Sole Proprietorship Tax Planning in India

Sole Proprietorship firm, also known as a sole trader, proprietorship or individual entrepreneurship’. It is a type of business/enterprise/firm that is owned by a single person leaving no distinction between the owner and the business entity.

What is tax deduction For Sole Proprietorship In India?

1. If you have investments in any of the investment instruments listed in Sections 80c, 80ccc, and 80ccd, such as PPF accounts, National Savings Certificates, life insurance policies, pension plans, and so forth, you may be able to save on taxes.
2. If you spent money on health insurance for yourself or a family member, you may be able to deduct the expense from your taxes under Sections 80D, 80DD, and 80DDB.
3. House loan deduction – If you’ve taken out a mortgage, you can claim a tax deduction for principal repayment. You may also claim a tax deduction under section-80c for the interest paid on a house loan under section 24 as well as for the repayment of a home loan.
4. Conserve Tax With Student Loans – If someone has taken out a student loan for themselves, their children, or another relative, they may be eligible for a tax deduction under section 8E. Unfortunately, the deduction is only permitted for interest payments, not for principle.
5.  The Rajiv Gandhi Equity Savings Plan allows individuals with annual incomes of less than RS 12 lakh to deduct their investments in certain companies’ and mutual funds’ shares under section 80CCG.
6. Long-Term Capital Gains – If a person receives any long-term capital gain as a result of selling real estate that was held as a long-term capital asset, he may claim an exemption from paying capital gain tax provided he invests the amount of the gain in one of several approved investment vehicles. Every asset that the citizen has owned for longer than two years is regarded as a long-term capital asset. This exemption is seen as being incredibly helpful when performing tax planning to reduce a taxpayer’s wage expense.
7. If someone donates money to a charity, a social cause, or the National Relief Fund, they may be eligible for a deduction under section 80G of the Income Tax Act.
8. Income from non-taxable sources: You can save tax if your income comes from sources that are not taxable, such as receipts from Hindu Undivided Families, shares from a partnership firm, allowances for international services, income from gratuities, etc.

The sole proprietorship business’s income tax rate is the same as the personal income tax rate. A new tax system was announced in Budget 2020, and starting in the fiscal years 2020–21, people will have the option of paying taxes according to the new slabs, subject to certain restrictions.

• The following provides details on a different choice of income tax rates that would apply to a sole proprietorship firm for the fiscal year 2020–21 (assessment year 2021–2022).
• tax slab for sole proprietorship businesses if the owner was older than 60 but younger than 80 at any point in the preceding year (i.e. senior citizen).

• For a sole proprietorship business, the tax rate is higher if the owner is above 80 years old (i.e. super senior citizen).

• Tax rate for a sole proprietorship where the owner is a non-resident person (below slab applies irrespective of the age of the proprietor)

Surcharge-In addition to the income tax determined using the previously mentioned income tax rate, there is also a surcharge that must be paid. Below is a breakdown of the applicable surcharge for the financial year 2020–21.

Health & Education Cess-Calculating the health and education levy requires adding the income tax and surcharge together. A surcharge and a health and education cess of 4% on income tax are due.

Rebate (Under Section 87A)-The tax credit provided by section 87A of the Income Tax Act of 1961 has recently been enhanced or amended. The maximum tax rebate allowed under section 87A for the Financial Year 2020–21 is Rs. 12,500.

Only residents who earn a net taxable income of up to 5 Lakhs are eligible for a tax relief. Before applying the “Surcharge” and the “Health and Education Cess,” the tax rebate is applied to the total tax.

Income Tax return filing

In the context of a sole proprietorship firm, tax audits are applicable in the following situations:

If the single proprietorship firm’s total gross receipts, sales, or turnover exceeds 1 Crore; or if the total gross receipts of the sole proprietorship firm’s active profession exceed 50 Lakhs.

Tax audit applicability for sole proprietorship firm

In the case of a sole proprietorship firm, the following situations apply to tax audits: If the sole proprietorship business’s overall sales, turnover, or gross receipts reach $1,000,000; or if the total gross receipts of the sole proprietorship business’s overall profession exceed $50,000.

Due date of filing of an income tax return for sole proprietorship