1. Taxed as Individual Income

• A sole proprietorship does not have a separate tax identity
  
• The business income is treated as the owner’s personal income
  
• The proprietor files their tax return using the individual ITR form (usually ITR-3 or ITR-4 under presumptive scheme)
  
• Income from the business is added to any other personal income like salary, rental, or interest
  
• The applicable income tax slabs for individuals are used to compute tax liability
  

2. Presumptive Taxation Scheme (Optional)

• Small sole proprietors can opt for presumptive taxation under Section 44AD or 44ADA
  
• This allows them to declare a fixed percentage of turnover as profit, avoiding detailed accounting
  
• For businesses: 6% (digital) or 8% (cash) of total receipts can be declared as income
  
• For professionals: 50% of gross receipts is assumed as income
  
• This scheme reduces the compliance burden and exempts from maintaining detailed books
  

3. Tax Audit Requirements

• If the total turnover exceeds ₹1 crore for business or ₹50 lakh for professionals, a tax audit becomes mandatory
  
• For those using presumptive taxation but not declaring minimum profit, an audit may still be required
  
• Audit must be conducted by a qualified Chartered Accountant
  
• Failure to comply can attract penalties under the Income Tax Act
  

4. Advance Tax and Filing Deadlines

• Sole proprietors must pay advance tax in four installments if tax liability exceeds ₹10,000 in a year
  
• Income tax return must be filed by 31st July (non-audited) or 31st October (audited)
  
• Late filing can attract interest and penalties
  
• TDS (Tax Deducted at Source) provisions may also apply based on the nature of payments made
  

5. Deductions and Allowable Expenses

• Sole proprietors can claim business-related expenses such as rent, salaries, electricity, stationery, and travel
  
• Expenses must be genuine, reasonable, and supported by bills or vouchers
  
• Deductions are allowed under various sections like 80C, 80D, etc., for personal savings and investments
  
• Depreciation on business assets can also be claimed as a deduction
  
• Proper record-keeping ensures accurate reporting and tax benefit