Like any other incorporated entities such as partnerships and companies, a proprietorship also must pay tax on its revenue. In the legal sense, a proprietorship is treated like the proprietor himself, the income tax that has to be filed follows the same procedure that of filing returns of the proprietor himself. Therefore the laws that govern the payment of income tax of the proprietor govern the proprietorship as well.
For example, income tax slabs for senior citizens apply to the proprietorship if the proprietor is a senior citizen, i.e.:
a) citizens of age 60 and above are exempt from paying income tax if their total income is below Rs 3 lakh,
b) citizens aged 80 and above are exempt from income tax if their total income is below Rs 5 lakh.
The CBDT notifies Form 12BBA, a declaration form, to be submitted by the eligible senior citizens to the specified banks to take relief from filing the ITR.
In Budget 2021, it has been proposed to exempt senior citizens from filing income tax returns if pension income and interest income are their only annual income sources. Section 194P has been newly inserted to enforce that banks deduct tax on senior citizens of more than 75 years of age who have a pension and interest income from the bank.
Depending upon the annual turnover of the proprietorship, sometimes it is required that the proprietorship be audited. There are three different circumstances where an audit needs to be done:
For an audit, the rules to be followed are set out under the Income Tax Act, 1961. Under that Act, it is required that the audit of the proprietorship firm needs to be done by a certified Chartered Accountant. The CA has to make sure that all the books of accounts are properly maintained and that the proprietorship firm has complied with all the compliances required.
It is required under the law that proprietorships file tax returns every year unless exempted. As mentioned before the income tax of the proprietorship is that of the proprietor. The tax return can be filed both physically or via an e-filing portal by using the electronic signature of the proprietor. Two different forms are needed to be filed depending on the nature of the proprietorship:
The deadline for filing the income tax return for a proprietorship is dependent upon whether it needs to be audited under the Income Tax Act,1961 and whether it has conducted any international transactions.
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