Sole proprietorship is one of the oldest and easiest forms of businesses in India. In a sole proprietorship, the business is owned and managed by one single person, just like in the case of One Person Company (OPC). The owner of sole proprietorship is known as the ‘proprietor’. The sole proprietorship and proprietor are considered as a single entity. Generally, this type of business can be started within 10-15 days.
Sole proprietorship is best suitable for individuals that wish to start a business with less investment. This form of business can be started from home or on a premise with minimum capital requirements. The proprietor or owner that invests in the business has the right to control the sole proprietorship firm entirely. He enjoys all the profits of the company, but in case of any losses, he has to bear them all alone unlike in the case of an LLP company.
A proprietor can hire people to help him in the business. However, this won’t affect the ownership which lies solely with him. Local businesses like spas, hair salons, bakeries and grocery stores can be opened up as a sole proprietorship firm. It might be an ideal business form for the small traders and manufacturers.
How to Open/Register a Sole Proprietorship Firm?
The sole proprietorship registration process is one of the easiest and simplest registration processes for businesses in India. It does not need a formal incorporation, and the proprietor can start his business right away once he has fulfilled all the requirements and taken certain registration formalities to establish the legal existence of his firm. Let’s discuss the requirements and formalities below:
Documentation
The proprietor must collect all the documents carefully. These documents include KYC documents such as PAN Card and Aadhaar Card, and proof of address for the registered office. The information provided by the documents must be latest and correct.
Selecting a Unique Name for Business
For opening a sole proprietorship firm, selecting a unique name is mandatory. The name must be legally valid, and available for use. The name must not hurt the sentiments of any religion or caste, and the proprietor must make sure the name is not already in use by another registered business. It would be beneficial to get the business name registered as a trademark, so that other businesses cannot misuse or plagiarize it.
Obtaining the online MSME / Udyam Registration
Generally, the sole proprietorship firms are local small businesses that are considered as MSMEs. Therefore, obtaining MSME or Udyam registration for a sole proprietorship would be beneficial. There are numerous advantages linked to this registration, such as collateral-free loans, reduced fee on trademark registration, interest subvention on loans and timely payout by buyers. In addition to this, obtaining MSME or Udyam registration is really important for starting a business bank account.
Proprietorship GST Registration
Sole proprietorship firms require GST registration if their turnover crosses 40 lakhs in supply of goods, 20 lakhs in supply of services or 10 lakhs in north-east Indian states. For some categories, this registration is compulsory regardless of the category.
In order to fulfill the compliances related to GST, the eligible sole proprietorship firms must get GST registration. The application and all the relevant documents for GST can be submitted on the GST portal. Once the application is approved, the sole proprietorship firm will be allotted Goods and Services Tax Identification Number (GSTIN), which can be used for all the GST-related activities in future.
Obtaining Shops & Establishment Act Registration
All businesses governed by the provisions of the Shops & Establishment Act require registration. This is applicable for the sole proprietorship firms too. For the registration under this act, the applicant needs to submit an application and all the relevant documents to the State’s Labour Department, either through online or offline mode.
Industry-specific Registrations
Certain licenses might be mandatory for sole proprietorship firms depending on the range of business activities embarked by them and the location of the registered office. For instance, if a sole proprietorship firm is involved in food-related activities, FSSAI license is mandatory. Similarly, if a sole proprietorship firm is involved in the export of agricultural food products, APEDA license is mandatory.
Sole Proprietorship Tax Rate
The tax rate for a sole proprietorship firm is the same as the individual business rate. You can check the tax rates in the tables listed below:
Tax Rate according to the New Tax Regime & Old Tax Regime
In the table below, the tax rates based on income range have been mentioned as per the old and new regime.
| Income Range (in Rs.) | Tax Rate as per the New Regime | Tax Rate as per the Old Regime |
| Rs. 0 – 2,50,000 | Not Applicable (N.A.) | Not Applicable (N.A.) |
| Rs. 2,50,001 – 5,00,000 | 5% | 5% |
| Rs. 5,00,001 – 7,50,000 | 10% | 20% |
| Rs. 7,50,001 – 10,00,000 | 15% | 20% |
| Rs. 10,00,001 – 12,50,000 | 20% | 30% |
| Rs. 12,50,001 – 15,00,000 | 25% | 30% |
| More than Rs. 15,00,000 | 30% | 30% |
Tax Rate if the Owner/Proprietor is a Senior Citizen
The following table shows the tax rate for the sole proprietorship if the owner or proprietor is more than 60 and younger than 80:
| Income Tax Slab (in Rs.) | Income Tax Rate |
| Up to Rs. 3,00,000 | Not Applicable (N.A.) |
| Rs. 3,00,000 – 5,00,000 | 5% of the total income above Rs. 3,00,000 |
| Rs. 5,00,000 – 10,00,000 | Rs. 10,000 + 20% of the total income above Rs. 5,00,000 |
| More than Rs. 10,00,000 | Rs. 1,10,000 + 30% of the total pay above Rs. 10,00,000 |
Tax Rate if the Owner/Proprietor is a Super Senior Citizen
The following table shows the tax rate for the sole proprietorship if the owner or proprietor is over 80:
| Income Tax Slab (in Rs.) | Income Tax Rate |
| Up to Rs. 5,00,000 | Not Applicable (N.A.) |
| Rs. 5,00,000 to 10,00,000 | 20% of the total income above Rs. 5,00,000 |
| More than Rs. 10,00,000 | Rs. 1,00,000 + 30% of total income above Rs. 10,00,000 |
Tax Rate if the Owner/Proprietor is an NRI
The following table shows the tax rate for the sole proprietorship if the owner or proprietor is a non-resident individual (NRI). The tax rate is for all the NRIs, irrespective of their age.
| Income Tax Slab (in Rs.) | Income Tax Rate |
| Up to Rs. 2,50,000 | Not Applicable (N.A.) |
| Rs. 2,50,000 – Rs. 5,00,000 | 5% of the total income above Rs. 2,50,000 |
| Rs. 5,00,000 – 10,00,000 | Rs. 12,500 + 20% of total income above 5,00,000 |
| More than Rs. 10,00,000 | Rs. 1,12,500 + 30% of the total income above Rs. 10,00,000 |
Surcharge
A surcharge is applicable in the following cases:
- A surcharge of 10% of the income tax is applicable if the total income is between Rs. 50 Lakh to Rs. 1 Crore.
- A surcharge of 15% of the income tax is applicable if the total income is between Rs. 1 Crore to Rs. 2 Crore.
- A surcharge of 25% of the income tax is applicable if the total income is between Rs. 2 Crore to Rs. 5 Crore.
- If the total income is above Rs. 5 Crore, a surcharge of 37% (under old regime) and 25% (under new regime) of the income tax is applicable.
- As per the provisions of Sections 111A, 112A and 115AD, the maximum rate of surcharge on income from dividends or income is 15%.
- 4% of the income tax has to be paid in the form of Health and Education Cess by all taxpayers regardless of the income tax slab they fall under.
Conclusion
A sole proprietorship firm is owned, managed and controlled by only one individual who is its ‘owner’ or ‘proprietor’. It is one of the oldest and simplest forms of business. A sole proprietorship firm can generally be started within 10-15 days. This kind of business does not require to get registered in order to be opened. Instead, it is recognized by other registrations, such as MSME registration, GST registration, etc. A sole proprietorship firm is generally best suitable for small-scale businesses, such as spas, hair salons, beauty parlors, grocery stores, etc. Once this firm is set, it is necessary to pay income tax in a timely manner to ensure compliance with the prevailing rules and legislation. If you’re interested in opening a sole proprietorship firm, connect with Registrationkraft.