How to start sole proprietorship businesses in India

Sole proprietorship form of business is the most common form of business that is owned by many persons across India. A business which is owned, operated and managed by a single individual is called sole proprietorship business.

In India sole proprietorship form of business does not have any legal identity. It’s represented by the person who owns it. If any liability or any legal actions need to be taken on business then it will be taken on the owner of business not the business itself.

The owner is the only person who can take decisions. In India we do not have any place where the sole proprietorship businesses are to be registered. Registration is required only if you requires certain approval from certain authority to run the business.

How to start sole proprietorship businesses in IndiaWhile deciding name of the sole proprietorship business you need to take trade mark and other copyright issues in to account.

Under “know your customer” requirements of bank, you need to provide two certificates to open your bank account.

Following licenses/certificates you may require depending on the type of business you carry on;

Proprietorship Registration under Shop and establishments Act

Under the state act for shop and establishment you need to send an application within the specified time as applicable to the state for registration. After getting accepted you will be issued a certificate on that.

Service tax registration

If your are rendering services which is taxable as per service tax provisions and during the year your turnover exceeded or likely to be exceed Rs. 9, 00,000 then you should register yourself with the service tax authorities.

But it does not mean that you cannot register with service tax or charge service tax to clients if your turnover is less than Rs. 9, 00,000. You can voluntarily register yourself and pay service tax accordingly.

Sales Tax registration

If you are buying or selling goods from other states then VAT registration will be required. Similarly if you are buying and selling goods within the state then state sales tax will be applicable and you need to get yourself register for it.

PAN Card

You need not file a separate application for your pan card if you as an owner of the business already have a pan card. While filling income tax return, you need to calculate profit and loss in your name and file the income tax return accordingly.

TAN Registration

TAN is not required if your proprietorship business’s turnover does not exceed Rs. 1 crore. If you have a proprietorship business which is rendering professional services then you need not apply for TAN if it’s not crossing the limit of Rs. 25 lakh.

TAN is applicable to those persons who are liable to deduct income tax for certain payments. For above mentioned business or profession these TDS provisions are not applicable.

Provident fund registration

You can register your business under provident fund act if you have 20 or more employees in business. You have to get yourself registered at the register office of employee provident fund. After registration with EPFO you can open PF accounts in the name of your employees and start contributing to it. Registration will not cost you anything but if you are doing it through a professional then you need to pay professional charges.

Employee State Insurance registration

ESI registration will be mandatory if you are employing more than 10 employees in factory or 20 employees in other establishment not being a factory. Registration will not cost you anything but if you are doing it through a professional then you need to pay professional charges.

Advantages of forming sole proprietorship business

  • Easy to form a sole proprietorship business
  • The owner has complete control on the business
  • Secrecy of business are maintained
  • Flexibility in operating business

Disadvantage of forming sole proprietorship business

  • Limited life as it will over when the sole proprietor dies
  • Unlimited liability of the owner  for the sole proprietor business
  • Business does not have any legal existence

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.