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A sole proprietor with self-employed earnings below the “taxable income” range might have this question: is it compulsory to file an income tax return?

The simplest answer is a BIG YES.

A more elaborate explanation is covered in this article by MPVD & Associates.

How and When Are Sole Proprietors Taxed in India in 2023

In India, a sole proprietorship is not taxed as a distinct legal entity. Instead, business owners report their personal taxes together with their business taxes. All proprietors under the age of 60 are required by the Income Tax Act to submit an income tax return if their total income exceeds 2.5 lakhs, according to the Income Tax Slab rates for FY 2022–23. Below are the common factors for sole proprietor taxation in India

  • The income tax brackets for sole proprietors or self-employed individuals are the same as salaried persons in India.

  • Taxation for sole proprietors enables progressive and fair tax systems in the country. Such income tax slabs tend to change every budget.

  • The tax slab rates are different for different categories of taxpayers. Income tax has classified three categories of “individual “taxpayers, which also applies to sole proprietors:

    • Regular Tax Payers – who are 60 years of age and include residents and non-residents

    • Resident Senior Tax Payers – who are between the age of 60 and 80 years and are Indian residents

    • Resident Super Senior Citizens – who are above the age of 80 and are Indian residents.

Starting a business on sole proprietorship is simple for people who want to start earning simply by offering their services and running a company single-handedly. Based on their ownership and assets, sole proprietors must meet specific qualifying requirements in order to file an income tax return within the deadline.

What Is The Tax Slab Rate for Sole Proprietors in 2023

When a sole proprietorship is owned by a non-resident person who receives income from India, the tax rate changes depending on whether the business is domestic or not. NRIs and other foreign nationals are not permitted to invest in or form a proprietorship, partnership, or one-person corporation in India, however, they are permitted to work as a corporate director or partner. The tax bracket for NRI business owners in India is quite simple, and the minimum taxable income range is Rs. 2.5 lacs.

Sole Proprietorship only works for domestic Indian companies and the table below demonstrates the New Tax Regime.


Annual Income

Income Tax Rate (New Regime)

Below 60 years

Rs. 0 to 2.5 lacs

Rs. 2,5+ lacs – 5,00,000+

Rs. 5+ lacs – Rs. 7.5 lacs

Rs.7,5+ lacs – Rs.10 lacs

Rs. 10+lacs – Rs. 12.5 lacs.

Rs. 12,5+ lacs – Rs. 15 lacs

Amount exceeding Rs. 15 lacs








Between 60 and 80 years

Rs. 0 to 3 lacs
Rs. 3lacs to ₹ 5lacs

Rs. 5+ lacs to Rs. 10 Lacs
Amount exceeding Rs. 10 lacs


20% + Rs. 10,000
30% + Rs. 1.10 lac

Above 80 years

Rs. 0 – 5 lac
Rs. Rs. 5 lac – Rs. 10 lac

Amount exceeding Rs. 10 lac


30% + Rs. 1 lac

What Happens When You Delay ITR

The most significant disadvantage of failing to file an ITR file on time is having to pay the penalty of Rs. 5000, as stipulated by Sections 235 A, B, and C of the Income Tax Act. Other consequences are as follows:

  • Registering a home, shop or any other property will get complicated

  • Getting a business loan or personal loan becomes harder, which is a grave requirement for businesses

  • Sole proprietors will miss out on TDS refunds without filing TDS return

  • Getting a visa becomes harder for those looking to travel abroad

MPVD Recommends ITR Essentials For Sole Proprietors

Being diligent with tax regulations gives your businesses more dignity and solidarity. Now, with MPVD & Associates’ approachable ITR Return filing services, it is much easier and straightforward to file an ITR as well.

MPVD Associates aims to educate all self-employed individuals and sole proprietors on the importance of bookkeeping and accounting. A profit and loss statement, balance sheet, and other records as necessary must be kept by a business (single proprietorship, partnership firm, company, or professional), following the Income-tax Act.

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