Sole Proprietorship Tax Planning in India

Sole Proprietorship

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.

Understanding Taxation for a Sole Proprietorship Firm

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.

Income range (in ) Rate of tax (New regime) Rate of tax (Old regime)
0- 2,50,000 NIL NIL
2,50,001- 5,00,000 5% 5%
5,00,001- 7,50,000 10% 20%
7,50,001- 10,00,000 15% 20%
10,00,001- 12,50,000 20% 30%
12,50,001- 15,00,000 25% 30%
Above 15,00,000 30% 30%
  • 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).
Income tax slab Income Tax Rate
Up to ₹ 3,00,000 NIL
₹ 3,00,000 to ₹ 5,00,000 5% of the total income above ₹ 3,00,000.
₹ 5,00,000 to ₹ 10,00,000 ₹ 10,000 + 20% of the total income above ₹ 5,00,000.
Above ₹ 10,00,000 ₹ 1,10,000 + 30% of the total income above ₹ 10,00,000.
  • For a sole proprietorship business, the tax rate is higher if the owner is above 80 years old (i.e. super senior citizen).
Income tax slab Income Tax Rate
Up to ₹ 5,00,000 NIL
₹ 5,00,000 to ₹ 10,00,000 20% of the total income above ₹ 5,00,000.
Above ₹ 10,00,000 ₹ 1,00,000 + 30% of the total income above ₹ 10,00,000
  • Tax rate for a sole proprietorship where the owner is a non-resident person (below slab applies irrespective of the age of the proprietor)
Income tax slab Income Tax Rate
Up to ₹ 2,50,000 NIL
₹ 2,50,000 to ₹ 5,00,000 5% of the total income above ₹ 2, 50,000.
₹ 5,00,000 to ₹ 10,00,000 ₹ 12,500 + 20% of the total income above ₹ 5,00,000.
Above ₹ 10,00,000 ₹ 1,12,500 + 30% of the total income above ₹ 10,00,000.

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.

Particulars Surcharge Rates
Total income above ₹ 50 Lakhs but less than ₹ 1 Crore 10% of the income tax
Total income above ₹ 1 Crore 15% of the income tax

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.

Income Tax Form Description
ITR 3 Applicable to the individuals and HUFs having income from a proprietary business or profession.
ITR 4 Applicable to individual/proprietor carrying out business or profession under presumptive income.

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 

Particulars Due date
Income tax return filing wherein the audit is not necssary 31st July
Income tax return filing wherein the audit is necessary 30th September

Don't forget to share this article :-

Stay Updated With Our Blogs!

Explore more of our blogs to have better clarity and understanding
of the latest corporate & business updates.

Why People Choose Our Services ?

Free Legal Advice

We provide free of cost consultation and legal advice to our clients.

Tech Driven Platform

All our services are online no need you to travel from your place to get our services.

Grow your business

Experts Team

We are a team of more than 15+ professionals with 11 years of experience.

Transparent pricing

There are no hidden & extra charges* other than the quote/invoice we provide.

100 % Client Satisfaction

We aim that all our customers are fully satisfied with our services.

On-Time Delivery

We value your time and we promise all our services are delivered on time.

Why Trust legal Suvidha?

People Who loved our services and what they feel.

In this Journey of the past 10+ years, we had gained the trust of many startups, businesses, and professionals in India and stand with a 4.9/5 rating in google reviews.We register business online and save time & paperwork.

Reno K Subramaniam
Reno K Subramaniam
I have recently registered a Private Limited firm and was looking for a CA to take care of the filings, Startup India Certificate, and other formalities. I have received emails from legal Suvidha and a few others. I tried talking to them all. But, Mr. Mayank from Legal Suvidha was very impressive and was patient enough, prompt to answer all the queries. He has a very professional team and after the initial formalities, I started interacting with the team. It's not even 2 weeks but I really feel overwhelmed by their service and professionalism. I received my startup India certificate yesterday and my filings have been done promptly. The team at legal suvidha Ms. Nidhi, Ms. Priyanka, Ms. Koshika, and Ms. Saloni all show the same professionalism and are readily available to take care of the official filings and stuff. Overall a great experience till now and looking forward to a great journey!
pankaj tiwari
pankaj tiwari
Legal suvidha is a team of genuine and experienced professionals who give you best services according to your profile
Raman Krishnan
Raman Krishnan
Saloni from legalsuvidha has done a excellent job for filling and geting certificate of DPIIT. Thanks to legalsuvidha.
Prakaash Hari
Prakaash Hari
Team Legal Suvidha offers a brilliant service. There communication is quite clear and they execute the job meticulously. We are a startup private limited company and their advice is so critical in making my decision. Well done team. Keep it up. Prakaash Hari, Director, ipixela.
Priyanka Rudra
Priyanka Rudra
Dedicated team and fast response
Dr. Vishal Ghag
Dr. Vishal Ghag
Been using their services since 3 years now and I am absolutely happy with Legal Suvidha. They have been supportive, understanding and highly skilled at helping me with my business needs.

Our Partnerships & Collaborations

Contact us and grow your business

Legal Suvidha App

Now all Professional Services in a Single Click !

Now get all the services required for your business in a single app.

Subscribe to our newsletter & grow your business

Subscribe To Our Newsletter .

Sign up to receive email updates on new product announcements, special promotions, sales & more.