ITR File for a Proprietorship Firm

Proprietorships in India need to file income tax return each year. As proprietorships are treated to be same as the owner, the income tax return filing process for a proprietorship is similar to filing individual income tax return.

Financial year begins from 1st April and completes on 31st March. Assessment year is the year immediately following the financial year in which income of the financial year is assessed. Therefore, in the assessment year 2021 – 22, the income tax for the period from 1st April 2020 to 31st March 2021 will be assessed.

Rate of income tax for proprietorship is similar as the income tax rate for individuals. Unlike the income tax rate for LLP or Company which are charged against flat rates, proprietorships are taxed on slab rates.

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Proprietorship Tax Rate for the Assessment Year 2021-22 when Proprietor's age is less than 60 years

Taxable IncomeRate of Tax
Up to Rs 250000N.A.
Between Rs 250000 and Rs 5000005%
Between Rs 500000 and Rs 100000020%
More than Rs 100000030%

Proprietorship Tax Rate for the Assessment Year 2021-22 when Proprietor's age is between 60 and 80 years

Taxable IncomeRate of Tax
Up to Rs 300000Nil
Between Rs 300000 and Rs 5000005%
Between Rs 5,00,000 and Rs 10,00,00020%
More than Rs 10,00,00030%

Proprietorship Tax Rate for the Assessment Year 2021-22 when Proprietor's age is more than 80 years

Taxable IncomeRate of Tax
Up to Rs. 5,00,000NA
Rs. 5,00,000 to Rs. 10,00,00020%
Exceeding Rs. 10,00,00030%

 

Besides calculation of Income Tax depending on the above tax slabs, individuals need to pay Cess and Surcharge.

 Surcharge – 10% of income tax, where total income is more than Rs 50 lakh to maximum Rs 1 crore

 Surcharge – 15% of income tax where the total income crosses Rs 1 crore

 Education and Health Cess – 4% of Income Tax

Why Income Tax Return should be filed by Proprietorship Firms?

According to Income Tax Act, all proprietors below the age of 60 years need to file income tax return when total income is more than Rs 2.5 lakhs. If proprietor’s age exceeds 60 years but below 80 years, income tax filing is compulsory when total income is more than Rs.3 lakhs. Proprietors more than the age of 80 years and above must file income tax return if the total income is more than Rs.5 lakhs.

If the proprietor files income tax return before the prescribed deadline, losses if any in the business would be carried forward. The deduction under sections 10A, 10B, 80-IA, 80-IAB, 80-IB and 80-IC will not be allowed unless the proprietorship income tax return has been filed on or before the due date.

Audit for Proprietorship

An audit would be necessary for a proprietorship firm if the total sales turnover exceeds Rs.1 crore during the financial year. In case of a professional, audit would be needed when total gross receipts crosses Rs 50 lakhs in the financial year under assessment.

Also, an audit is a must for any proprietorship firm under presumptive taxation method regardless of turnover if the income claimed is under the deemed profits and gains under the method.

Audit for proprietorship for income tax should be conducted by a practicing Chartered Accountant.

Due Date for Filing Tax Return of Proprietorship Firm

Income tax return of a proprietorship for which audit is not needed is due on 31st July

If the income tax return of a proprietorship requires to be audited under Income Tax Act, then the return would be due on 30th September

When proprietorship involves into any international transaction with related entities or particular domestic transaction, then Form No 3 CEB must be filed. For proprietorship firms that are necessary to file Form No 3 CEB, income tax return must be filed on 30th November

Which ITR Form should be used by a Proprietorship Firm?

Form ITR-3

Form ITR-3 can be filed by a proprietor or a Hindu Undivided Family who is running a proprietary business.

If an Individual or HUF is having income as a partner of a partnership business that is running business or profession, ITR-3 cannot be filed by him. In such case, he needs to file ITR-2.

Filing Tax Return of a Proprietorship Firm

Income tax return of a proprietorship firm in form ITR 3 can be filed online using manual or digital signature of the proprietor.

If the income tax return is filed manually, then the proprietor must print out two copies of Form ITR-V.

One copy of ITR-V, appropriately signed by the proprietor, requires to be sent by ordinary post to Post Bag No. 1, Electronic City Office, Bengaluru–560100 (Karnataka).

The other copy may be taken by the proprietor for his or her records.