Annual Compliances for Proprietorships in India

Proprietorship businesses, like LLPs and corporations, must comply with regulations (Public or Private limited companies). Compliance for sole proprietorship firms primarily consists of income tax return filing, but LLPs and corporations must submit both reports – income tax return filing to the income tax department and yearly reporting to the Ministry of Corporate Affairs. TDS, GST, ESI, and other requirements must also be followed by sole proprietorship businesses. Compliance requirements differ based on the kind of company, industry, state of incorporation, number of workers, and sales turnover.

A sole proprietor does not have the advantage of a distinct legal entity or restricted liability in the case of a sole proprietorship. The lone proprietor’s yearly income is considered the proprietorship firm’s annual income. MCA does not need yearly reports or financial statements. The most important compliances for sole proprietorship businesses are tax-related periodic and yearly compliances.

Sole Proprietorship Yearly Compliance

The following are the yearly compliance requirements for a sole proprietorship:

  1. If your annual revenue exceeds Rs 20 lakh, you must register for GST.
  2. A shop and Establishment registration may also be obtained.
  3. As a sole proprietor, you must submit an annual income tax return.
  4. ITR Form -3 is relevant to an owner conducting a proprietary business or profession.
  5. ITR Form -4 is applicable to people who do not keep a book of accounts in a <a href="" title="How to Open a Current bank account for a Sole Proprietorship firm in India?“>sole proprietorship and have income from a business or profession and have elected the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE of the Income Tax Act of 1961.

If a Sole Proprietor is subject to a Tax Audit, he or she should deduct TDS and submit a TDS return.

  • If a proprietorship business does not need a tax audit, the ITR must be filed by the 31st of January.
  • If a proprietorship business is needed to undergo a tax audit, the ITR must be filed by September 30th.
  • If the proprietorship company is required to submit Form 3CEB, the ITR must be filed by November 30th.

Tax Audit of a Proprietorship Firm:

According to the <a href="" title="Sole Proprietorship Firm in India, Know How | Procedure, Documents“>Income Tax Act, all <a href="" title="What Are The Advantages And Disadvantages Of Sole Proprietorship?“>Proprietorship Firms are required to have their books of accounts audited by a Practicing Chartered Accountant if the following requirements are met:

  • If total sales, turnover, or gross receipts in any previous year exceed Rs. 1 Crore in the case of a business; Note: This section does not apply to a person who opts for the presumptive taxation plan under Section 44AD and his total sales or turnover does not exceed Rs 2 crores.
  • If the professional firm’s total gross receipts exceeded Rs 50 lakhs in any previous year; or • If the proprietorship opted for the presumptive plan and the revenue claimed is less than the supposed profits and gains under the program.

Income Tax Return for a Sole Proprietorship:

The Income Tax Return for Proprietorship in ITR 3 or ITR 4 Sugam may be submitted electronically on the government’s e-filing site using the proprietor’s digital signature, producing an Aadhar OTP, or emailing the signed copy of the ITR-V.

Documents Needed for Proprietorship Registration Yearly Compliances

  • Invoices of purchase & sales throughout a financial year
  • Invoices of costs spent during a financial year
  • Bank statements for all <a href="" title="How to Open a Current bank account for a Sole Proprietorship firm in India?“>bank accounts in the name of a business in a financial year.
  • Credit card statement for costs spent on behalf of a firm by the owner (If any)
  • A copy of any TDS challans submitted
  • A copy of any GST returns filed (If any)
  • A copy of the TDS returns that have been submitted (if any)


What is the minimum capital necessary to establish a Proprietorship?

There is no such thing as a capital need to launch a Proprietorship. As a result, you may form a Proprietorship with any amount of cash.

Can a sole proprietorship issue stock or accept investors?

Since proprietorship enterprises are owned and managed by a single person, they may issue shares and have investors.

Are sole proprietorships need to have their finances audited?

Every year, proprietorship enterprises do not necessarily produce audited financial accounts. A tax audit may be necessary, however, if the firm has an annual revenue of more than Rs. 1 Crore. Those who supply professional services under their sole proprietorship are obliged to have their accounts audited if their annual turnover exceeds Rs. 50 Lakhs.

Do the terms Proprietor and Proprietorship have distinct legal identities?

No, the Proprietorship and the Proprietor have the same legal personality. The Proprietor’s PAN Card will be the Proprietorship’s PAN Card. Also, the company will not have a distinct legal identity. The Proprietorship’s and Proprietor’s assets and liabilities will be the same.

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