Annual Compliances of sole proprietorship
Annual Compliances of sole proprietorship blogs.
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Annual Compliances of Sole Proprietorship
Annual Compliances of Sole Proprietorship: The annual compliances for a sole proprietorship in India depend on the nature and scale of the business, but since a sole proprietorship is not a separate legal entity, it is not governed by the Companies Act, 2013. However, the business and the proprietor must comply with various tax, regulatory, and sector- specific requirements.
What is Sole Proprietorship ?
A Sole Proprietorship is the simplest and most common form of business in India. It is owned, managed, and controlled by a single individual, with no legal distinction between the owner and the business.
GSTR-1
Content:
- Details of outward supplies made to registered taxpayers (B2B supplies).
- Details of outward supplies made to unregistered taxpayers (B2C supplies) where the invoice value exceeds Rs.2.5 lakhs.
- Summary of exports and supplies made to SEZs.
- Details of debit and credit notes issued during the reporting period.
- Amendments to invoices or credit/debit notes issued in previous periods.
Due date:
- For Monthly Filers: 11th of the following month.
- For Quarterly Filers: 13th of the month following the end of the quarter.
Late Fees: Late filing of GSTR-1 attracts a late fee of Rs.50 per day (Rs.20 for taxpayers having Nil Tax liability) subject to a maximum of Rs.5000.
GSTR-3B
Content:
- Details of outward supplies (sales) including both taxable and exempt supplies.
- Summary of inward supplies (purchases) including imports and purchases liable for reverse charge.
- Calculation of input tax credit (ITC) availed on purchases.
- Summary of tax liability including IGST, CGST, SGST/UTGST, and cess payable.
- Details of tax paid and any amount payable after adjusting the input tax credit.
- Amendments to the previous month's return if required.
Due date: The due date for filing GSTR-3B is typically the 20th of the following month. For example, the return for the month of January is due by February 20th.
Late Fees: Failure to file GSTR-3B by the due date attracts a late fee of Rs.50 per day (Rs.20 for taxpayers with nil tax liability) up to a maximum of Rs.5000.
GSTR-9
GSTR-9 is an annual return form that must be filed by registered GST taxpayers in India if the annual turnover of the taxpayer is above 2 crores but below 5 crores.
Content:
- Outward and inward supplies
- Input Tax Credit (ITC)
- Tax paid
- Refunds and demands
- Other compliance-related data for the full financial year
Due Date: The due date for filing GSTR-9 is 31st December following the end of the relevant financial year.
Late Fees: A late fee of INR 200 per day (INR 100 under CGST and INR 100 under SGST) is levied for delay in filing GSTR-9. However, it is subject to a maximum of 0.25% of the taxpayer’s total turnover in the relevant state or union territory.
GSTR-9C
GSTR-9C is a reconciliation statement between:
- The audited annual financial statements of a taxpayer
- The details reported in GSTR-9 (annual return)
It must be certified by a Chartered Accountant (CA) or Cost Accountant. It is filed when the turnover exceeds the threshold limit of Rs. 5 crores.
Content:
GSTR-9C has two parts:
Part A: Reconciliation Statement
- Reconciliation of turnover declared in GSTR-9 with audited financials
- Reconciliation of tax paid vs tax payable
- Reconciliation of ITC claimed vs booked
Part B: Certification
- Signed and certified by a CA or Cost Accountant
- Can be based on full audit or limited review, with observations
Due Date: The due date for filing GSTR-9C is 31st December following the end of the relevant financial year.
Late Fees: Late fee of Rs. 200 per day (Rs. 100 each for CGST and SGST) up to a maximum of 0.5% of the taxpayer's turnover in the relevant state or union territory.
Income Tax Compliance
Income tax is a direct tax levied on the income earned by individuals, businesses, and other entities within a specific jurisdiction, typically by the government. It is one of the primary sources of revenue for the government and is used to fund various public expenditures, including infrastructure development, social welfare programs, defense, and other essential services.
There are seven types of ITR, but for a Sole Proprietorship, only four ITRs are applicable: ITR-1, ITR-2, ITR-3, and ITR-4. The applicable form depends on the nature of the income.
Nature of Income vs Applicable ITR Form
| Nature of Income | ITR Form |
|---|---|
| Business or profession income | ITR-3 |
| Business income opting for presumptive taxation (under Sec 44AD, 44ADA, 44AE) | ITR-4 (Sugam) |
| No business income (only salary, house property, etc.) | ITR-1 or ITR-2 (not applicable for business) |
ITR-1
ITR-1 is used by resident individuals (not HUFs or companies) having income up to ₹50 lakh from: Salary/Pension, One house property, other sources (interest, dividend, etc.) and Agricultural income (up to ₹5,000).
Due Date:- If Tax Audit NOT Required: 31st July
- If Tax Audit IS Required: 31st October
| Total Income | Date of Filing | Late Fee |
|---|---|---|
| Up to ₹5 lakh | After due date | ₹1,000 |
| More than ₹5 lakh | After due date | ₹5,000 |
ITR-2
ITR-2 is used by individuals and Hindu Undivided Families (HUFs) who do NOT have income from business or profession. You should file ITR-2 if you have:
- Salary / Pension income
- Income from more than one house property
- Capital gains (e.g., sale of property, shares, mutual funds)
- Foreign income or foreign assets
- Dividend income
- Agricultural income exceeding ₹5,000
- Income from a partnership firm (other than business income)
- You're a director in a company or hold unlisted equity shares
- If Tax Audit NOT Required: 31st July
- If Tax Audit IS Required: 31st October
| Total Income | Date of Filing | Late Fee |
|---|---|---|
| Up to ₹5 lakh | After due date | ₹1,000 |
| More than ₹5 lakh | After due date | ₹5,000 |
ITR-3
ITR-3 is meant for individuals and HUFs having income from business or profession, not opting for presumptive taxation. It is applicable if you have:
- Income from business or profession (proprietorship, freelancing, consulting, etc.)
- Audit or non-audit business income
- Income from partnership firm (interest/salary, not share of profit)
- Salary/pension, house property, capital gains, or other sources along with business income
- You’re a Director in a company or hold unlisted shares
- If Tax Audit NOT Required: 31st July
- If Tax Audit IS Required: 31st October
- If there is transfer pricing (International Transaction): 30th November
| Total Income | Date of Filing | Late Fee |
|---|---|---|
| Up to ₹5 lakh | After due date | ₹1,000 |
| More than ₹5 lakh | After due date | ₹5,000 |
ITR-4
ITR-4 is for individuals, HUFs, and firms (other than LLPs) who opt for the Presumptive Taxation Scheme under section 44AD, 44ADA and 44AE – Transporters (owning up to 10 goods vehicles). This ITR is applicable if the assessee has:
- Income from business or profession under presumptive taxation
- Total income does not exceed ₹50 lakh
- One house property, interest income, etc.
Late Fees (Section 234F):
| Total Income | Date of Filing | Late Fee |
|---|---|---|
| Up to ₹5 lakh | After due date | ₹1,000 |
| More than ₹5 lakh | After due date | ₹5,000 |
TDS Compliance
A sole proprietorship is treated as an individual under the Income Tax Act. However, TDS (Tax Deducted at Source) obligations may still apply if the proprietor meets certain turnover limits or makes specific types of payments.
TDS provisions apply to a sole proprietor only if the turnover in the preceding financial year exceeds:
- Rs. 1 crore (for business)
- Rs. 50 lakhs (for profession)
If turnover exceeds the above limits, the sole proprietor must deduct TDS on specified payments such as:
- Rent
- Contractor payments
- Commissions
- Professional fees
- Other specified categories under Income Tax Act
TDS Returns
| Form | Purpose |
|---|---|
| Form 24Q | Filed for TDS deducted on salaries |
| Form 26Q | Filed for TDS deducted on all payments other than salaries |
| Form 27Q | Used for TDS deducted on payments made to non-residents (other than salary) |
| Form 27EQ | Filed for TCS (Tax Collected at Source) |
TDS Due Dates
TDS Deduction Due Date: Tax must be deducted at the time of making specified payments or credit to the payee’s account, whichever is earlier.
TDS Deposit Due Date: The deducted tax must be deposited by the 7th of the following month. For deductions in March, the due date is typically April 30th.
TDS Return Due Dates: Quarterly TDS returns must be filed on the following dates:
| Quarter | Months | Due Date |
|---|---|---|
| Q1 | April - June | July 31 |
| Q2 | July - September | October 31 |
| Q3 | October - December | January 31 |
| Q4 | January - March | May 31 |
Late Fees
- If a deductor fails to file the TDS return within the due date, they are liable to pay a late filing fee.
- Under Section 234E, the late fee is ₹200 per day for each day of default starting from the next day after the due date until the actual date of filing.
- The late fee cannot exceed the total amount of TDS deducted or ₹5,000, whichever is lower — This means that even if the delay is substantial, the late fee cannot exceed ₹5,000.
ESIC / EPFO Compliance
What is ESIC?
ESIC stands for the Employees State Insurance Corporation, which is a social security organization in India established under the Employees State Insurance Act, 1948. ESIC provides a range of benefits to employees, including medical, cash, maternity, disability, and dependent benefits, to ensure their welfare and protect them against unforeseen contingencies such as sickness, maternity, temporary or permanent disablement, and death due to employment injury.
What is EPFO?
EPF stands for Employees Provident Fund, which is a social security and retirement savings scheme in India. It is regulated and managed by the Employees Provident Fund Organization (EPFO), a statutory body under the Ministry of Labor and Employment, Government of India. EPF is a compulsory savings scheme for employees in certain sectors and industries.
ESIC Compliances
Applicability: A sole proprietor must register under ESIC if:
- The establishment is a factory or shop, and
- Employs 10 or more employees (in some states 20)
- At least one employee draws a gross monthly wage ≤ ₹21,000 (₹25,000 for employees with disabilities)
Contribution
| Contributor | Percentage of Gross Wages |
|---|---|
| Employer | 3.25% |
| Employee | 0.75% |
Due Dates
- Contribution: The employer must deposit ESIC contribution monthly, usually by the 15th of the following month.
- Returns:
- For April to September – On or before November 12th of the same financial year.
- For October to March – On or before May 12th of the subsequent financial year.
What if Sole Proprietor Fails to File ESIC Returns on Time?
- 12% per annum simple interest on delayed contributions.
- Penalty up to ₹5,000 for:
- Late return filing
- Late payment
- Non-filing of returns
- Legal proceedings by ESIC which may include:
- Fines
- Imprisonment up to 2 years (especially for willful default or fraud)
EPFO Compliances
Applicability: If a Private Limited Company employs 20 or more employees (contractual, temporary, or permanent) on any day during the preceding 12 months, it becomes eligible for EPFO registration.
Contributions
| Contributor | Contribution Rate |
|---|---|
| Employer | 12% of Basic Wages + DA |
| Employee | 12% of Basic Wages + DA |
Due Dates
- Contribution: Monthly, on or before the 15th of the following month.
- Return Filing: Also due on or before the 15th of the following month.
What if Sole Proprietor Fails to File EPFO Returns on Time?
- Late Filing Fees: Penalties apply as per the Employees Provident Fund and Miscellaneous Provisions Act, 1952.
- Interest Charges: Additional interest may be levied on outstanding contributions.
- Legal Consequences: Non-compliance can result in legal notices, inspections, and enforcement actions by EPFO.
- Accumulation of Dues: Delay may lead to accumulating liabilities including contributions, interest, and penalties.
ACCOUNTING
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business or organization. It involves systematically Recording financial data to produce financial statements and reports that provide Insights into the financial health and performance of the entity. Private Limited Companies are required to maintain proper books of accounts, including records of all transactions, assets, liabilities, income, and expenses. The books of accounts should be kept at the registered office of the company and should provide a true and fair view of the company's financial position.
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