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Proprietorship Registration

What is Sole Proprietorship in India?

Proprietorship is a popular type of unregistered business entity owned, managed, and controlled by one person. Most of the micro and small businesses operating in the unorganized sectors prefer registering a Proprietorship.

Sole Proprietorship is simple to start and has very few regulatory compliance requirements for conducting the operation. Proprietorship registration is ideal for entrepreneurs who are getting into the business for small businesses with few clients.

Who is a Sole Proprietor?

A proprietor is the owner of the Sole Proprietorship business. It is not a corporate or legal entity. The proprietor and the Proprietorship are the same legal entity.

The PAN and other documents of the proprietor are the basis for obtaining all the registration and licenses. The proprietor is held personally liable in case of any liabilities in a business.

How to start a Proprietorship in India?

Registering a Proprietorship firm in India requires no formalities or registration. It is necessary to obtain a business license as required by the state/central government. Further, if the business name is unique, then it is better to Register a Trademark.

  • 1

    Business Licenses

    Irrespective of the type of entity, business licenses are a must for any permit. For any applicant, before registering a Proprietorship in India, it is necessary to understand the regulatory framework which surrounds the activity he wishes to undertakes and obtain relevant licenses. From the respective Local, state, and Central Government authorities.

  • 2

    Tax Registrations

    It is necessary to obtain Tax registration from the relevant Tax authorities, which are based on the type of activity the Proprietors perform.

    This includes GST registration, Professional tax registration, and ESI/PF registration.

  • 3

    Trademark registration

    As there is no registrar for Proprietorship in India. Proprietorship can usually be operated under any name unless the name doesn't conflict with any trademark registration and other rules and regulations.

    If a person is investing enough time and money in the Proprietorship or if the business and wants the goods and services offered by him to be identified exclusively, it is always recommended to get a Trademark registration.

What documents are required for registering a proprietorship in India?

The entire process for proprietorship registration can be completed online. You will just have to upload the following documents:

  • Identity Proof - Aadhar & PAN Card
  • Address Proof - Latest Bank Statement
  • Passport size photos

IndiaFilings can help you in registering a Proprietorship in 5-7 working days.

Post Incorporation compliances for Sole proprietorships in India

Like LLPs and private limited companies registered in India, proprietorships must file income tax returns. As the proprietor and the proprietorships are the same, the Proprietorship and the proprietor's income tax return filing would be the same.

Under the Income-tax Act, all the proprietors below the age of 60 will file ITR only if the total income exceeds Rs. 2.5 lakhs. If the proprietor is over 60 years and below 80 years, he should file ITR only if his income exceeds Rs. 3 lakh.

Proprietors over the age of 80 years are required to file income tax if the income exceeds Rs. 5 lakh.

At IndiaFilings offer expertise in Income tax return filings for several small and medium-sized proprietorship firms across the country. Get in touch with an IndiaFilings Tax Expert to file the Income-tax return for your Proprietorship today.

Audit for Proprietorship

An audit will be required for the proprietorship firms if the total sales are over Rs. 1 crore during the financial year.

In a professional case, an audit is necessary if the total gross receipts are more than Rs.50 lakhs during the financial year assessment.

Also, an audit is required for any proprietorship firm under a presumptive taxation scheme irrespective of turnover if the income claimed is lower than the deemed profits and gains under the scheme.

Audit for Proprietorship for income tax purposes must be conducted by a practicing Chartered Accountant.

ITR for Proprietorship Firms

Proprietorship firms are required to file Form ITR-3 or Form ITR-4-Sugam.

Form ITR-3

Form ITR-3 can be filed by a proprietor or a Hindu Undivided Family carrying out a proprietary business or profession.

Form ITR-4-Sugam

Form ITR-4-Sugam can be filed by a proprietor who would like to pay income tax under the presumptive taxation scheme. A presumptive taxation scheme is designed to help ease the compliance burden of small businesses by assuming a set profit margin on the business or profession's total income.

Filing a Proprietorship Firm Tax Return

The income tax return of a proprietorship firm in ITR 3 or ITR V Sugam can be filed online using the proprietor's digital signature or manually.

Proprietorship Registration Cost

Pay as you go grow pricing

All Inclusive Pricing - No Hidden Fee

Basic

2899

all inclusive fees

Standard

9899

all inclusive fees

  • GST Registration
  • MSME Registration
  • Bank Current Account
  • LEDGERS Accounting Software 1
  • EQL Business Card
  • 1-Year GST Return Filing
  • Income Tax Filing
  • Premium LEDGERS Accounting Software with GST Portal Integration and eWay Bill Software.

What are the Key Registrations for Proprietorship in India?

  • 1

    MSME registration

    If the registration of Proprietorship is with the Ministry of Micro, small and medium enterprises, MSME registration can be obtained.

  • 2

    TAN registration

    A proprietor must obtain a TAN registration from the Income Tax Department if the proprietor is making salary payments wherein the TDS reduction is required.

  • 3

    GST registration

    GST registration is to be obtained if the proprietor is involved in selling goods or services that cross the GST turnover threshold.

  • 4

    Import-export code

    The IE Code can be obtained from the DGFT in the name of the business- if the proprietor is undertaking export or import of goods in India.

  • 5

    FSSAI registration

    FSSAI registration must be obtained from the Food and Safety and Standard Authority of India in the operator's name if the Proprietorship is involved in the selling or handling of food products.

  • 6

    Current account

    Through IndiaFilings a current account can be opened for a Sole Proprietorship from various banks in India.

MSME Registration or Udyog Aadhar

MSME registration or Udyog Aadhar is provided to the micro, small, and medium-sized businesses in India that comes under the Micro, Small, and Medium Enterprise Development Act, 2006 (MSMED).

Earlier, Udyog Aadhar used to be recognized as MSME registrations. Now the process has been merged, and an application can be made online. The main objectives of the MSME department concerning providing Udyog Aadhar registration are as follows:

To enable the micro, small and medium enterprises to compete with the international competition efficiently;

To promote the growth of micro, small and medium enterprises on a large scale to tackle the problems related to unemployment and poverty effectively.

To extend the benefits of various government schemes at one stop to the SSI units.

To safeguard the small-scale industries from financial harassment in the hands of the big industries.

Eligibility for Udyog Aadhar

Only the entities that are classified as micro, small or medium enterprises are eligible for Udyog Aadhar.

Classification Manufacturing Sector
Micro Enterprises Up to Rs. 25 lakh investment in plant and machinery
Small Enterprise Up to Rs. 5 crore investment in plant and machinery
Medium Enterprise Up to Rs. 10 crore investment in plant and machinery

Why is Udyog Aadhar registration Beneficial?

Udyog Aadhar registration is offered at no cost by the Government, and it's easy to obtain the registration online. After obtaining the Udyog Aadhar registration, a business can enjoy the following benefits:

  • Financial support will be provided for participating in foreign expos to showcase their products.
  • The applicant will also be eligible for government subsidies.
  • Getting a registration would facilitate the opening of a current bank account in the name of the business.
  • The registration also allows businesses to apply for government micro-business loans and other such related beneficial schemes.
  • Banks sanction a loan at lower interest rates.

TAN Registration

TAN or the Tax Deduction Collection Number is a mandatory ten-digit number required for all persons who are supposed to pay the Tax deduction at source or TDS on behalf of the Government.

The person deducting the tax at the source must deposit the deducted tax to the central Government to quote the TAN number.

Salaried individuals are not required to obtain TAN or deduct tax at the source. A proprietorship business and other entities must deduct tax at the source, making certain payments like salary, payments to the contractor or the sub contractors, amount of rent exceeding 1,80,000 per year, etc. On deducting the TDS, the entity with TAN registration will issue a TDS certificate as proof of collection of tax.

How to obtain TAN registration?

To obtain TAN, the application must be made for allotment of TAN in form 4B and the required documents. Based on the application, the TAN will be allotted to the entity, and the entity must quote the TAN in all TDS/TCS returns, payments, challans, and certificates.

IndiaFilings can help you obtain TAN registration in a quick, hassle-free manner.

GST registration

The process for obtaining GST registration is online, and there is no requirement for physically submitting the documents. Here is the list of documents that need to be submitted on the GST portal to obtain GST registration.

Proprietor's document

  • PAN
  • Aadhar Card
  • Passport size photo of the applicant
  • Bank passbook and Bank statement First page
  • Latest electricity bill in the name of the person seeking GST registration

Address and business proof document

If the proprietor owns the address: Property tax receipt or Municipal khata or electricity bill

If another individual owns the premises: Property tax receipt or Municipal khata or electricity bill
Consent letter from the owner of the premises to use the address as GST registration

For rented premises: Rent and lease agreement in the name of the Proprietorship
Property tax receipt or Municipal khata or electricity bill

If address is located in SEZ: If the place of business is located in an SEZ, the necessary documents issued by the Government of India are required to be uploaded.

FSSAI registration

FSSAI registration should be obtained from the Food Safety and Standard Authority of India in the proprietor's name if he is involved in the selling of food products or handling of the food products. Click here to know more about the people who need FSSAI registration.

Here is a list of documents required for FSSAI registration:

Photo of the food business operator

Document for Identity proof like Ration card, the Voter ID card, Pan Card, Driving License, Passport, Aadhar Card, Senior Citizen Card, Department Issued ID.

Supporting Documents (if any):- NOC by the Municipality or the Panchayat, Health NOC.

Advantages

What are the benefits of Proprietorship Registration?

  • Complete Control- Proprietorships firms are owned and operated by just one person. The owner has full authority and can make all the decisions as no partners are involved to consult.
  • Easy Setup- As no registrations are required to start, a proprietorship can create and receive payments from clients very easily
  • Easy Compliance- The significant advantage of the Proprietorship is that it doesn't require any additional compliance in most cases.
    The PAN of the Proprietor and Proprietorship are the same.
    Hence, in most cases, only income tax returns in the form of ITR3 must be filed every year.
  • Dissolution- If an individual has to cease operation, he does not have to wind up the company significantly. This undoubtedly saves time.
  • Requires less investment- Registering a proprietorship in India requires very little investment. Hence, anyone who wants to start business with low funds can go for proprietorships as no investments are involved.
  • Information is not disclosed in public- The Proprietorship firms' financial reports are public like that of the LLPs, where the financial statements are made public.

What are the disadvantages of Proprietorship firms?

  • Liabilities: The proprietor is held liable in case of any loss or harm as the Sole Proprietorship does not provide the proprietor with limited liability protection.
  • Transferability: Any license or registration that has been obtained in the name of the Proprietorship cannot be transferred to any other person or an entity.
  • Lifespan: The existence of the Proprietorship is tied to the proprietor. Hence, it will cease to exist with the proprietor.
  • Cannot raise funds: Proprietorships cannot raise equity funds from angel investors, venture capital firms. Banks also have certain limitations on the amount of credit they can lend.

Due to this reason, the registration will be only suitable for small businesses and the unorganized sector.

Disadvantages

Proprietorship vs. Private Limited Company

A private limited company offers more advantages over sole proprietorships.

In case of losses, a sole proprietor would be incurred with unlimited liabilities for any losses that have been incurred.

The proprietor has to pay for the losses that have been incurred personally. The private limited company's regulation recognizes the owner and the entity differently, thereby making the liabilities limited.

The proprietors will be taxed on their income tax rate, which does not happen with the private Limited entity.

Private limited companies have more fundraising options as compared to Sole proprietorship firms.

In case of death of a sole proprietor, the firm would be close, whereas the legal heirs of the promoter can rightfully take over the affairs of the business.

General questions (5)

Will my proprietorship firm have a separate legal identity?

No, the proprietorship firm and the proprietor are one and the same legally. The PAN of the proprietor will be the PAN of the firm. Therefore, there will be no separate legal identity for the business. The assets and liabilities of the business and the proprietor will also be one and the same.

How can I transfer my proprietorship?

Can other people invest in a proprietorship?

Can I later convert my proprietorship into a company or LLP?

What is the capital required to start a proprietorship?

Registration Process (5)

How do I open a bank account for a proprietorship?

The Reserve Bank of India mandates that the proprietor provide two forms of registration of the proprietorship along with the PAN, identity proof and address proof of the proprietor. The two forms of registration can be any two of the following: MSME registration, Shop & Establishment Act registration, professional license, chartered accountant certificate or others as provided in the RBI KYC norms.

Will my firm have a registration certificate?

How to register the name of a proprietorship?

What are the annual compliance requirements?

Is audit required for a proprietorship?

Sole proprietorships have fewer complexities which makes it easier for people who wish to incorporate a small business. The business person can concentrate on enhancing their business rather than meeting the long list of post-incorporation compliances.

This happens to be a good option for young entrepreneurs who wish to try something with minimum investment.

IndiaFilings can help you register a Proprietorship firm starting at just Rs.2899.

Proprietorship Registration in State

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Last updated: June 11, 2021

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