Expert Assistance

PROPRIETORSHIP COMPLIANCE

A Proprietorship, or Sole Proprietorship, is the simplest business structure in India, operated by a single individual who is personally liable for all business debts. Unlike companies or LLPs, there's no specific act for its formation, and its existence is tied to the owner and the commencement of business activities.

Here's a detailed breakdown of the compliance procedures for a proprietorship in India:

I. Initial Setup & Registrations (One-Time)

The "registration" of a proprietorship firm is more about obtaining necessary operational licenses and tax registrations rather than a single incorporation process.

1. PAN Card:

   • Procedure: The proprietor's personal PAN is used for the business. If the individual doesn't have one, they must apply for it through the Income Tax Department's website or an authorized agency.

   • Importance: Essential for all tax-related filings and opening a business bank account.

2. Aadhaar Card:

   • Procedure: Ensure the proprietor has an Aadhaar card. It's crucial for various online government registrations and linking with PAN.

   • Importance: Used for identity verification in Udyam Registration, GST, and bank account opening.

3. Business Bank Account:

   • Procedure: Open a current account in the name of the proprietorship firm (e.g., "XYZ Enterprises - Proprietor: [Your Name]").

   • Documents Required: PAN card, Aadhaar card, and at least one business proof (e.g., Udyam Registration, Shop & Establishment Certificate, GST Certificate). Some banks might ask for additional documents like ITR4, Professional Tax Certificate, or a CA certificate.

   • Importance: Separates business finances from personal finances for better accounting and transparency.

4. Udyam Registration (MSME Registration):

   • Procedure: Apply online at udyamregistration.gov.in. It's a self-declaration, paperless process. You'll need the proprietor's Aadhaar and PAN.

   • Importance: Provides recognition as a Micro, Small, or Medium Enterprise (MSME), offering access to government schemes, subsidies, priority sector lending, and protection against delayed payments. There is no fee for Udyam Registration.

5. Shop and Establishment Act Registration (If Applicable):

   • Procedure: This is a state-specific registration. For Chennai, it's obtained from the local municipal authority (e.g., Greater Chennai Corporation) or Labour Department. The application is typically online.

   • Documents Required: Proprietor's ID and address proof, business address proof (rent agreement, electricity bill, etc.), business name, nature of business, number of employees, etc.

   • Importance: Legally allows commercial establishments to operate, regulating working hours, holidays, wages, etc.

6. GST Registration (If Applicable):

   • Procedure: Online application on the GST Portal (www.gst.gov.in).

     • Part A: Fill PAN, mobile number, and email, verify with OTP.

     • Part B: Provide detailed business information (trade name, constitution, address), upload scanned documents.

     • Submission: Submit with DSC (Digital Signature Certificate) or EVC (Electronic Verification Code).

     • ARN: An Application Reference Number (ARN) is generated for tracking.

     • Verification: GST officer reviews; resolve any discrepancies.

     • GSTIN: Once approved, GSTIN is issued.

   • Threshold Limits (Mandatory if exceeded):

     • Goods: Aggregate annual turnover exceeding INR 40 Lakhs (INR 20 Lakhs for special category states like Northeastern states).

     • Services: Aggregate annual turnover exceeding INR 20 Lakhs (INR 10 Lakhs for special category states).

   • Other Mandatory Cases (Irrespective of Turnover):

     • Inter-state supply of goods.

     • E-commerce operators/sellers (even if turnover is below the threshold).

     • Casual taxable persons.

     • Input Service Distributors (ISD).

     • Persons liable to pay tax under Reverse Charge Mechanism (RCM).

   • Benefits: Allows for collection of GST, claiming Input Tax Credit (ITC) on purchases, and participation in the formal GST supply chain.

7. Professional Tax Registration (If Applicable):

   • Procedure: This is a state-level tax. In Tamil Nadu (including Chennai), professional tax is levied on individuals earning income from profession or employment.

     • PTEC (Professional Tax Enrollment Certificate): For self-employed individuals (proprietors).

     • PTRC (Professional Tax Registration Certificate): For employers (if the proprietorship has employees).

     • Online Application: Visit the Greater Chennai Corporation official website for online registration and payment.

   • Documents Required: PAN, Aadhaar, business address proof, bank account details.

   • Importance: Mandatory compliance for businesses in states where professional tax is applicable.

8. Import Export Code (IEC) (If Applicable):

   • Procedure: Apply online with the Directorate General of Foreign Trade (DGFT).

   • Documents Required: PAN, bank account details, address proof.

   • Importance: Mandatory for businesses involved in importing or exporting goods or services.

II. Recurring Annual Compliances

These are ongoing requirements that must be fulfilled every financial year (April 1st to March 31st).

1. Income Tax Filing (ITR-3):

   • Procedure: The proprietor's business income and expenses are reported in their personal Income Tax Return (ITR).

   • Form: ITR-3 is typically used by individuals having income from business or profession.

   • Due Dates (for FY 2024-25, Assessment Year 2025-26):

     • July 31, 2025: For proprietors whose accounts are not subject to tax audit.

     • October 31, 2025: For proprietors whose accounts are subject to tax audit.

   • Tax Audit (Section 44AB): A tax audit by a Chartered Accountant is mandatory for proprietorships if:

     • Business Turnover/Gross Receipts: Exceeds INR 1 crore in a financial year. This limit is increased to INR 10 crore if cash receipts and payments during the year do not exceed 5% of the total receipts and payments respectively.

     • Professional Gross Receipts: Exceeds INR 50 lakhs in a financial year.

     • Presumptive Taxation Scheme (Section 44AD/44ADA): If the proprietor opts for presumptive taxation but declares profits lower than the prescribed percentage (8% for business, 6% for digital business turnover; 50% for specified professions) and their total income exceeds the basic exemption limit.

   • Penalty for Late Filing: Up to INR 5,000 under Section 234F.

2. GST Return Filing (If Registered for GST):

   • Procedure: File returns online on the GST Portal.

   • Forms & Frequency:

     • GSTR-1 (Outward Supplies/Sales):

       • Monthly: By the 11th of the succeeding month (mandatory if turnover > INR 5 crore or opted for monthly filing).

       • Quarterly (QRMP Scheme): By the 13th of the month succeeding the quarter.

     • GSTR-3B (Summary Return for Tax Liability and ITC):

       • Monthly: By the 20th of the succeeding month.

       • Quarterly (QRMP Scheme): By the 22nd or 24th of the month succeeding the quarter (staggered dates based on state).

     • GSTR-9 (Annual Return): By December 31st of the succeeding financial year (optional for turnover up to INR 2 crore).

   • Importance: Essential for GST compliance, accurate tax calculation, and claiming Input Tax Credit.

   • Penalty for Late Filing: Late fees and interest (INR 20-50 per day for returns, 18% p.a. interest on tax payable).

3. TDS/TCS Compliance (If Applicable):

   • Procedure: If the proprietorship makes payments subject to TDS (e.g., salaries, professional fees, rent, contract payments exceeding specified limits) or collects TCS, it must deduct/collect tax, deposit it with the government, and file quarterly TDS/TCS returns.

   • Due Dates: Quarterly returns (e.g., Form 24Q, 26Q, 27EQ) usually by 31st July, 31st October, 31st January, 31st May. Tax payment is generally monthly by the 7th.

4. Professional Tax Payments & Returns (If Applicable):

   • Procedure: As per Tamil Nadu rules, professional tax is usually paid half-yearly.

     • Payment Due Dates: For individuals and firms, generally by April 1st and October 1st for the respective half-years.

     • Return Filing: Typically, returns are filed along with payments, as specified by the local municipal corporation or state's professional tax department.

5. Maintenance of Books of Accounts:

   • Requirement: The Income Tax Act mandates maintenance of proper books of accounts if gross receipts or income exceed specified limits (e.g., for professionals, if gross receipts exceed INR 10 lakh or income exceeds INR 1.2 lakh in any of the three preceding years; for businesses, if turnover exceeds INR 25 lakh or income exceeds INR 2.5 lakh in any of the three preceding years).

   • Records: Cash book, ledger, journal, copies of invoices, bills, receipts, etc.

III. Event-Based Compliances

These are triggered by specific changes or activities:

• Changes in Business Details: Update changes (e.g., business address, contact information) with all relevant authorities (GST, Udyam, bank, Shop & Establishment).

• Closure/Discontinuation of Business: If the proprietorship ceases operations, it must formally cancel its GST registration (if applicable) and inform other registered authorities. The final income tax return covering the period of operation must be filed.

• E-way Bills (If Applicable): Mandatory for the movement of goods exceeding INR 50,000 in value (for inter-state movement, and specific thresholds for intra-state movement in Tamil Nadu).

• E-invoicing (If Applicable): Mandatory for B2B and export transactions if the proprietorship's aggregate turnover exceeds INR 5 crore in any preceding financial year from 2017-18 onwards.

General Procedure for Online Filings

Most tax and regulatory compliances in India are now online:

1. Access Portals: Visit the respective government portals (e.g., Income Tax e-filing portal, GST Portal, Udyam Registration portal, state's Professional Tax/Shop & Establishment portal).

2. Login/Register: Use your credentials to log in or register if you're a new user.

3. Select Form/Service: Navigate to the relevant form or service (e.g., ITR-3, GSTR-1, Udyam Registration).

4. Fill Details: Accurately fill in all required information.

5. Upload Documents: Attach scanned copies of supporting documents as specified (usually in PDF format).

6. Review: Carefully review all entered data before submission to avoid errors.

7. Digital Signature/OTP: Authenticate the submission using Aadhaar OTP, EVC (for Income Tax/GST), or DSC (if applicable, though less common for proprietorships unless for GST).

8. Payment (if any): Pay any applicable taxes, late fees, or registration fees online.

9. Acknowledgement: Download and save the acknowledgement receipt (e.g., ITR-V, ARN) for your records.