Capital Gains Tax in India 2025: Rates, STCG, LTCG & Indexation
16 Jun, 2025
By Online Legal India
Published On 03 Mar 2021
Updated On 22 May 2025
Category Sole Proprietorship
A sole proprietorship is one of the easiest business types to start in India. It is owned and managed by one person and does not require formal registration. However, despite being simple, it still has to follow some annual compliance rules as per Indian laws. These rules help the business stay legal and avoid penalties. In this article, you will get a comprehensive overview of the requirements of annual compliance for sole proprietorships in India.
If you run your business as a sole proprietor in India, it is essential to understand and fulfill certain income tax obligations annually. Here is a straightforward guide to help you stay compliant:
If your total income exceeds the basic exemption limit of Rs.3 lakh for individuals below 60 years, Rs.3 lakhs for senior citizens above 60 years, Rs.5 lakhs for super senior citizens above 80 years, you are required to file an income tax return. The appropriate form depends on your business structure and accounting methods.
Use ITR-3 if you maintain regular books of accounts for your business or profession. Alternatively, ITR-4 is suitable for individuals opting for the presumptive taxation scheme under Section 44AD or 44ADA, it is provided if they meet the specified criteria.
The due date for filing is typically 31st July if your accounts are not subject to audit. However, if your accounts are subject to audit, the due date extends to 31st October.
A tax audit becomes mandatory under Section 44AB of the Income Tax Act if a business's total sales, turnover, or gross receipts exceed ?1 crore in a financial year. However, if the cash receipts and cash payments during the year do not exceed 5% of the total receipts and payments, the threshold limit for a tax audit is increased to ?10 crores. For professionals, a tax audit is required if their gross receipts exceed ?50 lakh in a financial year.
You must pay advance tax if your total tax liability for the year is more than ?10,000. The advance tax payment is divided into four installments:
However, if you opt for the presumptive taxation scheme under Sections 44AD or 44ADA, you can pay the entire advance tax in a single installment by 15th March.
Tax Deducted at Source (TDS) applies when you make certain payments such as salaries, rent, or professional fees. As a Sole Proprietorship taxpayer, you have specific responsibilities:
These steps ensure compliance with the Income Tax Act and facilitate the proper crediting of taxes to the recipients' accounts. If you stay compliant with these requirements, it ensures smooth business operations and helps you avoid penalties.
If you are running a sole proprietorship in India, it is essential to understand and fulfill certain Goods and Services Tax (GST) obligations. Here is a straightforward guide to help you stay compliant:
If your business's aggregate turnover exceeds Rs.40 lakh in a financial year, Rs.20 lakh for special category states, GST registration becomes mandatory.
To register for GST, you have to visit the official GST Portal. Ensure you have the necessary documents ready, such as your PAN card, Aadhaar card, proof of business address, and bank account details. Once your application is submitted, you will receive an Application Reference Number (ARN) to track the status of your registration.
As a registered taxpayer under the Goods and Services Tax (GST) regime in India, you are required to file specific returns to ensure compliance. The three primary returns are:
This return details all outward supplies made during the tax period. The due date for filing GSTR-1 is the 11th day of the succeeding month for monthly filers. For those filing quarterly, the due date is the 13th day of the month following the end of the quarter.
This is a summary return for tax payment, which encompasses details of both inward and outward supplies. Monthly filers must submit GSTR-3B by the 20th day of the succeeding month. For quarterly filers, the due date varies based on the state or UT, typically falling on the 22nd or 24th day of the month following the quarter.
This is an annual return providing a comprehensive summary of all transactions for the financial year. It is mandatory for all regular taxpayers, including sole proprietors, to file GSTR-9. The due date for filing this return is the 31st December of the subsequent financial year.
The due dates for filing these returns may vary depending on your turnover and the frequency of filing chosen. It is essential to stay updated with notifications from the GST portal to ensure timely compliance.
Businesses in India with an annual turnover exceeding ?10 crore are mandated to generate e-invoices for all Business-to-Business (B2B) transactions. These invoices must be reported to the Invoice Registration Portal (IRP) within 30 days from the date of issuance. ?
Failure to report e-invoices within the stipulated 30-day window will render them invalid for Input Tax Credit (ITC) claims, which will potentially affect both suppliers and buyers.
If your business's annual turnover exceeds ?5 crore, you are required to file Form GSTR-9C under the Goods and Services Tax (GST) regulations in India. GSTR-9C is a reconciliation statement that compares the details in your annual GST return (GSTR-9) with your audited financial statements to ensure accuracy and transparency in your tax filings. The purpose is to ensure accuracy and transparency in your tax filings.?
To comply, you should engage a Chartered Accountant (CA) or Cost Accountant (CMA) to conduct the audit. They will review your financial records and certify the GSTR-9C form.
Once prepared, you can submit the form through the GST portal, accompanied by your audited financial statements and the GSTR-9 return for the relevant financial year. It is important to note that the deadline for filing GSTR-9C is typically December 31st following the end of the financial year. Timely and accurate filing helps maintain compliance and avoid potential penalties.
?In India, sole proprietors are not legally mandated to maintain books of accounts under the Indian Partnership Act, 1932. However, for income tax and GST compliance, maintaining proper records is essential.?
Under Section 44AA of the Income Tax Act, sole proprietors must maintain books of accounts if their income exceeds Rs.2.5 lakh or their total sales, turnover, or gross receipts exceed Rs.25 lakh in any of the three preceding years. These records should include cash books, ledgers, journals, and other relevant documents.
If registered under GST, sole proprietors are required to maintain records of:?
These records must be preserved for at least six years from the end of the relevant financial year.
?In India, professional tax is a state-level tax imposed on individuals earning income through employment, profession.
In India, sole proprietors must comply with professional tax regulations, which vary by state. There are two key certificates to be aware of:
Sole proprietors are required to pay tax on their professional income. This certificate is mandatory for self-employed individuals and should be obtained within 30 days of starting the business.?
Necessary if the sole proprietor employs staff. It enables the employer to deduct professional tax from employees' salaries and remit it to the state government. Registration for PTRC should also be completed within 30 days of hiring employees.?
Compliance with these requirements ensures adherence to state laws and avoids penalties. It is advisable to consult the official website of the respective state's tax department for specific regulations and procedures.?
Professional tax obligations differ based on whether you are self-employed or an employer.?
If you are self-employed, you are required to pay professional tax annually. The due date for this payment is typically July 31st each fiscal year. Timely payment is crucial to avoid penalties.
If you employ staff, you are responsible for deducting professional tax from your employees' salaries and remitting it to the state government. This process is usually carried out on a monthly basis and ensures compliance with state regulations.
Sole proprietors in India may need to obtain specific licenses and permits based on the nature of their business. These licenses ensure that the business operates legally and complies with local regulations.
This license is mandatory for businesses operating from a physical location, including home-based and online businesses. It regulates working conditions and ensures fair treatment of employees.
If your business involves the manufacturing, processing, storage, distribution, or sale of food products, you must obtain a Food Safety and Standards Authority of India (FSSAI) license.
A trade license is required to operate certain types of businesses within municipal limits, such as retail shops, restaurants, or manufacturing units. It helps the business meet safety and health standards. Trade licenses are usually issued for one year and need to be renewed every year.
It is important to check with your local municipal authorities or state government websites to understand the specific requirements and procedures for obtaining and renewing these licenses. Ensuring timely compliance helps avoid legal complications and promotes smooth business operations.
As a sole proprietor in India, it is essential to be aware of certain compliance requirements to ensure smooth business operations and adherence to legal norms. Here is a simplified overview:
If your business qualifies as a Micro, Small & Medium Enterprise (MSME), you must obtain UDYAM registration. This registration provides official recognition and access to various government schemes, subsidies, and easier loan approvals.
The process is entirely online, free of cost, and requires minimal documentation. Once registered, you will receive a unique UDYAM Registration Number, and there is no need for periodic renewal.
If your business makes specific payments, such as salaries, rent, or professional fees, that exceed certain thresholds, you are required to deduct TDS and remit it to the government. This involves obtaining a Tax Deduction and Collection Account Number (TAN), deduction of the appropriate TDS amount, timely deposit, and quarterly TDS returns filing.
To claim deductions under various sections of the Income Tax Act, like 80C, 80D, it is crucial to maintain and submit proof of investments and expenses.
While filing your Income Tax Return (ITR), ensure you have documents such as
These proofs support your claims for deductions and should be preserved for future reference.
As a sole proprietor in India, if you fail to meet compliance requirements, it can result in penalties and legal consequences. Here is an overview of potential penalties:
Under Section 234F, if you miss the due date for filing your Income Tax Return (ITR), a late fee is applicable. For total income exceeding Rs.5 lakh, the penalty is Rs.5,000, and for income up to Rs.5 lakh, it is Rs.1,000.
Additionally, interest at 1% per month is charged on the outstanding tax amount. Note that refunds are delayed, and interest on refunds is not provided during this period.
Delay in the filing of GST returns, such as GSTR-1 or GSTR-3B attracts a late fee of Rs.25 per day under both CGST and SGST Acts, that is a total of Rs.50 per day.
The maximum late fee is capped at Rs.10,000 per return. Additionally, if there is an outstanding tax liability, interest at 18% per annum is charged on the delayed payment.
If you are required to deduct TDS and fail to do so, or if there is a delay in depositing the deducted amount, penalties apply. Under Section 271C, a penalty equal to the amount of tax not deducted or paid may be imposed.
Furthermore, under Section 221, if the tax demand remains unpaid, an additional penalty may be levied. This can vary depending on the delay, but it cannot exceed the tax in arrears.
To avoid these penalties, it is crucial to adhere to filing deadlines, maintain accurate records, and ensure timely payments. Regularly reviewing compliance requirements and seeking professional advice when needed can help to manage these obligations effectively.
Timely annual compliance for sole proprietorships is crucial in India and also offers several significant benefits:
A sole proprietorship in India comes with several compliance responsibilities, which include timely filing of income tax returns, GST filings, proper records maintenance, and obtaining necessary licenses. Adhering to these requirements not only ensures legal compliance but also enhances your business's credibility, financial management, and access to government benefits.?
It can be challenging to navigate the complexities of business compliance, but you don't have to do it alone. At Online Legal India, we specialize in assisting sole proprietors with company registration, GST filing, FSSAI license, and bookkeeping etc.
Our team of experienced professionals is dedicated to providing you with comprehensive support, making compliance straightforward and stress-free. Visit Online Legal India today.
?
Redirecting to payment page...
