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Sole Proprietorship

Sole Proprietorship

MEANING OF SOLE PROPRIETORSHIP


A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

REGISTRATION

Since the proprietorship is itself not distinguishable from its owner hence there is no registration or approval is required to start a proprietorship business.

  • Registration under Shops and Establishment Act: This is state specific requirement, in some states it is mandatory and in some it is optional, for example in the Rajasthan NCT it is optional.
  • Local Municipality Registration: This kinds of registration is mandated by some of the municipalities and applies to the firms operating in the territorial jurisdiction of the municipality.
  • Sales Tax (VAT) Registration: This is a tax on sale of goods within the state which is governed by the respective vat act of the state.
  • Central Sales Tax Registration : This is a tax on Sale of goods between the states, which is governed by the central sales tax act
  • Service Tax Registration: This is a tax on the services provided by the proprietor apart from the negative list of service.

10% of the Income Tax payable, in case the total taxable income exceeds Rs. 10,000,000. Surcharge shall not exceed the amount of income that exceeds Rs. 10,000,000.

ADVANTAGE

  • Full ownership and control.
  • Less capital involved.
  • Profits are not to be distributed.
  • Ease of formation.
  • Complete control over all the aspects of  business.
  • Strong Interpersonal relationships with clients, customers and employees.

DISADVANTAGE

  • Owner alone bears the losses.
  • limited availability of funds.
  • Unlimited liability of owner.

Taxation of Proprietorship

Assessment Year 2015-16, Relevant to Financial Year 2014-15 

For Individuals below 60 years age (including Woman Assessees):

 
Income
Tax Rate
Upto 250,000
Nil
250,000 to 500,000
10% of the amount exceeding 250,000
500,000 to 1,000,000
Rs.25,000 + 20% of the amount exceeding 500,000
1,000,000 & above
Rs.125,000 + 30% of the amount exceeding 1,000,000
 

For Individuals aged 60 years and above but below 80 years (Senior Citizen):
 
Income
Tax Rate
Upto 300,000
Nil
300,000 to 500,000
10% of the amount exceeding 300,000
500,000 to 1,000,000
Rs.20,000 + 20% of the amount exceeding 500,000
1,000,000 & above
Rs.120,000 + 30% of the amount exceeding 1,000,000
 

For Individuals aged 80 years and above (Very Senior Citizen):
 
Income
Tax Rate
Upto 500,000
Nil
500,000 to 1,000,000
20% of the amount exceeding 500,000
1,000,000 & above
Rs.100,000 + 30% of the amount exceeding 1,000,000
 

Tax Credit: Finance Bill 2014 is silent on the Section 87A, which was introduced by Finance Bill 2013 with effect from AY 2014-15 and provides a rebate of Rs. 2,000 for every person whose income doesn’t exceed Rs. 500,000. Hence this provision continues for AY 2015-16 as well.
 

Surcharge on Income Tax: 10% of the Income Tax payable, in case the total taxable income exceeds Rs.10,000,000. Surcharge shall not exceed the amount of income that exceeds Rs.10,000,000.


Education Cess: 3% of Income Tax plus Surcharge