Where Legal Compliance Meets Business Success
Your Path to Financial Success Starts Here
Our expert team is here to guide you every step of the way, helping you navigate the complexities of personal finance.
Book a MeetingNeed Help?
Social Networks
Home / GST Filing
SOLE PROPRIETORSHIP FIRM COMPLIANCE
"GST registration is essential for legal business operations and unlocking tax benefits."
SOLE PROPRIETORSHIP FIRM COMPLIANCE
A sole proprietorship is basically the simplest form of business ownership, where it's just you running the show. Since it’s not a separate legal entity like a corporation, the compliance part is pretty chill compared to other business types. You're mainly responsible for keeping track of your business income and expenses, and reporting them using a Schedule C when you file your personal tax return. You might also need a local business license or permit, depending on what you’re doing and where. It’s all about staying on top of record-keeping and making sure you pay any taxes owed, like self-employment taxes, which cover your Social Security and Medicare obligations. If you hire anyone, there are some payroll responsibilities too. It's mostly about keeping everything well-organized so that tax season doesn’t hit you too hard.
Simplified Annual Compliance for an Indian Sole Proprietorship Firm
You must adhere to certain fundamental legal and tax regulations each year if you operate as a sole owner. This is a basic checklist:
1. Filing income taxes
i) File Income Tax Return (ITR): You are required to file an ITR if your annual total income exceeds ₹2.5 lakh.
ii) Tax Audit (if necessary): A tax audit is necessary if your turnover exceeds ₹50 lakh for professionals or ₹1 crore for businesses.
iii) Advance Tax (if applicable): You are obliged to pay advance tax in four installments if your annual total tax exceeds ₹10,000.
2. GST Compliance (if relevant)
i) File GST Returns: If you are registered for GST, you must file GSTR-1 and GSTR-3B monthly or quarterly returns as well as a GSTR-9 annual return if your turnover exceeds ₹2 crore.
3. Compliance with TDS (where relevant)
i) File TDS returns on a quarterly basis if you deduct TDS for contractors, rent, or salary.
4. Additional Local/State Compliances (if any)
i) Shop & Establishment Act: If registered, renewal may be required.
ii) Professional Tax: Required in certain states.
5. Compliance with Employees (where applicable)
i) Make sure that your employees' EPF (Provident Fund) and ESI (Insurance)
on-time filings and payments are made.
The Indian Sole Proprietorship Firm Registration Process
1. Select a name for your company:
Select a distinctive and significant name for your company. Make sure no trademarks are being violated.
2. Select a Site for Your Business:
Choose a location for your business, such as your house, a rented office, or a commercial space.
3. Acquire necessary registrations:
While sole proprietorships are exempt from mandatory registration requirements, specific registrations are required based on the nature of the business –
- Registrations are required:
• Apply for a Permanent Account Number (PAN) if you don't already have one.
• GST registration is required if sales of goods and services total more than ₹40 lakhs and ₹20 lakhs, respectively.
- Extra Registrations (if relevant):
• If you own a physical store or office, you must register under the Shop and Establishment Act.
• Small enterprises can benefit from government programs and subsidies by registering with Udyam (MSME).
• According to local municipal regulations, some firms must have a trade license.
• Businesses that deal with food items are required to have an FSSAI license.
• Some states need professional tax registration if you hire employees.
• Businesses engaged in import/export must have an import/export code (IEC).
4. Create a New Bank Account:
Most banks need-
• PAN card
• Address proof of business (utility bill or rental agreement)
• GST Registration (if applicable)
• Certificate of Business Registration (if applicable)
5. Keep Track of Company Documents & Compliance:
• Submit Income Tax Returns (ITR) on a yearly basis.
• For taxation purposes, keep accurate accounting records.
• Comply GST if you're registered.
6. Begin business operations:
You can begin offering services or selling goods as soon as all the formalities are completed.
- FAQ
1. What are a sole proprietorship's fundamental compliance requirements?
The following are the primary prerequisites for compliance:
• If the business is subject to presumptive taxation, the proprietor is required to file an individual income tax return (ITR-3 or ITR-4).
• GST registration and filing are necessary for interstate sales and turnovers exceeding ₹40 lakhs (₹20 lakhs for service providers). Monthly or quarterly filings of GST returns are required.
• In some states, professional taxes are applicable.
• In certain states, companies that have a physical office or store must register under the Shops & Establishments Act.
2. Does a sole proprietorship have to register for GST?
No, you must register for GST only if:
• The annual turnover exceeds the specified threshold.
• Inter-state sales are a part of the business.
• The business is in one of the mandatory GST registration categories (such as import/export or e-commerce merchants).
3. How are income tax returns filed by a sole proprietor?
• Presumptive taxation (Section 44AD/44ADA) may be applied if turnover is less than ₹2 crore (business) or ₹50 lakh (professional), in which case an ITR-4 is filed.
• ITR-3 with complete profit and loss and balance sheet details is necessary if certain thresholds are exceeded.
4. Does a sole proprietorship have any audit requirements?
• If a business's turnover exceeds ₹1 crore or ₹50 lakhs for professionals, a tax audit is required.
• If at least 95 percent of transactions are done online, the cap rises to 10 crore rupees.
5. What are the prerequisites for filing a GST return?
• GSTR-1 (outgoing supplies) quarterly or monthly.
• Monthly or quarterly GSTR-3B (summary return) is required.
• If turnover above ₹2 crores, an annual GST return (GSTR-9) is necessary.
6. Does a sole proprietorship have to pay TDS?
• TDS does not have to be deducted from costs such as salary, rent, or contractor payments if the single proprietor is not the target of a tax examination.
• The owner is required to deduct TDS and submit quarterly TDS returns if the turnover over the audit limit.
7. What are the payroll compliance requirements?
If the proprietor has employees, the following may apply:
• EPF & ESI Registration (if employees exceed 10 for ESI, 20 for EPF).
• PT (Professional Tax) if applicable in the state.
• TDS on Salary if applicable under tax audit.
8. Do I have to keep up with the books of accounts?
• The Income Tax Act requires that books of accounts be kept if turnover exceeds ₹25 lakhs for professionals and ₹10 lakhs for businesses.
• If not, it is advised but not required.
9. What are a sole proprietorship's licensing and registration requirements?
Depending on the type of business, it may include:
• Trade License (issued by the local government).
• MSME (Udyam) registration is advantageous but optional.
• License from the FSSAI (for food businesses).
• For international trading, use the Import Export Code (IEC).
10. How may a sole proprietorship be shut down?
• Cancel other registrations, including professional tax and GST.
• Submit your final income tax returns.
• Pay off debts and obligations.
• Shut down the business's bank account.