Home / Proprietorship Compliance

Updated on 21 Sep 2021  9.00 AM IST | 4 min read

An Overview to Proprietorship Compliance

Proprietorship firms need to maintain compliances like LLP’s and companies (Public or Private limited companies). Proprietorship firm compliance mainly includes income tax return filing, whereas LLP & companies need to submit both the reports – Income tax return filing to the income tax department and annual filing to the ministry of corporate affairs. Sole proprietorship firms also need to comply with TDS regulations, GST regulations, ESI regulations etc.

The requirement of compliance varies depending upon the type of entity, industry, state of incorporation, number of employees & sales turnover. It has very minimal statutory compliances as compared to a public or a private limited company. In the case of sole-proprietorship, a sole proprietor does not enjoy the benefit of a separate legal entity and limited liability. The annual income of the sole proprietor is considered the annual income of the proprietorship firm. There is no need to file an annual report or financial statement to MCA. The major compliance's of sole proprietorship firms are tax-related periodic and annual compliance's.

Proprietorship Compliances

  1. Filing of Income-tax return - According to the Income Tax Act, any proprietor under the age of 60 years is required to submit an Income Tax Return for the year if his total income exceeds Rs 2.5 lakhs. If the proprietor is between the ages of 60 and 80 and his income exceeds Rs 3 lakhs, he is required to file an ITR. However, if a proprietor is beyond the age of 80 years and his income does not exceed Rs 5 lakhs, he is exempted from submitting ITR. If his income exceeds this amount, he must file an ITR.

    Due Date for Filing Income Tax Returns: If a proprietorship firm is not required to conduct a tax audit, it must file the ITR by December 31st.

    If a proprietorship firm is obliged to undergo a tax audit, the proprietorship firm must file the ITR by September 30th.

    If the proprietorship firm is required to file Form 3CEB, the ITR must be filed by November 30th.

  2. Tax audit of Proprietorship firm – According to the provisions of the Income Tax Act, all proprietorship firms are required to have their books of accounts audited by a Practicing Chartered Accountant in the following circumstances:

    a) If, in the case of a business, the total sales, turnover, or gross revenues exceed Rs. 1 crore in any preceding year; Note: This section does not apply to a person who elects for presumptive taxation under Section 44AD and whose total sales or turnover does not exceed Rs 2 crore.

    b) If a professional firm's total gross receipts exceeds Rs.50 lakhs in any preceding year.

    c) If the proprietorship opted for the presumptive scheme and the claimed income is less than the scheme's deemed profits and gains.

Documents Required For Annual Compliances For Proprietorships Registration

  • Invoices of purchase & sales during a financial year
  • Invoices of expenses incurred during a financial year
  • Bank statements for all bank accounts in the name of proprietor firm in a financial year.
  • Credit card statement for expenses incurred by the proprietor on behalf of a company (If any)
  • Copy of TDS challans deposited (if any)
  • Copy of GST returns filed (If any)
  • Copy of TDS returns filed (if any)

Procedure For Annual Proprietorship Firm Compliance Fulfillment

The procedure for annual compliance fulfilment is as follows –

  • Maintain proper books of accounts
  • Preparation and filing of balance sheet.
  • Comply with GST requirements
  • File the income tax return to the income tax department.

Major Compliances For A Proprietorship Firm

  1. Income tax filing – Every sole proprietor running a proprietorship firm has to mandatory file an income tax return if his taxable income lies above the exemption threshold. In some of the cases, an audit is also required.
  2. GST filing – Sole proprietors registered under GST has to mandatorily file GST returns monthly, quarterly and annually.
  3. TDS return filing – Proprietors having TAN must file quarterly TDS returns as per TDS rules
  4. ESI return – All proprietors registered under the ESI act has to mandatorily file ESI returns. ESI registration is required in case a proprietor employs 10 or more employees in a firm.

Penalty For Not Filing Proprietorship Compliances

  • Late filing or non-filing of income tax returns before the due date will attract a penalty of Rs.200 per day.
  • Late filing or non-filing of GST return before the due date will attract a penalty of Rs.200 per day.

Proprietorship Compliances FAQ’S

Sole proprietorship firm complies with income tax regulations, TDS regulations, GST regulations, ESI regulations.
No, there is no need for proprietors to prepare audited financial statements every year. A tax audit may be required depending on turnover and other criteria.
No, a sole proprietorship firm doesn’t enjoy the benefit of a separate legal entity and limited liability.
Rs.200 per day will be charged as a penalty for late filing or non-filing the income tax return.
Unlike a Limited Liability Partnership or a Private Limited Company, a proprietorship business cannot be transferred to another person. Only the Proprietorship's assets can be transferred by way of selling to another person. Intangible assets, such as government approvals and registrations, cannot be transferred.
Proprietorship businesses are those that are owned, managed, and controlled by a single individual. As a result, Partners may not be admitted to a Proprietorship firm.
Proprietorship businesses are those that are owned, managed, and controlled by a single individual. As a result, proprietorship enterprises are unable to issue shares or attract investors.
Yes, there are procedures for later converting your proprietorship business to a company or limited liability partnership. However, the procedures for converting a proprietorship business to a company or limited liability partnership are lengthy, costly, and time-consuming. As a result, many entrepreneurs are wise to consider and establish an LLP or Company rather than a sole proprietorship.
To open a bank account for a proprietorship, the Reserve Bank of India requires the proprietor to submit two forms of registration for the proprietorship along with the proprietor's PAN Card, proof of identity, and proof of address. The two types of registration are as follows: service tax registration, MSME registration, VAT/TIN/CST registration, shop and establishment Act registration, professional licence, Chartered Accountant certificate, or others as specified in the RBI's Know Your Customer rules.
There is no minimum capital requirement for establishing a Proprietorship. As a result, a Proprietorship can be established with any amount of capital.
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Due Dates

  • GSTR-7 Summary of Tax Deducted at Source (TDS) and deposited under GST laws

     Sep 10th ,2021

  • GSTR-8 Summary of Tax Collected at Source (TCS) by e-commerce operators under GST laws

     Sep 10th ,2021

  • GSTR 1 for Aug 2021 (turnover more than INR. 1.50 Crore)

     Sep 11th ,2021

  • GSTR-6 Details of Input Tax Credit (ITC) received and distributed by an Input Service Distributor (ISD)

     Sep 13th ,2021

  • GSTR-3B is a summary return to be filed by all taxpayers except those registered under the composition scheme, every month. However, from 1st January 2021, there is also quarterly filing option provided to taxpayers with annual aggregate tunrover of up to Rs.5 crore, opting for the QRMP scheme for Aug Month. (Aggregate turnover exceeding Rs.5 crore in the previous financial year)
     

     Sep 20th ,2021

  • GSTR-3B is a summary return to be filed by all taxpayers except those registered under the composition scheme, every month. However, from 1st January 2021, there is also quarterly filing option provided to taxpayers with annual aggregate tunrover of up to Rs.5 crore, not opting for the QRMP scheme for Aug Month. (Aggregate turnover up to Rs.5 crore in the previous financial year)

     Sep 20th ,2021
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