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Sole Proprietorship / Sole Trader

This is the simplest form of business entity. With a sole proprietorship, one person is responsible for all a company's profits and debts.

Proprietorship costs vary, depending on which market your business is part of. Generally, your early expenses will consist of state and central taxes, equipment needs, office space, banking fees, and any professional services your business decides to contract.

Advantages

Advantages of this business structure

  1. Easy setup: A sole proprietorship is the simplest legal structure to set up.

  2. Low Cost: Costs vary depending on which state you live in, but, generally, the only fees associated with a proprietorship are license fees and business taxes.

  3. Tax Deduction: Since you and your business are a single entity, you may be eligible for certain business tax deductions, such as a health insurance deduction.

  4. Easy Exit: Forming a proprietorship is easy and so is exiting one, As a single owner, you can dissolve your business at any time with no formal paperwork required.

Taxation

Tax Rates and Reliefs

Tax Rates and Reliefs:​

  1. The maximum amount which is not chargeable to Income Tax 

    • For resident senior citizens aged at least 60 years but less than 80 years is Rs 3,00,000/-

    • For resident senior citizens aging 80 years and above is Rs 5,00,000/-

    • For other individuals Rs 2,50,000/-

  2. Rebate of maximum Rs 12,500 for resident individuals having total income up to Rs 5,00,000/-.

  3. Option to pay tax at concessional rate under section 115BAC subject to satisfaction of certain specified conditions.

Taxation

Presumption Taxation Scheme

Income from Business (Section 44AD):

Computation of income from the eligible business on a presumptive basis under section 44AD provided turnover for eligible business does not exceed Rs 2 crore subject to certain specified conditions.

The presumptive income of the eligible business shall be calculated at the rate of 6% of gross receipts which is received in account payee cheque or draft or use of electronic clearing system or other electronic modes as may be notified. Or at the rate of 8% if such gross receipts are realized by way of cash.

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Income from Profession (Section 44ADA):

Computation of income from the eligible profession on presumptive basis under section 44ADA provided turnover for eligible profession does not exceed Rs 50 lakh in the previous year subject to certain specified conditions

The presumptive income of such eligible profession shall be 50% of the total gross receipts.

Taxation

General Deductions

The following deductions are available to individuals under chapter VIA provided he does not opt to be taxed under section 115BAC:

  1. Deduction in respect of LIC, Provident fund, etc.

  2. Contribution to certain pension funds.

  3. Deduction in respect of contribution to pension scheme of Central Government or any other employer or contribution by the self-employed person for individual employed by G or any other employer or the self-employed person.

  4. Deduction in respect of investment made under an equity savings scheme.

  5. Payment to medical insurance premium.

  6. Maintenance including medical treatment of a dependent who is a person with a disability.

  7. expenditure on Medical treatment of certain diseases.

  8. Interest on loan taken for higher education for self or relative.

  9. Deduction to in respect of interest on loan taken from financial institutions for residential house property, if certain conditions are satisfied.

  10. Deduction in respect of interest on loan taken for certain house property.

  11. Deduction in respect of the purchase of an electric vehicle.

  12. Donation to certain funds/charitable institutions, etc.

  13. Detection in respect of rents paid.

  14. Certain donations for scientific research or rural development.

  15. Deduction in respect of contribution given by any person to political parties.

  16. Profits and gains of new industrial undertakings or enterprises engaged in infrastructure development, etc.

  17. Deduction in respect of profit and gains by an undertaking other than infrastructure development of Special Economic Zone.

  18. Profits and gains from certain industrial undertakings other than infrastructure development undertakings.

  19. Deductions in respect of profits and gains from housing projects provided the project fulfills certain conditions.

  20. Deduction in respect of certain undertakings or enterprises in certain special categories of states.

  21. Deduction in respect of profits and gains from business of hotels and convention centers in the specified area

  22. Special provisions in respect of certain undertakings in the North-Eastern States.

  23. Deduction in respect of profits and gains from the business of collecting and processing biodegradable waste.

  24. Deduction in respect of employment of new workmen.

  25. Deduction in respect of royalty income, etc., of authors of certain books other than textbooks.

  26. Deduction in respect of royalty on patents.

  27. Deduction in respect of interest on deposits in a savings account.

  28. deduction in case of a person with a disability.

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