Proprietorship Compliance Guide (Accounting, Auditing & Tax Requirements)

Governing Acts and Rules

Proprietorships in India are governed by various laws, including:

• Income Tax Act, 1961: For income tax and TDS compliance.
• Goods and Services Tax Act, 2017: For businesses registered under GST.
• Shop and Establishment Act (State-Specific): If the proprietor has a physical business location.
• Professional Tax Act (if applicable in specific states): If the proprietor has employees.

Key Compliance Requirements for Proprietorships

Income Tax Compliance

Income Tax Return Filing

• Proprietors must file income tax returns annually under ITR-3 or ITR-4 (for presumptive income under Section 44AD).
• Filing Deadline: July 31 each year, if unaudited. Audited proprietorships must file by October 31.

Advance Tax Payment

Advance tax is payable quarterly if the tax liability exceeds ₹10,000 in a financial year. Proprietors must calculate and pay advance tax by the due dates:

• June 15: 15% of total tax liability
• September 15: 45% of total tax liability
• December 15: 75% of total tax liability
• March 15: 100% of total tax liability

Tax Audit (if applicable)

• Proprietorships with turnover exceeding ₹1 crore (or ₹2 crore under presumptive taxation) must undergo a tax audit as per Section 44AB.
• Deadline: October 31 each year.

GST Compliance (if applicable)

GST Registration

• Proprietorships with annual turnover exceeding ₹20 lakh (₹10 lakh in some special category states) must register under GST.
• Businesses involved in interstate trade or e-commerce are also required to register regardless of turnover.

GST Return Filing

Proprietors registered under GST must file monthly or quarterly GST returns:

• GSTR-1 (monthly/quarterly for outward supplies)
• GSTR-3B (monthly/quarterly for summary return)
• GSTR-9 (annual return, if applicable)

GST Payments

• GST payments must be made based on sales, purchases, and Input Tax Credit (ITC) eligibility.
• YathraFin offers full GST support, helping proprietors with accurate filing and ITC management.

Other Compliance Requirements

Professional Tax (PT)

• Professional Tax, if applicable in the state, must be paid by proprietors with employees.
• PT rates and filing requirements vary across states like Maharashtra, Karnataka, and West Bengal.

Shop and Establishment License

• Proprietors with a physical business location may need to register under the Shop and Establishment Act of their state.
• Renewal and filing requirements vary by state.

Bookkeeping and Financial Records

Even though there’s no mandatory format for proprietorships, proprietors should maintain proper books of accounts, including:

• Sales and purchase records
• Expense records
• Cash and bank statements

TDS Deduction and Filing

• Proprietors deducting TDS (Tax Deducted at Source) for salaries, contractor payments, or rent must file quarterly TDS returns.

Financial Records to Maintain for Proprietorships

Books of Accounts

• Proprietors must maintain accurate books reflecting all income, expenses, assets, and liabilities.
• Balance Sheet and Profit & Loss Account help assess financial health and support tax filings.

Invoice Records

• GST-compliant invoices should be kept for audit purposes and monthly/quarterly GST filings.

Expense Vouchers

• Maintaining detailed expense records and vouchers helps in calculating tax-deductible expenses accurately.

Employee Payroll Records (if applicable)

• If the proprietor has employees, maintaining payroll records is essential for TDS, Provident Fund (PF), and PT compliance.

Auditing Requirements for Proprietorships

• Tax Audit: A tax audit is mandatory if:
  • Turnover exceeds ₹1 crore.
  • Income is filed under presumptive taxation, and the turnover is above ₹2 crore.
• GST Audit: Mandatory if turnover exceeds ₹2 crore annually under GST.

Timelines and Penalties

• Income Tax Return: Due by July 31 (non-audited) and October 31 (audited).
  • Late filing may lead to penalties up to ₹10,000 and interest under Section 234A for delayed payments.
• GST Compliance: Monthly or quarterly filing is required.
  • Late filing incurs a late fee of ₹50 per day (₹25 CGST + ₹25 SGST), with an upper cap.
• Advance Tax: Missing the due dates can lead to interest penalties under Section 234B and 234C.

Timely filing and payment ensure smooth business operations and avoid unnecessary penalties.

Benefits of Compliance for Proprietorships with YathraFin

• Hassle-Free Compliance: YathraFin provides a one-stop solution for all tax and GST compliance needs.
• Risk-Free Operations: Proper tax planning and filings reduce legal risks and enhance business reputation.
• Efficient Bookkeeping: Expert bookkeeping services help proprietors stay financially organized.