Demystifying Sole Proprietorship Taxation in India: A Comprehensive Guide

In India, the taxation of a sole proprietorship is relatively simple and straight forward because the business is not considered a separate legal entity from its owner. The income from the sole proprietorship is taxed as the personal income of the proprietor i.e. Individual.

How Taxation of Proprietorship Works?

1. Income Tax

In addition, there is a health and education cess of 4% on the total tax payable.

2. Self-Employment Tax (Professional Tax):

In India, professional tax is levied by state governments, and the rate varies by state. It is typically a small amount (ranging from ₹200 to ₹2,500 annually) and is applicable to people engaged in professions or trades, including sole proprietors.

3. Presumptive Taxation Scheme (Section 44ADA/44AE)

Sole proprietors can opt for a simplified tax scheme under Section 44ADA or Section 44AE if they meet specific criteria:

4. GST (Goods and Services Tax)

5. Allowable Deductions

Sole proprietors can deduct business-related expenses from their income, which will reduce the taxable income. Common deductions include:

6. Advance Tax

A sole proprietor is required to pay advance tax if the estimated tax liability for the year exceeds ₹10,000. Advance tax is paid in four instalments during the year:

7. Tax Audit

8. Additional Taxes

Depending on the nature of the business, sole proprietors may be subject to other taxes like TDS (Tax Deducted at Source), capital gains tax on the sale of capital assets.

Conclusion

In India, taxation of a sole proprietorship is relatively simple but does depend on the nature of the business and its turnover. A sole proprietor will pay income tax on the net profits of the business as personal income, and can take advantage of the presumptive taxation scheme if eligible. GST registration, professional tax, and advance tax are other important aspects.

Taxcellent helps you in getting proprietorship registered along with obtaining PAN, TAN, GST and opening Current Account in Bank. We also assist in obtaining Trademark and MSME certificates. Taxcellent also assist you in filing GST returns and Income Tax Returns of Sole Proprietorship Firm Registration Delhi.

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We have launched a range of Chartered Accountants Services for families along with a complete income tax filing product suite covering ITR-1 to ITR-7. With the launch of our families division, we aim to help millions of Indians with financial literacy, compliance and investment.

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