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Starting a Proprietorship in India: Registrations, Bank Account and Tax
How to set up a proprietorship in India: the registrations that establish it, opening a current account, how it's taxed, and when to consider a company instead.
A proprietorship is the simplest way to run a business in India: one owner, no incorporation, and minimal compliance. But because there's no single registration that creates one, founders are often unsure how to set it up. This guide explains.
What a Proprietorship Is
A business owned by one person, with no legal separation between the business and the owner. The owner's PAN is the business's PAN, and the owner is personally liable for all the business's debts.
Registrations That Establish It
A proprietorship is recognised through registrations in the business's name. Common ones include:
- GST registration, once turnover crosses the threshold or if compulsory.
- Udyam registration, which is free.
- Shops and Establishments registration, for premises.
- Trade licence from the municipality.
- Professional Tax registration, in states that levy it.
- Sector licences like FSSAI, if applicable.
Opening a Current Account
Banks usually ask for two documents in the business's name as proof it exists — such as GST, Udyam, or Shops and Establishments registration — along with the owner's KYC. Keep business transactions in this account, separate from personal ones.
How It's Taxed
Business profit is added to the owner's other income and taxed at the owner's slab rates. The owner files ITR-3, or ITR-4 under presumptive taxation.
Presumptive taxation
- Small businesses can declare 8% of turnover as profit, or 6% for digital receipts, within the turnover limit.
- Professionals can declare 50% of gross receipts as income, within the limit.
No detailed books are required under these schemes, though records are still sensible.
When to Move On
- You want co-founders or investors.
- The business takes on significant liability risk.
- Customers or tenders require a company.
- Profits grow to where a company is more tax-efficient.
Getting Help
Think Filing sets up proprietorships with the right registrations and tax approach, and advises when to move to a company or LLP.