How to File ITR for a Sole Proprietorship?

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    18-Apr-2025

Documents Required

  • Form 16
  • Bank Statement
  • Details of Other Income

How to File ITR for a Sole Proprietorship?

Filing an Income Tax Return (ITR) for a sole proprietorship in India requires understanding the tax structure, eligible deductions, and the correct ITR form. Since a sole proprietorship is not a separate legal entity, the business income is taxed in the name of the proprietor under individual tax slabs. Proper tax filing ensures compliance with the Income Tax Act, 1961, and helps avoid penalties.

Understand the Taxability of a Sole Proprietorship

A sole proprietorship is taxed as an individual and follows the applicable income tax slabs. The tax rate depends on the proprietor’s total taxable income, including business earnings.

Tax Slab for Sole Proprietors (FY 2023-24)

A sole proprietor can choose between:

  • Old Tax Regime (With Deductions)
  • New Tax Regime (Lower Rates, No Deductions)

Old Tax Regime (with deductions)

Income Slab Tax Rate
Up to 2,50,000 Nil
2,50,001 - 5,00,000 5%
5,00,001 - 10,00,000 20%
Above 10,00,000 30%

New Tax Regime (without deductions)

Income Slab Tax Rate
Up to 3,00,000 Nil
3,00,001 - 6,00,000 5%
6,00,001 - 9,00,000 10%
9,00,001 - 12,00,000 15%
12,00,001 - 15,00,000 20%
12,00,001 - 15,00,000 20%
Above 15,00,000 30%

Choose the Right ITR Form

The correct ITR form depends on the nature of income:

  • ITR-3: Used if the proprietor maintains proper books of accounts and earns business or professional income.
  • ITR-4 (Sugam): Applicable if the proprietor opts for Presumptive Taxation under Section 44AD, 44ADA, or 44AE, where tax is paid on a percentage of turnover instead of actual profit calculation.

Maintain Necessary Documents

Before filing ITR, ensure all relevant financial records are available:

  • Profit & Loss Statement
  • Balance Sheet
  • Bank Statements
  • GST Returns (if applicable)
  • TDS Certificates (Form 16A/16B/16C)
  • Investment Proofs for Deductions

For businesses opting for the presumptive taxation scheme, detailed books of accounts are not required.

Calculate Taxable Income

Calculate Gross Revenue: Sum total sales, receipts, and income.

Deduct Allowable Expenses: Include rent, salaries, raw materials, utilities, and depreciation.

Apply Eligible Deductions: Use Sections 80C, 80D, 80E, and 80G for tax-saving investments and expenses.

Compute Net Taxable Income: Apply relevant tax slabs to calculate tax liability.

If opting for presumptive taxation (Section 44AD), 8% of turnover (6% for digital payments) is considered taxable income, without the need to maintain detailed records.

Advance Tax and TDS Compliance

If total tax liability exceeds ₹10,000 per year, proprietors must pay Advance Tax in four installments:

June 15 – 15%

September 15 – 45%

December 15 – 75%

March 15 – 100%

Businesses with tax-deducted-at-source (TDS) deductions must claim TDS credits using Form 26AS.

Conclusion

Filing an ITR for a sole proprietorship involves choosing the right ITR form, maintaining financial records, and ensuring tax compliance. Whether following regular taxation (ITR-3) or presumptive taxation (ITR-4), understanding tax rules helps in smooth and penalty-free filing.

FAQ's About ITR for a Sole Proprietorship

1. Do I need a separate PAN for my sole proprietorship?

No, a sole proprietorship uses the owner’s PAN for tax filing.

2. What is the last date for filing an ITR for sole proprietorships?

Non-audit cases: 31st July
Audit required cases: 31st October

3. Is GST mandatory for sole proprietors?

GST is required if annual turnover exceeds ₹20 lakh (services) or ₹40 lakh (goods).

4. Can I file ITR-1 for a sole proprietorship?

No, you must file ITR-3 (regular taxation) or ITR-4 (presumptive taxation).

5. Do I need to pay advance tax?

Yes, if your total tax liability exceeds ₹10,000 per year, you must pay advance tax in quarterly installments.

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