Explore to find out more about filing tax returns for your proprietorship. Discover essential tips for a successful filing process, including organising necessary documents, optimising deductions, understanding home office expenses, exploring available tax credits, and staying informed about filing deadlines.
As a sole proprietor, Proprietorship Tax Return your tax return can be a struggling task, but it is also an opportunity to take advantage of the hidden tax benefits available to you. Similar to other registered entities like Partnerships and LLPs, Sole Proprietorships are also required to pay taxes on their earnings. By law, the proprietorship and the proprietor are considered as one entity and are therefore subjected to filing income tax returns together. The laws that regulate the payment of the proprietor’s income tax return also apply to the proprietorship tax.
However, the income tax rates for registered companies are fixed based on flat rates. In contrast, a sole proprietorship is not taxed as a separate legal entity. All business owners are required to file their taxes as individual returns, similar to other individual taxpayers in the country. Proprietorship taxes are subject to deductions based on the Income-tax rules and slab rates. For updated 2023-24 tax regulations and tax registrations, contact our Vakilsearch experts who will assist you with the same!
Tips for Successful Proprietorship Tax Return Filing in India
Here are some tips for proprietorship tax return filing in India that can help you unleash these hidden tax benefits.
Maintain Accurate Records
Maintaining accurate records of your income and expenses is crucial when filing your tax return. It not only helps you file your returns correctly, but it also ensures that you claim all the deductions you are eligible for. Keep a record of all your business-related expenses, including receipts, invoices, bills, and bank statements.
Claim all eligible deductions
One of the most important tax benefits available to sole proprietors is the ability to claim deductions for business expenses. These expenses can include rent, utilities, supplies, salaries, and travel expenses, among others. Be sure to claim all eligible deductions to reduce your tax liability.
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Use Section 44ADA for simplified tax filing
Section 44ADA of the Income Tax Act provides a simplified method of filing tax returns for certain professions, including doctors, lawyers, architects, engineers, and accountants. Under this section, you can declare a flat 50% of your gross receipts as your income, and the remaining 50% is considered as expenses. This makes tax filing easier and more straightforward.
File your returns on time
Filing your tax returns on time is crucial to avoid penalties and interest charges. Due to the pandemic, the deadline has been extended in the past. Be sure to keep track of the due date and file your returns on time to avoid any penalties or interest charges.
Use tax-saving investments
There are several tax-saving investments available to sole proprietors, including the Public Provident Fund (PPF), National Pension Scheme (NPS), and Equity-Linked Savings Scheme (ELSS). These investments not only help you save tax but also provide long-term benefits.
Declare all your income
It is essential to declare all your income when filing your tax return. This includes not only your business income but also any other income you may have, such as rental income or capital gains. Failing to declare all your income can result in penalties and interest charges.
Use e-filing for convenience
E-filing is a convenient and easy way to file your tax returns. You can file your returns from the comfort of your home or office, without the need to visit a tax office physically. Additionally, e-filing provides a faster processing time, and you can track the status of your returns online.
Hire a professional for guidance
If you find the process of filing your tax return overwhelming, consider hiring a professional tax consultant for guidance. A tax consultant can help you navigate complex tax laws and ensure that you are taking advantage of all the available tax benefits. For this exact reason, it is advisable to get in touch with our tax experts at Vakilsearch!
Proprietorship Tax Rate for FY 2023-24 (AY 2024-25)
This applies to proprietors who are of the age less than 60 years of age:
| Net Income Range | Rate of income-tax (%) |
| Up to ₹2,50,000 | – |
| ₹2,50,001 to ₹ 5,00,000 | 5 |
| ₹ 5,00,001 to ₹ 10,00,000 | 20 |
| Above ₹ 10,00,000 | 30 |
If Proprietor’s age is between 60 and 80 years
| Net Income Range | Rate of income-tax (%) |
| Up to ₹ 3,00,000 | – |
| ₹ 3,00,001 to ₹ 5,00,000 | 5 |
| ₹ 5,00,001 to ₹ 10,00,000 | 20 |
| Above ₹ 10,00,000 | 30 |
If Proprietor’s age is above 80 years
| Net Income Range | Rate of income-tax |
| Up to ₹ 5,00,000 | – |
| ₹ 5,00,001 to ₹ 10,00,000 | 20 |
| Above ₹ 10,00,000 | 30 |
FAQs on Proprietorship Tax Return Filing:
What documents do I need to gather before filing my proprietorship tax return?
Prepare documents like income statements, expense receipts, bank statements, and any applicable tax forms to ensure accurate filing.
Is it beneficial to maintain separate business and personal expenses for tax filing?
Yes, separating business and personal expenses helps in calculating accurate deductions and provides transparency during tax assessment.
Can I claim home office expenses for my proprietorship tax return?
Yes! you can claim home office expenses if you have a dedicated workspace for your business activities, following applicable tax regulations. For instance, it's necessary to consistently and exclusively utilise a portion of your home or a distinct structure on your property as your main business location. There are two alternatives to compute your home office expense deduction: the simplified approach or the actual expenditure method. You have the choice to submit your tax return conventionally or electronically, using your digital signature.
Are there any tax credits available for small business proprietors?
Certainly, small business proprietors can indeed access certain tax credits. General Business Credit: A compilation of diverse credits that collectively lower your tax obligation. Credit for Small Employer Health Insurance Premiums: A credit applicable when you offer health insurance to your staff. Credit for Small Employer Pension Plan Startup Costs: A credit for establishing a retirement plan for your employees. Research and Development (R&D) Credit: A credit attainable by intensifying your research and development endeavours.
What's the deadline for filing my proprietorship tax return?
The deadline for submitting your proprietorship tax return varies based on the requirement for an audit under the Income Tax Act, of 1961, and the presence of international transactions. If neither an audit nor international transactions are necessary, the due date is July 31st of the assessment year. In cases of audit necessity or international transactions, the due date becomes October 31st or November 30th of the assessment year, respectively. For tax return filing, you can opt for either the ITR-3 or ITR-4 (SUGAM) forms. The choice depends on your income sources and meeting eligibility criteria.
Conclusion
In conclusion, filing your proprietorship tax return in India can be an opportunity to unleash hidden tax benefits. By maintaining accurate records, claiming all eligible deductions, using Section 44ADA for simplified tax filing, filing your returns on time, using tax-saving investments, declaring all your income, using e-filing for convenience, and hiring a professional for guidance, you can ensure successful tax filing and maximise your tax benefits. As mentioned, it is important to consult a tax expert and we at Vakilsearch can help you with that.
Read more:-
- Which ITR form must be filled by Sole Proprietorship Businesses?
- ITR 3 in Income Tax
- What is LTCG on Shares in IT Returns?
