to apply the presumptive taxation scheme:
| As per section | Taxable income computation | Criteria |
|
Section 44AD (Businesses) |
Payment of 7% for income received in cash and 6% for income received electronically of the gross turnover during a year. A higher income can be declared. | Up to ₹ 20 Crore turnover |
|
Section 44ADA (Professionals) |
50% of gross receipts. And a higher income of more than 50% can be declared. | ₹ 50 lakhs worth of annual receipts |
|
Section 44AE (Transporters) |
₹ 7,500 per vehicle/ month. Or the duration during which the vehicle was owned by the individual during the year. | Up to 10 goods carrier vehicles owned in a year |
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Reasons why ITR is Mandatory for a Proprietorship Firm
Here we are listing some reasons for you to know why ITR is mandatory for a Proprietorship firm:
1. Paying the Penalty
If you don’t pay your taxes as a proprietor, you are trying to evade the tax paying process as a proprietorship firm and as well as an individual.
And, be aware of the deadline. Make sure that you file your ITR within the mentioned deadline. The deadlines for
2. To Save the TDS Reduction
An ITR filing helps you create records of your year end earnings— a written record of reliability of a source income. ITR is most beneficial for individual businesses (sole proprietors), and employed individuals.
ITR shows the yearly income of the sole proprietor, helping the banks be reassured that the borrower can repay the loan.
3. Helps you Claim Any ‘Carry Forward Losses’
Any sole proprietorship that has incurred a loss in any financial year can easily carry forward their losses to the next financial year. This is possible only with the help of an ITR.
And for a business, individual or corporate— sometimes losses are incurred. ITR plays an important role in helping you move forward and mend those losses.
4. Financial Inquiry
The proprietor, according to the law, must submit the tax return in accordance with his/her earnings over a fiscal year. The ITR helps you identify all the deductions as well as exemptions that are available.
If the taxpayer has given an advance tax, but his total tax liability is exceeding that then he must pay the difference. It is the self assessment tax.
ITR helps you clear all that’s required. Once you know you have paid all your duties, you can move forward with your business with full confidence.
5. Having an International Presence
Your company is flourishing well and you’re earning from overseas too! Well, it is good news but you must also know that India levies taxes on the earnings from other countries also.
So, if you have made investments abroad, have a bank account in any foreign country, or assets there— you need to pay taxes for them as well.
If you have already paid tax for it in some other country from where it was earned— make sure to deduct it from your taxable income in India.
Do you know that the RBI has given strict guidelines about receiving money from abroad? Yup, RBI must be consulted for either remittance or relevance of any money from abroad.
Additionally, the proprietor must also have an account with a bank. And ITR is the one and only way to show the to and fro of all monetary transactions from abroad.
6. Fundraising/ Earning Investors’ Trust
You are a sole proprietor and you would need funds or investment for starting or maybe expanding your business. However, the investors also need some kind of capability in the business.
Whether crowdfunding, or investment— you must show perseverance and credibility. Having ITR records prove the seriousness of the proprietor and the details help recognise the goals of the firm.
6. For Acquiring Loans
ITRs are mandatory for all the partnerships, businesses and corporations. Consequently, even if your earning does not meet the threshold of mandatory return filing, doing so will be beneficial.
Banks that you would go to for acquiring loans would first
7. Advantage of Govt Schemes
Government launches many schemes to help people of India grow more. In cases, where a proprietor feels that he/she could avail the benefits of a scheme launched by the Government, they again need a proof.
To take advantage of the schemes and programs launched by the government, you must submit an ITR (Income Tax Return) to show them your income eligibility.
Conclusion
Filing tax is beneficial and mandatory for all the sole proprietorship firms. And if you are worrying where to start, don’t! We are here to help you file your Income Tax Returns (ITR) in an easy 3 step process.
Our group of Income tax experts will get everything done for you. Click on Vakilsearch and get your ITR filed right now!
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