February 25 2020
Proprietorship is one of the most popular and widely used business setups in India. With a smaller number of suits in India for various personal damages, sole proprietorship becomes an obvious choice for all professionals like chartered accountants, lawyers, doctors, etc. This might not be the case in the United States where people can be sued for every penny with unlimited liability in case they opt for proprietorship. Hence, proprietorship becomes a very risky option and a great liability limiting option for professionals abroad.
The Proprietorship Compliance India is pretty straight forward. There is no formal registration required. Even the basic book of accounts without formal audit works under some thresholds. This is why the packages offering Annual Compliance for Proprietorship companies are the cheapest compared to any other business entity's compliance.
However, as the investment and risk increase, it is suggested to have a proper accounting system, statutory audits, accurate reporting, tax management, etc. This helps in easier migration to LLC, one member company, partnership or other business entity forms from a sole proprietorship, which should be an ultimate goal of a sole proprietorship firm.
Most often sole proprietors ignore many different types of filing requirements such as GST earlies sales tax or VAT and TDS filings. GST is an integral part of every business entity. Knowingly or unknowingly, a sole proprietorship can create instances where GST filing may be required or there might be some instances where GST Input credits can be claimed for better margins and higher profitability. This helps in remaining compliant and also minimizes chances for double taxation.
The GST and TDS returns might have to be filed every month or every quarter based on the nature of business and related transactions. Sometimes, if the transactions inducing such requirements are known, better planning can be done to minimize such requirements. However, if the business is heavily reliant on transactions inducing the same, GST and TDS returns can be filed accurately to minimize the risk of penalties or non-disclosures. All these are usually included in the Proprietorship Firm Compliance package. However, an extra fee might be levied if the transactions are tedious or voluminous.
Since a sole proprietorship is not a distinct entity in the eyes of law, the taxation is not applicable at the proprietorship level. All the income or losses have to flow from the books to the individual’s income tax return as business income. Since there is no carry forward, carryback of losses on individual returns, or no provision for depreciation and various other flaws, sometimes, sole proprietorship, especially in the early stages, can prove less beneficial compared to various other alternatives.
However, when the income is generated and distributed, the maximum tax bracket is the same as the individual’s maximum tax bracket. There are more exemptions and higher limits. The taxation can be slightly favorable especially for small to mid-size profitable sole proprietorship. The biggest advantage is that if the proprietor wants to can opt to learn and manage the entire Annual Compliance for Proprietorship Company all by him/herself effortlessly with minimum error.
Neusource Startup Minds is a Business Management Consultant Company, offers the best business services like Partnership Firm Compliance, Bookkeeping and Accounting Services, ROC Annual Compliances and many other business services.