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Manage Your Accounting & Annual Compliances For Proprietorships

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Proprietorship firms file the Proprietor income tax return just like the LLPs and the Companies registered in India. In the legal sense, the proprietorship and the proprietor are considered to be one. Hence, the income tax return filing of the proprietor and the proprietorship are the same.

As a sole proprietorship is not taxed as a different legal entity, the business owners file their business taxes like their individual returns. Like any other individual taxpayer, a proprietorship firm is also entitled to a proprietorship tax deduction as per the prevailing Income tax rules and depending on the slab rates applicable to his income.

Whereas the income tax rates for the registered companies are assessed on flat rates. As the proprietorship firms are small and independent businesses owned by a single person. These unregistered businesses are one of the easiest to manage.

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Checklist for Annual Company Compliance

Is it necessary for Proprietorship Firms to File Income Tax Return?
Under the Income Tax Act, all proprietors below the age of 60 are required to file an Income tax return if the total income is more than Rs. 3 Lakhs.
1. In the case of proprietors over the age of 60 years are required to file income, but below 80 years, then income tax filing is mandatory if the total income exceeds Rs. 3 lakhs.
2. Proprietors over the age of 80 years and above must file the proprietorship tax returns if the income exceeds Rs. 5 lakhs.

If the proprietor files an income tax return before the deadline, losses, if any, in the business would be allowed to be carried forward.
The deduction under sections 10A, 10B, 80-IA, 80-IAB, 80-IB, and 80-IC cannot be permitted unless the proprietorship income tax return has been filed on or before the due date.

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

Particulars Due date
Income tax return filing wherein the audit is not necessary 31st July
Income tax return filing wherein the audit is necessary 31st October

Presumptive Taxation scheme:
A presumptive taxation scheme is a provision within the Income Tax At that provides relief to the small taxpayers. The Government of India aimed at allowing the small businesses to carry on the trade without being burdened by the excessive compliance-related requirements.
Entities enrolled under the presumptive taxation scheme can compute income on an estimated basis under Section 44AD. The presumptive taxation scheme allows the taxpayers to pay tax at a minimum rate. Also, the entities enrolled under the scheme need not maintain books of accounts. A presumptive taxation scheme is an effective medium that taxpayers can use to reduce the compliance-related burden.

Audit of Proprietorship

Depending upon the annual turnover of the proprietorship, an audit is necessary to be carried. Under these three conditions, an audit would be required:

  • If the turnover of the proprietorship firm carrying business is exceeding Rs.1 crore during the financial year.
  • In a professional case, an audit is required if total gross receipts are exceeding Rs—50 lakh.
  • If the proprietorship is under any presumptive tax scheme regardless of the annual turnover, an audit is required.
For the audit to be carried on, the rules are set out under the Income Tax Act, 1961. The audit is to be done by a certified Chartered Accountant. The CA has to ensure that all the books of accounts are correctly maintained and complied with all the compliances.

Documents required for Accounting & Annual Compliances

The documents required will vary depending on the service you require. Our professionals will convey the same to you based on your requirements.

Procedure for Filing Annual Compliance

Proprietorship tax returns are to be filed every year unless there is an exemption. As mentioned before, the proprietor and the proprietorship firms are considered as one single person. Two forms are to be filed depending on the nature of the proprietorship.

  • Form ITR-3
    This form should be used to file Income tax if the proprietorship firm is run by a Hindu Undivided Family (HUF) or by any proprietor.
  • Form ITR-4
    The proprietorship firm uses this form for proprietorship tax filing under a presumptive tax scheme. This is done to reduce the burden of compliance of small businesses.
The business income of the person has been added to the payment of the proprietor himself. This way, the business taxes become the personal taxes of the proprietor. The proprietor is still entitled to all tax deductions offered to individuals or Hindu Undivided Family.

Why for Accounting & Business Compliance

As a benefit of working with industry specialists, our team will keep track of all changes to the various relevant regulations and keep you up to date and compliant. Our accounting and compliance team will collaborate closely with you to identify all needs and ensure that the procedure is completed on time. Our experts will assist you in a broad spectrum of financial services that cover:

  • Basic financial consultation:
    We have expert chartered accountants and financial professionals who offer basic financial consultation that your company needs.
  • Bookkeeping:
    Bookkeeping is a process of recording financial transactions and information on a daily basis. The account bookkeeping services may include payments made to suppliers, loan payments, customer invoice payments, monitoring asset depreciation, and generating financial reports.
  • Preparation of accurate annual financial statements and monthly reports:
    The balance sheet, income statement, and cash flow statement provide information on the company's financial position, including an overview of assets and liabilities, as well as stockholders' equity. It also helps in understanding the company's earnings and expenditures, as well as how the company pays its obligations and meets its operating expenses.
  • Assistance in designing invoices:
    Invoices are records of a company's sales transactions. They include information on the shipment, such as the quantity of items, item descriptions, total sale price and selling price per item, terms of sale, buyer and seller information, amount due, invoice number, payment method, and payment due date. Invoices establish the legal rights, wherein if the customer fails to make the due payment, the company can take it forward legally.
  • Basic taxation advisory:
    Our taxation experts offer the best-in-class tax planning strategies that are suitable for your business structure. We understand the changing tax regimes in India and offer timely information.

FAQs on Manage Your Accounting & Business Compliances

A sole proprietor is required to report all the business income, losses on the personal income tax returns, the business is not taxed separately under this.

Proprietorship annual return filing is done ITR 3 and ITR 4.

ITR 3 is furnished in case if the proprietorship firm is run by a Hindu Undivided Family or by an individual.

ITR 4 is furnished by the proprietor under the presumptive taxation scheme.

As the sole proprietorships are not considered tax entities, they are not separate from their owners so the proprietor does not have to face double taxation.

The main tax advantage of a proprietorship is that it can deduct the cost of health insurance for self, spouse, and dependents.

The proprietorships are required to file the annual tax returns with the Income Tax Department. However, the annual reports or the accounts are not necessary to be filed with the Ministry of Corporate affairs which is necessary in the case of the LLPs

In the case of proprietorships tax audit is not necessary, it is completely based on the turnover and other criteria.

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