ITR filing for Proprietor
Learn everything about ITR filing for Proprietor such as taxability, tax rate, choosing ITR form, tax rates, due date, penalty, how to file ITR. Contact us for filing!
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Filing an Income Tax Return (ITR) is a critical responsibility for all proprietors. This annual process involves declaring income earned during the financial year and paying the applicable taxes to the government. In this guide you will learn about taxability, tax rates, how to choose ITR form, how to file ITR, Due date and penalties for not filing ITR for proprietors.
What is an ITR?
Taxability of Proprietorship business
Proprietors can opt for the presumptive taxation scheme under section 44AD or 44ADA, which allows them to pay tax at a fixed rate based on their income. Under 44AD the fixed rate is 8% and under 44ADA (for professionals) it is 50%. This scheme is optional and can be chosen for a specific financial year. If chosen, the scheme cannot be opted out of for the next 5 financial years.
Below you can find the main difference between Section 44AD and 44ADA-
| Criteria | Section 44AD | Section 44ADA |
| Applicability | Applicable to eligible individuals and businesses | Applicable to specified professionals |
| Presumptive Taxation Rate | 6% or 8% of turnover or gross receipts | 50% of gross receipts |
| Turnover limit | Rs. 2 crore | Rs. 75 lakhs (wef 1-4-2024) |
| Eligibility Criteria | Eligible individuals and businesses | Specified professionals, including doctors, consultants, engineers, architects, accountants, and others |
| Maintenance of Books of Account | Not required | Not required |
| Audit | Not required | Not required |
| Advance Tax | Required | Required |
In case a business is in loss or sales turnover exceeds Rs. 1 crore and presumptive scheme is not opted then tax audit under section 44AB will be applicable.
If your tax liability exceeds Rs. 10,000 for a financial year, you may need to pay advance tax. The installment period for advance tax is divided into four parts: 15% by June 15th, 45% by September 15th, 75% by December 15th, and 100% by March 15th. If you’ve opted for presumptive taxation, advance tax must be paid by March 15th. When paying advance tax, consider any TDS deducted, which can be verified using Form 26AS.
Income tax slab for Proprietors below 60 years (Old Regime)
| Income | Tax rates |
| Less than Rs.2,50,000 | 0% |
| Rs.2,50,000 – Rs.5,00,000 | 5% |
| Rs.5,00,001 – Rs.10,00,000 | 20% |
| More than Rs.10,00,000 | 30% |
Income tax slab for Proprietors for all age groups (New Regime)
| Income | Tax rates |
| Less than Rs.3,00,000 | 0% |
| Rs.3,00,001 – Rs.6,00,000 | 5% |
| Rs.6,00,001 – Rs.9,00,000 | 10% |
| Rs.900,001 – Rs.12,00,000 | 15% |
| Rs.12,00,001 – Rs.15,00,000 | 20% |
| More than Rs.15,00,000 | 30% |
Income tax slab for Proprietors between 60 & 80 years (Old Regime)
| Income | Tax rates |
| Less than Rs.3,00,000 | 0% |
| Rs.3,00,001 – Rs.5,00,000 | 5% |
| Rs.5,00,001 – Rs.10,00,000 | 20% |
| More than Rs.10,00,000 | 30% |
Income tax slab for Proprietors above 80 years (Old Regime)
| Income | Tax rates |
| Less than Rs.5,00,000 | 0% |
| Rs.5,00,001 – Rs.10,00,000 | 20% |
| More than Rs.10,00,000 | 30% |
Income tax deduction under Old regime for Proprietors
Income tax deductions are crucial for Proprietors to reduce their taxable income, thereby lowering their overall tax liability. These deductions can apply to various expenses and investments of personal nature.Here’s a comprehensive guide to the key income tax deductions available to them:
- Maximum Limit: ₹1,50,000 per financial year.
- Eligible Investments and Expenses:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- National Savings Certificates (NSC)
- Life Insurance Premiums
- Tuition Fees for Children
- Principal Repayment on Home Loan
- Equity-Linked Savings Scheme (ELSS), etc
- Health Insurance Premiums:
- Self, Spouse, and Children: Up to ₹25,000.
- Parents: Additional ₹25,000 (₹50,000 if parents are senior citizens).
- Preventive Health Check-up: Up to ₹5,000 within the overall limit.
- Education Loan Interest: Deduction for interest paid on education loans for higher education, with no maximum limit. Applicable for loans taken for self, spouse, or children.
- Donations to Charitable Institutions: Deduction for donations to specified funds and charitable institutions. The percentage of deduction (50% or 100%) depends on the organization.
5. Section 80TTA and 80TTB Deductions
- 80TTA: Deduction on interest income from savings accounts up to ₹10,000.
- 80TTB: For senior citizens, a deduction up to ₹50,000 on interest from savings accounts, fixed deposits, etc.
- Rent Paid: Deduction for individuals who do not receive HRA (House Rent Allowance). The deduction is the least of:
- ₹5,000 per month.
- 25% of total income.
- Rent paid minus 10% of total income.
7. Section 80GGB and 80GGC Deductions
- Political Contributions: Deduction for contributions to political parties or electoral trusts. (80GGB for companies and 80GGC for individuals).
Which ITR form is applicable to Proprietoship firm?
- Who Can Use It: Individuals and HUFs having income from a proprietary business or profession.
- Suitability for Proprietors:
- Comprehensive Coverage: This form is suitable for Proprietors who earn income from business, along with income from salary, house property,capital gains and other sources.
- Required Information: Details about business income, deductions, expenses, and profits.
- Who Should File: Proprietors with higher earnings, complex financials, or those who need to declare specific business-related deductions.
- Who Can Use It: Individuals, HUFs, and firms (other than LLP) having a total income up to ₹50 lakh and having income from business and profession which is computed under presumptive taxation scheme under Sections 44AD or 44ADA.
- Suitability for Proprietors:
- Presumptive Taxation Scheme: Ideal for small Proprietorship firms with sales up to ₹75 lakh or ₹2 crores, opting for presumptive taxation, which simplifies the process by assuming a certain percentage of total receipts as profit.
- Simplified Compliance: Reduces the burden of maintaining detailed records and books of accounts.
- Required Information: Gross receipts, presumptive income, and basic details of business.
Here is a summary of the above ITR forms-
| Criteria | ITR 3 | ITR 4 |
| Applicability | Individuals and HUFs with income from business or profession | Individuals, HUFs, and firms (other than LLPs) with income from business or profession and opting for presumptive taxation under Sections 44AD, 44ADA, or 44AE |
| Sources of Income | Income from business or profession, salary, house property, capital gains, and other sources | Income from business or profession for which presumptive taxation has been opted, salary, house property, and other sources |
| Presumptive Taxation | No presumptive taxation | Presumptive taxation under Sections 44AD, 44ADA, or 44AE |
| Audit Requirements | Audit required if total sales or gross receipts exceed a specified threshold | No audit required if presumptive taxation is opted, unless total income exceeds the taxable limit |
| Due Dates | July 31st for non-audit cases, October 31st for audit cases | July 31st |
| Turnover Limit | No specific turnover limit | Turnover limit of Rs. 75 lakhs and Rs. 2 crores for presumptive taxation under Section 44ADA and 44AD |
| Form Complexity | More complex form | Less complex form |
Income tax rates for proprietor
Old tax RegimeÂ
| Income | Tax rates |
| Upto ₹ 2.50 lakh | 0% |
| ₹ 2.50 lakh – ₹ 5 lakh | 5% |
| ₹ 5 lakh – ₹ 10 lakh | 20% |
| Above ₹ 10 lakh | 30% |
You Can claim deduction under Section 80C, 80D, 80G, etc
For senior citizen (age between 60 & 80 years), tax rate is 0% upto ₹ 3 lakhs. Rest of the rates are same.
For super senior citizen (age above 80 years), tax rate is 0% upto ₹ 5 lakhs. Rest of the rates are same.
In Old tax regime, a maximum tax rebate under section 87A of Rs. 12,500 is available for income upto Rs. 5 lakhs meaning your income is totally tax free till Rs. 5 lakhs. The rebate under section 87A is not allowed to a Non-resident.
New tax Regime (FY 23-24)
| Income | Tax rates |
| Upto ₹ 3 lakh | 0% |
| ₹ 3 lakh – ₹ 6 lakh | 5% |
| ₹ 6 lakh – ₹ 9 lakh | 10% |
| ₹ 9 lakh – ₹ 12 lakh | 15% |
| ₹ 12 lakh – ₹ 15 lakh | 20% |
| More than ₹ 15 lakh | 30% |
New tax Regime (FY 24-25)
Income | Tax Rate |
Upto ₹ 3 lakh | 0% |
₹ 3 lakh – ₹ 7 lakh | 5% |
₹ 7 lakh – ₹ 10 lakh | 10% |
₹ 10 lakh – ₹ 12 lakh | 15% |
₹ 12 lakh – ₹ 15 lakh | 20% |
Above ₹ 15 lakh | 30% |
New tax Regime (FY 25-26)
| Income Range (₹) | Tax Rate |
|---|---|
| Upto ₹ 4 lakh | Nil |
| ₹ 4 lakh – ₹ 8 lakh | 5% |
| ₹ 8 lakh – ₹ 12 lakh | 10% |
| ₹ 12 lakh – ₹ 16 lakh | 15% |
| ₹ 20 lakh – ₹ 20 lakh | 20% |
| ₹ 20 lakh – ₹ 24 lakh | 25% |
| Above ₹ 24 lakh | 30% |
Documents Required for ITR filing for Proprietor
- PAN Card
- Aadhaar Card
- Savings and Current A/c bank statement
- Balance sheet and Profit & loss A/c
- Investment and deduction proof under section 80C, 80D, etc
- Form 26AS and AIS
- Other relevant documents depending on other income sources
Difference between Form 26AS and AIS
Form 26AS and the Annual Information Statement (AIS) are essential documents for taxpayers in India, each serving distinct purposes. Form 26AS acts as a tax passbook, summarizing taxes deducted, collected, and paid by the taxpayer during a financial year. It includes details on Tax Deducted at Source (TDS), Tax Collected at Source (TCS), advance tax payments, self-assessment tax payments, and any tax refunds received. The data in Form 26AS is sourced from employers, banks, and other entities that deduct or collect tax and from the taxpayer’s own payments.
In contrast, the AIS provides a comprehensive view of a taxpayer’s financial transactions, encompassing a broader range of information. It includes detailed records of interest and dividend income, shares and mutual funds transactions, property transactions, and significant gifts, among other financial activities. This information is sourced from banks, financial institutions, and other entities that report transactions to the Income Tax Department. Both Form 26AS and AIS is accessible on the Income Tax Department’s e-filing portal.
Step-by-Step Guide for ITR filing for Proprietor
1. Registering on the Income Tax E-Filing Portal
- Visit the Portal: Go to the official Income Tax Department e-filing website
- New User Registration: If you are a first-time user, click on ‘Register Yourself’. Choose the ‘Individual’ category and enter your PAN, which will serve as your User ID.
- Fill in Details: Provide your basic details, contact information, and create a password.
2. Choosing the Correct ITR Form (ITR-3 or ITR-4)
3. Filling Out Personal Details and Income Information
- Select the Assessment Year: Choose the appropriate assessment year for which you are filing the return.
- Income Details: Enter your income details under the appropriate heads:
4. Claiming Deductions and Exemptions
- Deductions under Section 80C: Enter eligible deductions such as life insurance premiums, PPF, NSC, and tuition fees.
- Deductions under Section 80D: Include premiums paid for health insurance.
- Other Deductions: Claim deductions under other sections like 80E for education loan interest, 80G for donations, etc.
5. Verifying and Submitting the Return
- Calculate Tax: Click on ‘Compute Tax’ to see the tax liability or refund.
- Tax Payment: If there is any tax payable, pay it through the e-filing portal using net banking or other available options.
- Preview and Submit: Preview the completed ITR form, ensure all details are correct, and click ‘Submit’.
- Verification: After submission, verify your ITR within 30 days of filing. You can e-verify using methods such as Aadhaar OTP, net banking, or through a digital signature. Alternatively, you can send a physical signed copy of ITR-V to the Centralized Processing Center (CPC).
What is the Due date of ITR filing for Proprietor?
For Proprietors, the due date to file Income Tax Returns is July 31st. But if Audit is applibale then the due date is October 31st.
If you miss the due date, you can still file Belated ITR by December 31st, but you will need to pay late fees. Additionally, if you make any mistakes while filing your ITR before the original due date, you can correct them by filing a revised ITR any number of times until December 31st.
What are the Consequences of non-payment of Tax and non-filing of ITR by Proprietor?
Benefits of ITR filing for Proprietor
1. Compliance with the Law
Filing ITR ensures legal compliance, as it is a legal obligation for individuals with income above a certain threshold. Non-compliance can result in penalties and legal consequences.
2. Proof of Income
ITR serves as a documented proof of income, which is essential for various financial transactions and applications, including:
Loan Applications: Banks and financial institutions require ITRs as proof of income for loans.
Credit Card Applications: Credit card issuers assess financial stability and repayment capacity using ITRs.
Visa Applications: Many countries require ITRs for visa applications to ensure financial support.
3. Claiming Tax Refunds
Filing ITR allows you to claim refunds if excess tax has been deducted or advance tax paid exceeds the actual tax liability. Without filing returns, refunds are not possible.
4. Carry Forward of Losses
Filing ITR enables you to carry forward losses to subsequent years, benefiting business owners and investors by offsetting future profits and reducing taxable income.
5. Avoiding Penalties
Filing ITR on time helps avoid penalties and interest for late filing or non-filing. The penalty for late filing can be substantial, and interest may accrue on unpaid taxes.
6. Avoiding Scrutiny
Filing taxes regularly and accurately helps avoid unwanted scrutiny by tax authorities, demonstrating responsibility and reducing the risk of detailed examinations.
7. Documentation for Insurance
Insurance companies require ITRs for high-value insurance policies, assessing the applicant’s ability to pay premiums and maintain the policy.
8. Participating in Government Tenders
Business owners must submit ITRs for government tenders to demonstrate financial health and stability.
Conclusion
Understanding the taxability for proprietor involves understanding presumptive taxation scheme, applicable deductions and tax rates. By staying informed about these aspects, proprietorship businesses can file their Income tax return correctly by choosing the right ITR form. Regularly updating knowledge about income tax and seeking professional advice when needed can further aid in effective tax planning.
In case you still have any query or want to file ITR with CA assisstance then you can contact us at +91 9769647582
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