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July 28, 2018
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How can Proprietorship Firms File Income Tax Return?

Last Update Date : August 22, 2018

ITR for proprietors

Any proprietorship operating in India has to pay Income Tax in India. And any entity paying Income Tax must also file Income Tax Return. As per the Income Tax laws, a proprietorship firm is considered same as the proprietor for tax purposes. Therefore, the filing procedure for the former is quite similar to the filing procedure prescribed for an individual. Let’s understand the process in detail.

Income Tax Rate for a Proprietorship Firm

As we discussed earlier, since Income Tax laws consider a proprietorship as a proprietor, not only the tax filing process but the income tax rates are similar to an individual. While LLP or Company is taxed at a flat rate, a proprietorship is taxed as per the slab rates prescribed below for three different assessment years.

Proprietorship tax rate for the AY 2018-19 – Proprietor’s age is below 60 Years

Income Range (in Rupees) Tax Rate (in %age)
Zero – 2,50,000 Nil
2,50,000-5,00,000 5%
5,00,000-10,00,000 20%
Above 10,00,000 30%

Less: Rebate u/s 87A – It is applicable to proprietors with income up to Rs 3,50,000. The maximum amount of rebate allowed is Rs 2,500.
Add: Surcharge – A surcharge @ 10% of tax is applicable if income lies between Rs 50 lakh to Rs 1 crore, but if it exceeds Rs 1 crore then the surcharge will be payable @ 15%. However, surcharge is subject to marginal relief as stated:

§  If income exceeds Rs 50 lakh or Rs 1 crore as the case may be, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” shall be levied at the rate of 2% and 1% respectively, on the amount of tax computed, inclusive of surcharge.

Proprietorship tax rate for the AY 2019-20 – Proprietor’s age is below 60 Years

Income Range (in Rupees) Tax Rate (in %age)
Zero – 2,50,000 Nil
2,50,000-5,00,000 5%
5,00,000-10,00,000 20%
Above 10,00,000 30%

Less: Rebate u/s 87A – It is applicable to proprietors with income up to Rs 3,50,000. The maximum amount of rebate allowed is Rs 2,500
Add: Surcharge – A surcharge @ 10% of tax is applicable if income lies between Rs 50 lakh to Rs 1 crore, but if it exceeds Rs 1 crore then the surcharge will be payable @ 15%. However, surcharge is subject to marginal relief as stated:

§  If income exceeds Rs 1 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Proprietorship tax rate for the AY 2018-19 – Proprietor’s age is between 60 and 80 Years

Income Range (in Rupees) Tax Rate (in %age)
Zero – 3,00,000 Nil
3,00,000-5,00,000 5%
5,00,000-10,00,000 20%
Above 10,00,000 30%

Less: Rebate u/s 87A – It is only applicable to proprietors with income up to Rs 3,50,000. The maximum amount of rebate allowed is Rs 2,500.
Add: Surcharge – A surcharge @ 10% of tax is applicable if income lies between Rs 50 lakh to Rs 1 crore, but if it exceeds Rs 1 crore then the surcharge will be payable @ 15%. However, surcharge is subject to marginal relief as stated:

§  If income exceeds Rs 50 lakh or Rs 1 crore as the case may be, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” shall be levied at the rate of 2% and 1% respectively, on the amount of tax computed, inclusive of surcharge.

Proprietorship tax rate for the AY 2019-20 – Proprietor’s age is between 60 and 80 Years

Income Range (in Rupees) Tax Rate (in %age)
Zero – 3,00,000 Nil
3,00,000-5,00,000 5%
5,00,000-10,00,000 20%
Above 10,00,000 30%

Less: Rebate u/s 87A – It. It is only applicable to proprietors with income up to Rs 3,50,000. The maximum amount of rebate allowed is Rs 2,500.
Add: Surcharge – A surcharge @ 10% of tax is applicable if income lies between Rs 50 lakh to Rs 1 crore, but if it exceeds Rs 1 crore then the surcharge will be payable @ 15%. However, surcharge is subject to marginal relief.

§  If income exceeds Rs 1 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Proprietorship tax rate for the AY 2018-19 – Proprietor’s age is above 80 Years

Income Range (in Rupees) Tax Rate (in %age)
Zero – 5,00,000 Nil
5,00,000-10,00,000 20%
Above 10,00,000 30%
Add: Surcharge – A surcharge @ 10% of tax is applicable if income lies between Rs 50 lakh to Rs 1 crore, but if it exceeds Rs 1 crore then the surcharge will be payable @ 15%. However, surcharge is subject to marginal relief as stated:

§  If income exceeds Rs 50 lakh or Rs 1 crore as the case may be, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” shall be levied at the rate of 2% and 1% respectively, on the amount of tax computed, inclusive of surcharge.

Proprietorship tax rate for the AY 2019-20 – Proprietor’s age is above 80 Years

Income Range (in Rupees) Tax Rate (in %age)
Zero – 5,00,000 Nil
5,00,000 – 10,00,000 20%
Above 10,00,000 30%
Add: Surcharge . A surcharge @ 10% of tax is applicable if income lies between Rs 50 lakh to Rs 1 crore, but if it exceeds Rs 1 crore then the surcharge will be payable @ 15%.

§  If income exceeds Rs 1 crore, the applicable tax plus surcharge should not exceed the part of income which is in excess to Rs 1 crore.

Add: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Why should Proprietorship Firms File Income Tax Return?

Just like any individual, any proprietor below the age of 60 years must file his Income Tax Return of his income if his total income for the year is more than Rs 2.5 lakhs. If the age of the proprietor falls between 60 and 80 years and his income is more than Rs 3 lakhs then he must file ITR. However, if a proprietor’s age is more than 80 years and he is exempt from filing ITR if his income does not exceed Rs 5 lakhs. He must file ITR of his income exceeds this limit.

Other than this compulsion, there are other benefits for which a proprietorship must file his return on time. If the business has incurred any loss which it wants to carry forward, it must file return on time, i.e. before the due date. Also, to claim tax deductions under sections 10A, 10B, 80-IA, 80-IAB, 80-IB and 80-IC, a proprietorship must file return before the due date.

Audit for Proprietorship

Income Tax laws make it mandatory for a proprietorship to get its books of account audited from a practising CA under the following conditions:

  • If the total sales turnover of the proprietorship exceeds Rs 1 crore during the financial year.
  • If the total gross receipts of the professional exceed Rs 50 lakhs during the financial year.
  • If the proprietorship had opted for the presumptive scheme and the income claimed is lower than the deemed profits and gains under the scheme.

Due Date for a Proprietorship Firm to File a Tax Return

  • If the proprietorship firm does not require a tax audit, it must file the return by 31st of July.
  • If the proprietorship firm requires a tax audit, it must file the return by 30th of September.
  • If the proprietorship firm needs to file Form 3 CEB, it must file the return by 30th of November.

Note: Form no. 3 CEB is required to be furnished by those proprietorship forms which entered into any international transaction with associated entities or specified domestic transaction.

Income Tax Return for Proprietorship Firms

For the assessment year 2018-19, which relates to income earned in the Financial Year 2017- 18, proprietorship firms are required to file Form ITR-3 or Form ITR-4-Sugam.

Form ITR-3

Form ITR-3 is to be filed by a proprietor or a Hindu Undivided Family who is carrying out a proprietary business or profession.

Form ITR-4-Sugam

ITR-4-Sugam is to be filed by a proprietor who has paid income tax under the presumptive taxation scheme.

Filing a Proprietorship Firm Tax Return

The income tax return of a proprietorship firm in form ITR 3 or ITR 4 Sugam can be filed online on the e-filing portal of the government using the digital signature of the proprietor or through generating an EVC or generating an Aadhar otp or sending the signed copy of the ITR-V to Post Bag No. 1, Electronic City Office, Bengaluru–560100 (Karnataka).

If the income tax return is filed manually, then e-verification is not possible. In such a case, the proprietor should print out two copies of Form ITR-V This return needs to be submitted to the jurisdictional AO. Complete return needs to be submitted and the ITO will issue a stamped acknowledgement.

How can H&R Block help you?

Saving taxes and filing income tax return accurately becomes very easy when you have professional help. This is where we come into the picture. We have a team of in-house tax experts who can e-file your tax returns accurately while giving you maximum tax benefits.

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