Proprietorship Compliance

A sole proprietorship in India is the most basic business setup, where a single ind ividual owns and runs the business

What is a Sole Proprietorship?

A Sole Proprietorship is the simplest and most common form of business in India where an individual owns, operates, and manages the entire business. Though it offers minimal regulatory formalities, the owner must still comply with all tax and statutory requirements.

Even if your business is unregistered or operating under your personal PAN, you are still legally obligated to file taxes and maintain books of account if income crosses pres cribed thresholds.

Key Proprietorship Compliances (AY 2025-26)

1. Income Tax Filing (ITR):

   Category	Applicable ITR Form
   Business income under presumptive scheme (Sec 44AD/44ADA)	ITR 4
   Business/profession with audit or regular books	ITR 3

   • Tax slabs applicable as per individual taxation regime (Old/New)
   • Option to opt for presumptive taxation if turnover ≤ ₹2 crore (business) or ₹50 lakh (profession)
   • Books of accounts and audit mandatory if income/turnover exceeds limits
2. Tax Audit (Section 44AB):
   • Business turnover > ₹1 crore (or ₹10 crore if cash transactions <5%)
   • Professional receipts > ₹50 lakhs
   • Lower profit declared under presumptive scheme and income > basic exemption limit
3. GST Registration & Filing:
   • Mandatory if
   • turnover exceeds ₹20 lakh (services) / ₹40 lakh (goods)
   • Required for interstate supply or e-commerce participation
   • Compulsory for export of goods/services
   • Monthly/Quarterly Returns:
     • GSTR 1 , GSTR 3B , and GSTR 9 (annual retur n)
     • GSTR 2B reconciliation for eligible ITC
4. TDS Compliance (if applicable):
   • Deduct and deposit TDS on salaries, rent, contractor payments, etc.
   • File quarterly TDS returns (24Q/26Q as applicable)
   • Issue Form 16/16A to vendors/employees
5. Books of Accounts (Section 44AA):
   • Mandatory if:
   • Income > ₹2.5 lakh (professionals)
   • Turnover > ₹10 lakh (business)
   • Claimed lower income than 44AD/ADA or opted out
   • Must maintain: cash book, ledgers, sales/purchase register, bank book, journal, etc.
6. Advance Tax Payments:
   • Applicable if tax liability > ₹10,000 in a financial year
   • Payable in 4 installments as per Income Tax schedule
7. Professional Tax (State-wise):
   • Applicable in states like Maharashtra, Karnataka, West Bengal, etc.
   • Monthly filing and payment if registered

Key Documents for Proprietorship Compliance

• PAN and Aadhaar of proprietor
• Bank statements (business-related)
• Sales and purchase bills
• Expense vouchers/invoices
• GST login credentials (if registered)
• TDS challans, if applicable
• Investment proofs for deductions
• Rent agreement or shop act license (for address proof)

Regulatory Updates for AY 2025-26

As per the Finance Act, 2024 and updated provisions effective for Assessment Year 2025 26 , proprietorships must follow:

1. Higher Tax Audit Threshold:
   • Audit under Section 44AB required if turnover exceeds ₹1 Crore.
   • If cash receipts and cash payments ≤ 5%, threshold extended to ₹5 Crore.
2. Revised Presumptive Scheme:
   • Under Section 44AD, presumptive taxation limit is now ₹3 Crores (for businesses with non-cash turnover).
   • Income is presumed at 8% of turnover (6% if digital).
3. Enhanced Reporting in ITR:
   • Reporting of cash deposits, foreign travel, and crypto transactions is now mandatory.
4. E-Invoicing Mandate (GST):
   • E-invoicing is now compulsory for businesses exceeding ₹5 Crores turnover under GST.

Annual Compliance Checklist for Proprietorship (AY 2025-26)

Compliance	Description	Due Date
Income Tax Return Filing	ITR-3/ITR-4 for business income under normal/presumptive scheme	31st July / 31st Oct (if audit)
Tax Audit (if applicable)	Audit under Sec. 44AB for high-turnover businesses	30th September 2025
Advance Tax	Required if tax liability exceeds ₹10,000	Quarterly (15th Jun/Sept/Dec/Mar)
TDS Payment	TDS deducted must be deposited monthly	By 7th of next month
TDS Return Filing	Quarterly filing for deducted TDS (24Q/26Q)	31st July, Oct, Jan, May
GST Return Filing	GSTR-1 and GSTR-3B monthly/quarterly based on turnover	11th and 20th of every month
GST Annual Return	GSTR-9 (if turnover exceeds ₹2 Crores)	31st December 2025
Books of Account	Must be maintained for 6 years (if turnover > ₹25 lakhs or income > ₹2.5 lakhs)	Ongoing

Taxation of Sole Proprietorship

• Taxed under individual slab rates (no separate business tax rate)
• Eligible for standard deductions, Section 80C to 80U deductions
• No separate PAN needed – business taxed in owner's PAN

Slab Rates for AY 2025-26 (Old Regime)

Income Range	Tax Rate
Up to ₹2.5 Lakhs	NIL
₹2.5 – ₹5 Lakhs	5%
₹5 – ₹10 Lakhs	20%
Above ₹10 Lakhs	30%

Note: Under the New Tax Regime (Section 115BAC), revised slab benefits apply.

Why Choose CACSFinacc for Proprietorship Compliance?

• End-to-End Filing – ITR, GST, TDS & Audit
• Tax Saving Planning – Maximize deductions
• Digital Bookkeeping – Tally, Zoho, QuickBooks supported

Our Specialized Proprietor Plans Include:

• Starter Plan: GST Return + ITR Filing + Basic TDS
• Growth Plan: Audit + GST + Full TDS + Advance Tax Calculation
• Premium Plan: Monthly Bookkeeping + Virtual CFO + MIS Reports