Which ITR Form is Applicable for a Proprietorship Firm?

The term proprietary firms commonly refers to sole proprietorships, one of the simplest and the most common forms of business entities in India. Although these types of companies do not have a separate legal identity from their owners, they are subject to tax and regulatory requirements at different levels. The most important compliance requirement for a proprietorship firm is filing ITR. Since the business income is treated as personal income, a tax return can be filed under an individual’s name using the relevant ITR form, usually ITR-3 or ITR-4, depending on the type of income and whether presumptive taxation is chosen.

Proprietorships are also, on top of income tax, liable under the Goods and Services Tax (GST). Any turnover that exceeds the prescribed threshold limit will need regular GST returns and tax payments made up to filing the annual GST return. It will also have statutory requirements under maintenance of Provident Fund (PF), Employees State Insurance (ESI), and miscellaneous labor laws if it has employees. Official documents and accurate, timely submissions would ensure the smooth running of the business and avoidance of legal complications. Provision for transparency in compliance also adds credibility with banks, suppliers, and clients.

ITR Forms For Proprietorship Firms

It is important to note that a proprietary firm shall not be considered as a separate legal entity apart from its owner. Therefore, the income tax return (ITR) for a proprietorship is filed in the name of the sole proprietor, using the appropriate individual income tax return forms. The specific ITR form depends on the kind of income earned by the proprietorship and the total income earned.

1. ITR-3 (For Business or Professional Income – Regular Accounting):

• This form applies to the proprietor earning business or profession income and maintaining accounts on a regular basis.
• Income less than the minimum does not qualify for the presumptive taxation scheme.
• This is suitable for business or professionals with a large turnover, so that they need to report detailed expenses.
• They are required to submit a P & L account, balance sheet and other financial statements.

2. ITR-4 (Presumptive Taxation Scheme – Section 44AD, 44ADA, or 44AE):

• This form is for opting for the Presumptive Taxation Scheme for proprietorships.
• Section 44AD is for small businesses whose turnover does not exceed INR 2 crore.
• Section 44ADA applies to those professionals (doctors, architects, etc.) whose gross receipts are not above INR 50 lakh.
• Section 44AE is for commercial transport enterprises which do not operate more than 10 freight vehicles.
• The profits may be taken instead as a certain percentage of sales or receipts, and there is little need of keeping accounts.

Note:

• ITR-1 and ITR-2 will not apply where there is commercial or professional income for a proprietorship.
• Where the turnover exceeds the specified limits currently, i.e., ₹1 crore or ₹10 crore in case of electronic transactions, the proprietorship has to be audited as per the statutory requirements of section 44AB.

The selection of the proper ITR form is to comply with legal requirements for speedy processing of taxes.

Deadlines For ITR Filing

Two taxes filed on time in order to comply with tax regulations against penalties are Income Tax Returns (ITRs) of sole proprietors (proprietary enterprises). There are deadlines for filing since a proprietorship is taxed along with that of the individual owner, depending on many other relevant conditions and type of income, audit requirement, and so forth. Returns submitted on time have direct repercussions on smooth business operations, eligibility for loans and refunds, and rating compliance.

1. Cases where audit is not required (not requiring tax audit)

• In a situation where the sole proprietorship has not been subjected to audit as provided under Section 44AB of the Income Tax Act:
• This deadline is due on 31st July of the Assessment Year (AY), say for FY 2024-25, 31st July 2025.
• This applies where:
• The amount of business turnover across the state does not exceed such limits with regard to the audit i.e. ₹1 crore or ₹2 crore for presumptive taxation.
• Professional income not exceeding ₹50 lakh is presumptively taxed under section 44ADA.

2. Requires audit (tax audit compulsory)

Wherein a sole proprietorship requires a tax audit under Section 44AB:

• Date: June 30th to submit tax audit report: September 30th of Assessment year, e.g., for FY 2024-25, the deadline is September 30, 2025.
• ITR filing: by October 31st of the assessment year (e.g. FY 2024-25, ends on 31st October 2025).
• Turnover exceeding ₹1 crore, cash equivalent transactions over ₹10 crores, or below 6%/8% under presumptive taxation with total income above basic exemption limit mandatorily require an audit for the business. There are three audit triggers.

3. Belated Return / Revised Return

Filing deadline for belated or revised return: 31st December of the Assessment Year.

(For FY 2024–25, date is 31st December 2025)

4. Fresh Return (Section 139(8A))

• In case a return is not filed or an error is made, a fresh return may be filed within 2 years from the close of the respective Assessment Year (with penalty of additional tax).

How To File ITR For Sole Proprietorships?

Sole proprietors report the income earned from business or profession on their individual tax returns under the revenue tax return (ITR). Consumers can efficiently file their returns through the Income Tax e-Filing Portal online. Filing an ITR on time and accurately not only ensures that all the tax laws are complied with, but also reduces the chance of penalties and builds credibility for any business organisation. Should you require assistance, below is the checklist or stepwise infographic with which you can make the process easier.

Step 1: Choose the Relevant ITR Form

Choose the right ITR on the basis of business type and income. ITR-3 is for business or professional income wherein regular books of accounts are kept. ITR-4 is for those maintaining presumptive taxation under Sections 44AD/44ADA/44AE.

Step 2: Keeping Documents Ready

Have all of the undermentioned available and ready: PAN, Aadhaar, and bank account details. Financial statements including profit and loss account, balance sheet; TDS certificates (FORM 16 / 16A); GST returns (if any); documents for tax audit; documents for investment or deductions (Sections 80C, 80D); a copy of last year’s ITR for reference.

Step 3: To access the Income Tax e-Filing Portal go to https://www.incometax.gov.in and click on “Login”. Enter your PAN or Aadhaar number and password.

Step 4: Opt for ‘File Income Tax Return’. Head to ‘e-File’ > Income Tax Return > File Income Tax Return. Mark the Assessment Year. File online or offline through the JSON option. Status: Individual. Choose Form applicable for the ITR (ITR-3 or -4).

Step 5: Fill in the ITR form.

Provide the requested personal details. Specify the nature of business or profession (based on code choice). Income Information: Income from business or profession (books or presumptive basis). Several income sources, an example being interest and rent income. Claim deductions under Chapter VI-A (Sections 80C, 80D, etc.). Enter all the Tax entries. TDS/TCS, Advance Tax paid, and Self-assessment Tax, where applicable. Provide Audit Report (Form No. 3CA/3CB and 3CD), if applicable for audited cases.

Step 6: Validation and Preview Returns

Cross check and verify on all entries. Complete validation of each section of the form. Final Review of Return before Submission.

Step 7: Submit the Return

You will have to click on the ‘Submit’ to submit the return to file your ITR. Upload the JSON file on the portal in the case of an offline utility.

Step 8: Confirm Your Return (E-Verification)

Your return will be valid only when the verification process is completed. You can verify the return using Aadhaar OTP, Net Banking, EVC through your bank account or Demat account; otherwise, you can send the duly signed ITR-V (acknowledgment) to CPC Bengaluru if you are not e-verifying.

Step 9: Download the ITR-V and Keep Records. Download the ITR-V and preserve the acknowledgment for future reference, if any.

How Is Filing ITR Important For Sole Proprietorships?

Filing income tax returns (ITR) is not only a legal necessity but also a prudent consideration for a sole proprietor. Since a sole proprietorship has no independent legal entity, the individual proprietor pays tax on the business income. Despite its pretty straightforward corporate structure, the ITR filing is relevant for compliance, financial planning, credibility, and general success in business. Filing an ITR goes beyond being only an obligation of law; it indicates a well-run business. For a proprietor, adhering to timely filing of ITRs can fetch monetary gains, legislation behest, and promote ethical business growth.

1. Legal Behold and Penalty Avoidance – ITR Filing is a must if the income exceeds the basic exemption limit. Noncompliance may lead to penalty, late fees, and/or interest (Sections 234F, 234A/B/C). Continuous ITR Filing helps keep the businesses up to legal compliance.
2. Income and Financial Documentation – An unpopular view exists that ITR acts as a document of income for businesses other than those registered as such, for sole proprietorships do not possess a separate legal identity for the business. It is required in the process of obtaining business loans, overdrafts, or credit cards. Most of the financial institutions, investors, and banks require ITR support.
3. Carry Forward of Business Losses – The quick filing of the ITR allows a businessperson to carry forward losses or depreciation to the next year and thereby reduce the tax burden in those years. This loss would be forfeited if filing is delayed.
4. Claim for Tax Refunds – Claim for refund in respect of excess TDS or advance tax is only possible after the ITR is filed. The tax refund is never processed without filing ITR.
5. Establish Credibility and Growth Potential – Regular filing of ITR enhances the reputation of the business in the marketplace. It helps to qualify for government tenders, vendor registrations, and corporate contracts that might demand ITR documents from before.
6. Streamlined Visa and Immigration Process – The document ITR is essential to applying for a visa as it shows income and financial stability.
7. Transparency & Tax Planning – Tax return filing leads to transparency in financial records. It promotes tax planning and effective resource allocation. It facilitates an annual review of the business’s performance.
8. Mandatory for Tax Audit and Other Compliance – Tax audit, under Section 44AB, when required, shall include an ITR filing as mandatory, whereas any turnover would exceed the relevant ceiling.

Conclusion

The correct selection of the Income Tax Return (ITR) form is necessary for proper, compliant taxation return in the case of a sole proprietorship. Usually, ITR-3 can be suggested for proprietors dealing in conventional accounts books, while ITR-4 is more applicable to proprietors following the Presumptive Taxation Scheme as detailed in Sections 44AD, 44ADA, or 44AE. The decision to opt for either of these forms is determined by the specific character and magnitude of the business or profession. Filing correct ITR not only complies with the law but also improves the reputation of the business, opens doors to tax benefits, and aids in effective management of finances. Proper and timely filing of returns promotes transparency and sets the business up for long term success.