Sole Proprietorship

What Are the Tax Deductions for a Sole Proprietorship in India?

In this article, we'll talk about the tax benefits of a sole proprietorship. Read on to learn more!

Small, independent service providers or resellers who own and operate their own companies are known as sole proprietors. In this, the business is solely owned by one person. 

This business form is the simplest in terms of incorporation and setup because it has minimal legal, regulatory, and registration requirements. This business model is extremely well-liked by small business owners because of its simple structure and tax benefit based on tax slabs.

In this blog, we will discuss the tax reduction for sole proprietorship businesses.

Income Tax Rate for Proprietorship

The following are the tax slab rates for proprietorships.

When the proprietor’s age is less than 60 years

Taxable income Tax Rate
Up to Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000    5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000       30%

When the proprietor’s age is between 60 and 80 years

Taxable income Tax Rate
Up to Rs. 3,00,000 Nil
Rs. 3,00,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

 When the Proprietor’s age is above 80 years

Taxable income Tax Rate
Up to Rs. 5,00,000 Nil
Rs. 5,00,000 – Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Individuals are also required to pay Surcharge and Cess in addition to the income tax amount calculated using the abovementioned tax slabs.

  • Surcharge: 10% of income tax, where total income exceeds ₹50 lakh up to ₹ 1 crore.
  • Surcharge: 15% of income tax, where total income exceeds ₹.1 crore.
  • 4% of income tax is the health and education cess.

What is the Tax deduction For Sole Proprietorship In India?

Tax reduction for sole proprietorship are as follows,

  • If one meets the requirements, one may be able to claim an income tax deductions if you have investments in any of the investment instruments covered by Sections 80c, 80cc, and 80ccd, such as a PPF account, a national savings certificate, a life insurance policy, pension plans, etc.
  • One can claim a deduction under Section-80D, 80DD, and 80DDB in order to save money on taxes if one has paid for health insurance for either one’s own health or the health of any relatives.
  • Home loan deduction – When one has a mortgage, one can claim a tax deduction for paying back the principal. Additionally, under section 80C, one may claim a tax deduction for interest paid on a house loan under section 24 as well as a deduction for home loan repayment.
  • Save Tax Through Educational Loans – In order to Save Tax in India, a person who has taken out an educational loan for themselves, their children, or another relative may be eligible for tax deductions under section 8E. However, the deduction only applies to the interest owed; it does not apply to the principal.
  • Tax deductions – A person who earns less than RS 12 lakh annually can be eligible to deduct their investment in certain companies and mutual funds’ shares through the Rajiv Gandhi Equity Savings Scheme under section 80CCG.
  • Long-Term Capital Gains – If a person receives any Long-Term Capital Gain from the sale of Real Estate Property held as a Long-Term Capital Asset, he or she may claim an exemption from paying the Capital Gains Tax on the condition that the amount of the gain is invested in certain approved investment vehicles. 
  • If someone donates money to a charity, a social cause, or the National Relief Fund, they can be eligible for a deduction under section 80G of the Income Tax Act.
  • Income from non-taxable sources: You can save tax if your income comes from sources that are not taxable, such as receipts from Hindu Undivided Families, shares from a partnership firm, allowances for international services, income from gratuities, etc.

You can reach out to Vakilsearch for further clarification; they will answer any questions you may have about the sole proprietorship tax reduction.

Why Should Proprietorship Firms File Income Tax Returns?

  • According to the Income Tax Act, if their total income exceeds Rs. 2.5 lakhs, all entrepreneurs under the age of 60 must file an income tax return. 
  • If total income is greater than Rs. 3 lakh, owners who are over 60 but under 80 must file an income tax return. Owners who are 80 years of age or above must file income tax returns if their total income is more than Rs.5 lakh.
  • Also, any losses suffered by the company could only be carried forward if the proprietor submits an income tax return before the deadline. Additionally, the proprietorship income tax return must be filed on or before the due date to qualify for the deduction under sections 10A, 10B, 80-IA, 80-IAB, 80-IB, and 80-IC.

Due Date for Filing Tax Return

A proprietorship that does not require an audit must file its income tax return by July 31.

The income tax return for a proprietorship is due on September 30th if the Income Tax Act requires an audit of the return.

Form No.3CEB must be provided if the proprietorship is involved in any overseas transactions with connected firms or certain domestic transactions. 

The income tax return is due on November 30th for sole proprietorship businesses that are required to file Form No.3CEB.

The sole proprietor must obtain a PAN before submitting an IT return for his business (Permanent Account Number). However, as a sole proprietorship business does not have a separate legal personality, he cannot be granted a separate PAN for his business. 

The PAN assigned to the business owner will therefore be used for all IT-related needs of his sole proprietorship business.

Which ITR Form should a Proprietorship Firm Use?

Hindu Undivided Families or proprietors who are working in a proprietary business or profession can file Form ITR-3.

In order to file an ITR-3, an Individual/HUF must not have income from being a partner in a partnership firm that is engaged in business or profession. In this situation, he must submit an ITR-2.

Conclusion

We believe that after reading the information above, one has got a clear understanding of how tax deductions for Sole proprietorship works.

If you are a working professional, submitting tax returns can sometimes be a hassle. To avoid this hassle, get in touch with Vakilsearch.

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