Proprietorship Tax Return Filing - eFile Procedure

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.

Latest Update

Latest update:
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.

Audit of Proprietorship

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:

• Turnover of the proprietorship firm conducting business is over Rs 1 crore during the year of assessment. In the matter of a professional proprietorship, an audit needs to be done if the total receipts of the proprietorship exceed the amount of Rs 50 lakh.
• If a proprietorship is under any presumptive tax scheme, regardless of the annual turnover, an audit is required. 
   

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.

How to File an Income Tax Return for a Proprietorship?

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:

• Form ITR-3: This form should be used to file income tax if the proprietorship is run by a Hindu Undivided family or any other proprietor.
• Form ITR-4 Sugam: This form is different from the previous form as this form is used by proprietorships that fall under presumptive tax schemes. This is to reduce the burden of compliances that fall upon small businesses. As mentioned before the income tax of a proprietorship is the same as that of the proprietor meaning, the business income of the proprietorship is added into the income of the proprietor himself. Therefore the business taxes become the personal taxes of the proprietor. He is still entitled to all tax deductions offered to individuals or Hindu Undivided Family (HUF) as the case may be.

Steps to Follow for eFiling An Income Tax Return for a Proprietorship

• The first step is to have a PAN card. This is a card that is issued by the Income Tax Department to every taxpayer. It provides the owner of the card a unique Permanent Account Number (PAN) which is needed to pay taxes.
• The proprietorship does not have a separate legal entity; therefore, the PAN of the proprietor has to be used to pay the in income tax and file the income tax returns.
• You have to register yourself at the e-filing portal; if already registered you have to log in using your PAN.
• Now select the e-filing menu and then select ‘Income Tax Return’.
• On this page, you have to select the following- – Assessment year – ITR form – Filing type (original/revised) – Select prepare and submit in the submission mode
• Select continue. The new page is where you need to fill out all the details that are asked for carefully.
• Some details to be filled out will be mandatory, and some are dependant on the applicability.
• After filling out all the relevant information, you have to choose the verification method. There are three methods, tow for e-filing and one for physical filing- – Select e-verify, which will verify the filing right away – E-verify later within 120 days, which gives you time to update any information required within 120 days – Select ‘I don’t want to e-verify’ to continue manually
• Now select the ‘Preview and Submit’ option. Here you get to preview the return before submission to do one last check for errors.
• After submission in the e-verify option, you can verify the filing either via OTP or EVC. The OTP/EVC must be entered within 60 seconds for successful verification.

Deadline For Filing An Income Tax Return for a 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.

• Proprietorship that doesn’t require an audit has to file their income tax returns by the 31st of July.
• Proprietorship that requires to be audited needs to file their income tax returns by the 30th of September.
• Proprietorships that have conducted any international transactions or certain specified domestic entities have to file their income tax returns by 30th of November.

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