Many business owners think that because a proprietorship isn’t a separate legal entity, they don’t need to file returns or maintain records. This is a common mistake. Every proprietor must fulfil annual tax, accounting, and legal responsibilities, such as filing income tax returns, keeping records, and renewing licenses.
Annual compliance ensures transparency, avoids penalties, and builds a trustworthy financial image. For a detailed explanation of all requirements, visit the Sole Proprietorship Compliance Guide.
Filing Income Tax Returns
Every proprietor must file an income tax return each year.
Which form to use:
- ITR-3: For proprietors having income from business or profession.
- ITR-4 (Sugam): For small businesses opting for presumptive taxation under sections 44AD, 44ADA, or 44AE.
Due Dates:
- 31st July – if audit is not required.
- 31st October – if your accounts are subject to audit.
Filing your ITR on time helps maintain credibility and is often required for loans, tenders, and government registrations.
Tax Audit (If Applicable)
If your total turnover in a financial year exceeds ₹ one crore (or ₹10 crore in certain digital cases), a tax audit becomes mandatory under Section 44AB of the Income Tax Act.
A Chartered Accountant (CA) must verify your financial records and file the Tax Audit Report (Form 3CA/3CB and 3CD). The last date for submitting the report is 30th September of the assessment year.
Getting your accounts audited also helps identify financial irregularities and strengthens your financial discipline.
GST Return Filing
If your business is registered under GST, you must file regular GST returns.
Monthly or Quarterly Returns:
- GSTR-1: For outward supplies (sales).
- GSTR-3B: Summary of sales and input tax credit.
Annual Return: GSTR-9 is mandatory for businesses with a turnover exceeding ₹2 crore.
Due Dates: Monthly or quarterly, depending on turnover. GSTR-9 must be filed by 31st December of the following financial year.
Late filing attracts interest, late fees, and even cancellation of GST registration, so timely filing is critical.
TDS (Tax Deducted at Source)
If your proprietorship is required to deduct TDS—for example, on salary payments, rent, or professional fees—you must:
- Deposit TDS to the government every month.
- File TDS returns quarterly (Form 24Q or 26Q).
- Issue TDS certificates (Form 16 or 16A) to those from whom tax has been deducted.
Maintaining proper TDS compliance helps avoid penalties and interest charges.
Bookkeeping and Accounting
Even in a small proprietorship, maintaining proper books of accounts is crucial. You should maintain:
- Sales and purchase registers
- Cash book and ledger
- Expense details and vouchers
- Bank statements and reconciliations
Accurate accounting ensures smooth ITR filing, easy audits, and better decision-making for business growth. It also reflects professionalism and financial transparency.
License Renewals
Depending on your business nature, you may need to renew licenses every year. Common examples include:
- Shop and Establishment Act License
- Trade License
- FSSAI License (for food-related businesses)
Renewing licenses ensures your business operates legally and without interruptions.
Professional Tax
Some Indian states levy Professional Tax on proprietors and their employees. This must be paid annually or semi-annually as per the respective state government’s rules. Failing to pay professional tax on time can lead to fines or penalties.
Benefits of Staying Compliant
Timely filings protect your business from late fees and legal action. Compliance builds trust among clients, banks, and vendors. Financial institutions often check ITR and audit reports before approving loans. Regular compliance ensures that all registrations, such as GST and licenses, remain active. Organised records also help in business expansion, valuation, and partnerships.
Penalties for Non-Compliance
Failure to comply with mandatory requirements can lead to late filing fees of up to ₹5,000 under the Income Tax Act, interest and penalties under GST and TDS provisions, cancellation or suspension of GST registration, and issuance of legal notices during audits. Therefore, it’s always advisable to consult a professional or a CA to ensure timely compliance.
Final Thoughts
While a proprietorship is easy to start, it requires regular attention to legal and tax compliance. Following the necessary steps—such as filing ITRs, maintaining books of accounts, submitting GST and TDS returns, and renewing licenses—keeps your business legally sound and well-trusted in the market.