Income Tax Return Filing for Proprietorship Firm

Proprietorship firms also have to file income tax returns just like a Limited liability Partnership and other registered companies in India. Legally, a proprietor and a proprietorship, both are considered as a single entity. Therefore, both the proprietor and the proprietorship do not need to file different income tax returns. Both of them can file a single ITR.

Since, both the proprietor and the proprietorship  are a single entity and therefore, the proprietor can file the proprietorship’s ITR in the same way as he files his own. A proprietorship firm is also liable for proprietorship tax deductions  just like any other individual. These deductions are awarded to the proprietorship as per the income tax rules and on the basis of the slab rates that  can be applied to his income. While the rates of income tax for registered companies are decided on the basis of the flat rates.

It is also easy to manage a proprietorship firm as it is  a small and independent business and is owned by a single individual.

Slab Rates of Income Tax

From the financial year 2020-21 onwards, a new tax regime was introduced by the government of India and the taxpayers have to pay their taxes as per the new tax regime.

If the income of an individual is less than 2.5 lakh, then he does not have to pay any sort of income tax on his income. If the income ranges from 2.5 to 5.0 lakhs, then the taxpayer has to pay an income tax at the rate of 5% on his income. If the individual’s income lies between 5.0 to 7.7 lakhs, then the taxpayer is liable to pay an income tax at the rate of 10% on his income. In case his income lies between 7.5 to 10.0 Lakhs, then he has to pay an income tax at the rate of 15% of his income. If the income lies between 10.0 to 12.5 lakhs, then the taxpayer has to pay an income tax of 20% on his income. In case the income of the taxpayer is between 12.5 to 15.0 lakhs, then he will have to pay an income tax at the rate of 25% of his income and if his income exceeds 15 lakhs, then he has to pay an income tax at the rate of 30% of his income.

In case the age of the proprietor is above 60 but less than 80 in any of the previous year, then the tax slab rates for ITR of Proprietorship are as follows:

The following are the tax slab rates for ITR of proprietorship firm whose proprietor is older than 80 years of age:

Income tax slab rates for ITR of Proprietorship firm when the proprietor is not a resident of India:

The amount of surcharge that needs to be paid above the calculated income tax according to the income tax rates mentioned above:

Process to file ITR for Proprietorship Firm

ITR for Proprietorship firms need to be filed on an annual basis unless there is an exemption. According to the nature of the proprietorship, the proprietor needs to file two forms for filing ITR for Proprietorship firms,these are listed below:

• ITR-3 Form: If the firm is regulated and run by a HUF or by a proprietor, then the ITR-3 Form should be used to file ITR for Proprietorship.
• ITR-4 Form: This form is used by a proprietor to file income tax under a presumptive taxation scheme. This helps in reducing the burden of compliance from small businesses.

Necessity of filing ITR for Proprietorship Firms

According to the guidelines of the Income Tax Act, all the proprietorship owners who are younger than 60 years of age are supposed to file ITR for Proprietorship if the total income of the proprietorship exceeds Rs. 3 lakhs.

If the age of a proprietor is more than 60 years but he is younger than 80 years of age, then he will have to file ITR for proprietorship firm if the income exceeds 3 lakhs.

Also, the proprietorship owners who are older than 80 years of age, need to file ITR for Proprietorship if their tidal income is more than Rs. 5 lakhs.

Due dates of filing ITR for Proprietorship Firms

If for a proprietorship firm, the due date to file ITR for Proprietorship firms is 31 st July if the firm does not need to perform a necessary audit. However, if a proprietorship firm needs to perform a necessary audit, then the Due date to file ITR for Proprietorship firms shifts to 31st October.

The Presumptive taxation Scheme for a proprietorship firm

The presumptive taxation scheme is aimed at providing relief to the small taxpayers. It is one of the provisions under the Income Tax Act. The government of India did not want to burden the small taxpayers by heavy compliance-related requirements, so that they could carry on their trades.

The organisations that are registered under the presumptive taxation scheme have to pay taxes at a minimum rate. The incomes of such organisations are calculated on the basis of estimation under Section 44AD.

Conclusion

As per all the information provided in the blog, we came across questions like what is a proprietorship firm, why it needs to file for an ITR and what are the benefits of filing an ITR for Proprietorship firms. We can simply say that there are a lot of benefits that are awarded to a proprietorship firm if the ITR is filed on time. Therefore, every proprietorship firm must file its ITR within the stipulated time period.