In a decisive step to enforce financial transparency and tax compliance, the Government of India has announced plans to initiate targeted audits of non-compliant proprietorship firms. This measure comes amid growing concerns over underreporting of income, misuse of tax exemptions, and failure to adhere to Goods and Services Tax (GST) and income tax regulations by certain sole proprietorships operating in informal sectors. The audit initiative will be carried out by a joint task force involving the Income Tax Department and the GST Council, and will focus on firms flagged for irregularities in filings or suspicious financial activity.

According to officials, the audit drive will initially cover businesses that have failed to file tax returns for multiple assessment years, those with large cash transactions but minimal reported income, and firms that have discrepancies between reported turnover and digital payment records. Authorities have also identified proprietorships that received government loans or subsidies under MSME schemes but have not maintained mandatory financial records or complied with registration norms. The audit process will involve a review of bank statements, sales invoices, GST returns, and other business documentation to ensure accurate reporting and statutory adherence.

The government has emphasized that the goal of this initiative is not punitive enforcement but the formalization of unregulated business activity. Proprietors found to be non-compliant may face penalties, interest liabilities, and legal consequences under existing tax laws. However, voluntary disclosure and corrective action before the audit notice may result in reduced penalties. Officials urge small business owners to update their compliance status, maintain proper documentation, and seek professional tax advice where needed. The audit drive signals a broader government effort to bring greater discipline to the sole proprietorship sector, ensuring a fair and transparent business environment across the country.