Sole Proprietorship Taxation and Compliance in India: Slabs, ITR, Audit and Advance Tax (FY 2026-27)

Last updated 26 September 2026

How is a sole proprietorship taxed in India?

A sole proprietorship is taxed as its owner: the profit of the business is added to your personal income and taxed at individual slab rates. There is no separate income-tax return for the proprietorship, because in law the business and the proprietor are one person.

Take Karan, who runs a hardware trading shop in Indore with a yearly turnover of about Rs 1.5 crore. He does not file a "shop return". He reports the shop's profit as business income in his own return, next to any interest, rent or other income he has. Everything below follows from that one idea.

Two consequences matter in practice. First, there is no salary you can pay yourself as a deductible expense; what you draw from the business is not a cost, it is your own money. Second, your personal and business tax positions are linked, so advance tax, audit limits and the choice of tax regime all depend on your whole income, not on the business alone. This is one reason to check whether a proprietorship still fits once profits grow; see sole proprietorship vs OPC vs LLP.

The figures in this guide are as of September 2026. The Income-tax Act, 2025 has been in force since 1 April 2026, but returns for FY 2025-26 (AY 2026-27) are still filed under the 1961 Act and its forms. Section numbers below are given under the older names where the new numbering has not been verified, so confirm with your CA before you file.

What are the income tax slabs for a proprietor in FY 2026-27?

For FY 2026-27, the default new regime taxes income up to Rs 4 lakh at nil and rises in steps to 30% above Rs 24 lakh, plus 4% health and education cess. Budget 2026 did not change the slabs or the basic exemption compared with FY 2025-26.

On top of the slab tax, a rebate of up to Rs 60,000 is available to resident individuals, which makes total income up to Rs 12 lakh effectively tax-free. The rebate generally does not extend to some special-rate incomes such as certain capital gains, so ask your CA if you have those.

A quick illustration: if Karan's taxable business profit is Rs 10 lakh, slab tax works out to Rs 20,000 (5% on Rs 4 lakh to Rs 8 lakh) plus Rs 20,000 (10% on Rs 8 lakh to Rs 10 lakh), which is Rs 40,000. The rebate wipes that out, so the tax payable is nil.

Standard deduction and the old regime

The Rs 75,000 standard deduction is for salary income; it is not a benefit for business profit. The old regime is still optional, with a basic exemption of Rs 2.5 lakh for those below 60 and 30% above Rs 10 lakh, but it comes with its own deduction rules. Which regime is lower for you depends on your deductions, so compare both before filing.

Can a sole proprietor use presumptive taxation?

Yes, eligible proprietors can pay tax on a presumed profit instead of keeping full books, under the scheme historically known as Sections 44AD and 44ADA and now carried into Section 58 of the Income-tax Act, 2025 with the same thresholds. It is the main compliance shortcut for small proprietors.

If Karan's Rs 1.5 crore of sales were mostly by UPI and bank transfer, 6% presumed profit would be Rs 9 lakh; if mostly cash, 8% would be Rs 12 lakh. He would not need to maintain detailed books for that income, and it falls inside the zero-tax range above once the rebate applies.

Points to weigh before opting in

• If you opt in and later opt out within the five-year window, you are barred from the scheme for the next five years and must keep books and possibly get an audit.
• The scheme is not open to everyone; agency, commission and brokerage businesses are commonly excluded, and profession eligibility is limited to specified professions. Your CA confirms this for your case.
• Declaring a lower profit than the presumed rate can trigger an audit if your income is above the basic exemption limit.

Which ITR form does a sole proprietor file, and by when?

A proprietor files ITR-4 (Sugam) if the income is presumptive and total income is up to Rs 50 lakh, and ITR-3 for business income computed on actual books or where ITR-4 is not allowed. The choice follows how you compute profit, not the size of the shop.

ITR-4 is not available if, for example, you are a company director, hold unlisted equity shares, own foreign assets or have agricultural income above Rs 5,000. In those cases the return moves to ITR-3.

Due dates

For FY 2025-26 (AY 2026-27), the return date for non-audit cases was 31 July 2026. For a case that needs a tax audit, the audit report date is 30 September 2026 as of this writing, with a later return date for such cases that your CA will confirm. The return for FY 2026-27 will be filed under the new Act and its forms, and is not due until mid-2027. If you have already missed a date, speak to a CA promptly about late filing.

When does a sole proprietor need a tax audit?

A proprietor needs a tax audit under Section 44AB when business turnover is above Rs 1 crore, or above Rs 10 crore if cash receipts and cash payments are each 5% or less. For a profession, the trigger is gross receipts above Rs 50 lakh. Presumptive filers are generally outside the audit net.

• Business: turnover above Rs 1 crore; the limit is Rs 10 crore where cash receipts and cash payments are each 5% or less of the totals.
• Profession: gross receipts above Rs 50 lakh.
• Presumptive filers: an audit can still apply if you declare a lower profit than the presumed rate and your income exceeds the basic exemption limit.

The penalty for not getting a required audit done was 0.5% of turnover, capped at Rs 1.5 lakh, under Section 271B as of September 2026. Do not mix this up with the Rs 75 lakh limit under the professional presumptive scheme; that is an eligibility limit for a different purpose, not an audit trigger. The section number for audit under the new Act has not been verified here, so ask your CA for the current reference.

Audit is a practical reason to work with a CA early. A proprietor at Rs 90 lakh of turnover can plan whether to stay under the line or accept the audit, and that decision is easier before the year ends than after.

What are the advance tax dates for a proprietor?

A proprietor pays advance tax in four instalments: 15% by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March. Advance tax applies when the tax payable after TDS and TCS is Rs 10,000 or more for the year.

Presumptive taxpayers get a simpler rule: they can pay the whole advance tax in a single instalment by 15 March. Missing instalments generally attracts interest, so put the four dates in your calendar if you are not on the presumptive scheme. The structure of advance tax is unchanged under the Income-tax Act, 2025, though the section numbers differ.

What other compliance does a proprietorship carry?

Beyond income tax, a proprietorship carries only the compliance that comes with the registrations you hold: GST returns if you are GST-registered, and state-level licence renewals where your Shop and Establishment registration requires them. There is no ROC filing because there is no company.

• GST: registered proprietors file periodic returns and pay the tax collected. The registration thresholds are in the guide to Udyam, GST and Shop Act.
• Udyam: details are drawn from income-tax and GST records, so keep those returns consistent with what you declared.
• Shop and Establishment and other licences: rules, fees and renewals vary by state, so your CA confirms them for your location.
• Books: even where not mandatory, invoices and bank records make filing, loans and audits far easier.

If you are still deciding on a structure, the sole proprietorship registration page shows what Shunya's CA handles for setup, and Shunya's professional fee is ₹1,999. It does not include government fees, DSC or other third-party costs, which are billed separately and explained on your callback. For ongoing tax filing, ask the CA on the free callback what support is available, as it is not listed as part of the registration service.

This article is for general information only. For your specific situation, consult a practicing CA.