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Sole Proprietorship
In India, a sole proprietorship is an unregistered business entity solely owned, managed, and overseen by one individual. This form of business structure is favored by micro and small enterprises operating in the unorganized sector. Establishing a sole proprietorship in India is a straightforward process, characterized by minimal regulatory requirements. It is particularly suitable for entrepreneurs venturing into small-scale businesses with a limited client base. Sole proprietorships come with limited liability, and they do not possess perpetual existence.
Who Qualifies as a Sole Proprietor?
A sole proprietor is both the proprietorship’s owner and its recognized entity, essentially synonymous with the business itself. As the sole proprietor, they are entitled to all of the company’s earnings. The sole proprietorship is entirely under the proprietor’s control, granting them the authority to make all business decisions.
Operating a business as a sole proprietor may necessitate obtaining specific licenses and permits. The requirements for these licenses depend on the industry, state, and locality in which the business operates.
What’s Included
- PAN (Permanent Account Number)
- GST (Goods and Services Tax) Registration
- Udyam Registration
Required Documents
- PAN CARD: PAN card of all the partners.
- ID PROOF: Aadhaar card/Passport/Voter ID/Driving Licence (Any 1) of all the partners.
- PHOTO: Passport size photo of all the partners.
- OFFICE ADDRESS PROOF: Office address proof – Electricity Bill / Mobile bill (Any 1).
- NOC FROM OWNER: No Objection Certificate from the owner of the office.
- RENT AGREEMENT: Rent agreement of the office (if the property is rented).
Post-Incorporation Compliance for Sole Proprietors
Sole proprietorships registered in India have specific post-incorporation compliance requirements, primarily related to income tax filings and potential audits. Here are the key aspects to consider:
Income Tax Return Filing:
- Sole proprietors must file income tax returns. Since the sole proprietor and the business are considered one entity, the tax return filing for both the proprietor and the proprietorship is the same.
- Under the Income-tax Act, individuals below 60 years of age should file an income tax return if their total income exceeds Rs. 2.5 lakhs. Those between 60 and 80 years should file if their income exceeds Rs. 3 lakhs, while those over 80 years must file if their income exceeds Rs. 5 lakhs.
- It’s advisable to consult with tax experts to assist with income tax return filing for your proprietorship.
Audit for Proprietorships:
- An audit is mandatory for proprietorship firms if their total turnover/sales exceed Rs. 1 crore during the financial year.
- In professional cases, an audit is necessary if the total gross receipts exceed Rs. 50 lakhs during the financial year.
- Audits are also required for proprietorship firms operating under a presumptive taxation scheme, irrespective of turnover, if the claimed income is lower than the deemed profits and gains under the scheme.
- Proprietorship firm audits for income tax purposes must be conducted by a practicing Chartered Accountant.
Income Tax Return Forms for Proprietorship Firms:
- Proprietorship firms can file income tax returns using either Form ITR-3 or Form ITR-4-Sugam.
- Form ITR-3 is suitable for proprietors or Hindu Undivided Families engaged in proprietary businesses or professions.
- Form ITR-4-Sugam is appropriate for proprietors who opt for the presumptive taxation scheme, which simplifies income tax calculations by assuming a set profit margin on total income.
Filing a Tax Return for a Proprietorship Firm:
- Income tax returns for a proprietorship firm (using ITR-3 or ITR-4 Sugam) can be filed online with the proprietor’s digital signature or manually.
These post-incorporation compliance measures ensure that sole proprietorships fulfill their tax obligations and maintain proper financial records. Consulting with tax professionals is recommended to navigate these requirements effectively.
What is a sole proprietorship?
Sole proprietorships in India represent an unregistered business structure solely owned, managed, and controlled by an individual. Many micro and small businesses operating in the informal sector opt for registration as sole proprietorships.
Who is eligible for sole proprietorship registration?
An Indian citizen who holds a current account in their business’s name can obtain sole proprietorship registration.
What is the registration timeline?
The registration process typically takes approximately 8 to 10 days, though this timeframe may vary based on government processing and document submission.
Is there a Certificate of Incorporation for Sole Proprietorship?
No, there is no Certificate of Incorporation issued for sole proprietorships.
Are there any compliance requirements for sole proprietorships?
Since the sole proprietor and the proprietorship firm are the same entity, the individual only needs to file income tax returns and GST returns for the proprietorship firm.
Is there a minimum requirement to initiate a sole proprietorship?
No, there is no minimum requirement for starting a sole proprietorship in India.
What is the duration of a sole proprietorship?
A sole proprietorship exists for as long as the proprietor is alive and wishes to continue operating the business.
Is the proprietor of a sole proprietorship considered identical to the sole proprietor?
Yes, the owner of a sole proprietorship is indeed regarded as the same as the sole proprietor.
What licenses are needed for proprietorship registration?
The specific licenses required can vary from state to state. For example, in Maharashtra, a Shop and Establishment Act license is necessary, while in West Bengal, a trade license is required.
What is the role of the proprietor in a sole proprietorship?
The proprietor is the owner, controller, and manager of the sole proprietorship, having complete authority over the business.