Audit of Proprietorship

Proprietorship audit

There are three different circumstances in which a proprietorship may need to be audited depending on its annual turnover:

  • When the total receipts of a professional proprietorship exceed Rs 50 lakh during the year of assessment, an audit is required. In the case of a proprietorship firm conducting business, the turnover is over Rs 1 crore during the year of assessment.
  • An audit is required for proprietorships that are subject to presumptive tax schemes, regardless of their annual turnover.

Under the Income Tax Act, 1961, the rules must be followed for an audit. An audit of the proprietorship firm must be performed by a certified Chartered Accountant according to that Act. In addition to maintaining all the books of accounts properly, the CA must make sure that the proprietorship firm has followed all the compliance requirements.

The Proprietorship Tax Return: How Do I File It?

As previously mentioned, proprietorships are required to file their income tax returns every year, unless they are exempted from doing so. The proprietorship’s income tax is the proprietor’s tax. The proprietorship tax return may be filed physically or electronically by using the proprietor’s electronic signature. Depending on the nature of the proprietorship tax return filing, two different forms must be filed:

  • Form ITR-3: Ownerships run by Hindu undivided families or other proprietorships must file this form to pay income taxes.
  • Form ITR-4 Sugam: This form is used by proprietorships that are subject to presumptive tax schemes, so it is different from the previous form. In this way, small businesses will be relieved from the burden of complying with regulations. A proprietorship pays the same income tax as the proprietor himself, meaning, what the proprietor earns through the business must be added to the proprietor’s personal income. The proprietor’s business taxes are therefore his or her personal taxes. In either case, he is still entitled to all tax deductions that are available to individuals or Hindu Undivided Families (HUFs).

Here is a step-by-step guide that will help you file your income tax return for a sole proprietorship electronically

  • In order to pay taxes, you need a Permanent Account Number (PAN). A PAN is a card issued by the Income Tax Department to every taxpayer.
  • Because proprietorships don’t have separate legal entities, the PAN of the owner must be used to pay income taxes and file returns.
  • The e-filing portal requires that you register yourself; if you have already registered, use your PAN to log in.
  • Select ‘Income Tax Return’ from the e-filing menu.
  • You must select the following options on this page– Assessment year – ITR form – Filing type (original/revised) – Prepare and submit in submission mode
  • Once you have selected continue, you will be taken to a new page where you must enter all the information requested.
  • In some cases, the details to be filled out will be mandatory, and in others, they will be dependent on their applicability.
  • When all the relevant information is completed, you have to choose a verification method. E-filing has two methods, and physical filing has one: – Select e-verify, which will verify the filing immediately – E-verify later within 120 days, giving you time to update any required information within 120 days – If you don’t wish to e-verify, you can proceed manually.
  • You can preview the return before you submit it to make sure there are no errors before you submit it.
  • When you submit a filing using the e-verify option, you will have the option to verify it either by using an OTP or using an EVC. You will need to enter the OTP/EVC within 60 seconds in order to confirm the submission.


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