A Quick 5-Step Guide to Sole Proprietorship Registration in India

September 20, 2023
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Sole proprietorship refers to an unincorporated/unregistered business where the owner and the business are the same legal entity. It means the business’s assets, liabilities and finances are merged with the owner's. From street vendors to small shop owners, most of them fall under this category. 

Sole proprietorship is popular due to its simplicity and ease of operation. Unlike other business structures requiring complex legal formalities, sole proprietors run their businesses without compliance hurdles. 

However, one should not confuse sole proprietors with self-employed people. There’s a difference between how the two legally operate. For instance, sole proprietors do not need contracts to sell, whereas self-employed people thrive on legally binding contracts. But to legally protect themselves, these small business owners register their business as a sole proprietorship.

In addition to legal recognition, registration of sole proprietorship in India offers many advantages, such as: 

  • You can open a business bank account to manage your finances and access banking services easily.
  • You instil confidence in clients and customers by employing legal contracts and agreements.
  • You get tax advantages and deductions that are unavailable to self-employed individuals.

Ready to take advantage of sole proprietor registration in India? 

This post will give you a step-by-step process to register a sole proprietorship in India. We will explore the compliance requirements of a registered sole proprietorship to avoid legal repercussions. 

Is Registration of Sole Proprietorship in India Necessary? 

No, registration of a sole proprietorship in India is not mandatory but advisable. Sole proprietor registration in India opens doors to simplified business operations and provides legal recognition to the business. Businesses that do not get registered for any reason, deal with the following: 

  • Accessing business loans, credit facilities or investment capital becomes challenging.
  • Liability of all the business debts and obligations falls upon the owner.
  • Entering contracts with other businesses or government entities becomes difficult.

So, while registering a sole proprietorship is not compulsory, it can be a major roadblock to scaling business. Moreover, registered sole proprietorship makes it easy to obtain licences and permits, open a business bank account and build trust with customers and suppliers.

How to Register a Sole Proprietorship In India

Starting a sole proprietorship in India is a straightforward process that can be completed in approximately 15 days. This legal structure allows you to operate a business as a single owner without the need to handle elaborate documentation.

Step 1: Identity Proof 

Collect all the necessary documents of identity proof, including:

  • Aadhar card
  • PAN card
  • Passport-size photographs

Ensure your Aadhar and PAN numbers are linked for a smooth registration process. Also, in case of any changes, for instance in your address or mobile number, apply for an update since those procedures can take an additional couple of weeks.

Step 2: Registered Office Proof 

Depending on whether you own or rent the premises, you require:

For owned property:

  • Receipt as proof of ownership
  • A ₹50 stamp paper
  • NOC (No Objection Certificate) with your Aadhar Card

For rented property:

  • A commercial rent agreement
  • NOC on stamp paper with your Aadhar Card or PAN Card

Step 3: Licence Under Shop and Establishment Act 

A shops and establishment licence, also known as the "gumasta" or trade licence, is the basic registration licence to operate a business legally. You can obtain it from the local municipal authority of the registered office.

You have to submit the required form along with supporting documents like your ID proof, business address proof or any other documents requested by your local authorities. After verification, you receive your licence, allowing you to legally operate your business within the jurisdiction.

Step 4: Goods and Services Tax (GST) Registration 

GST registration is not compulsory for every sole proprietor registration in India. However, it is necessary under the following circumstances:

  • If you engage in e-commerce activities
  • If you conduct business across state borders
  • When your annual product-based turnover exceeds ₹40 lakhs in a financial year
  • When your annual service-based turnover exceeds ₹20 lakhs in a financial year

So, if you fall under these categories, you will have to apply online through the GST portal. You will receive a GSTIN upon successful verification of documents, including:

  • PAN card
  • Aadhar card (linked to PAN)
  • Business name
  • Nature of business (HSN or SAC Code)
  • Passport photograph
  • Sector ward number
  • Business full address, with pincode and latitude/longitude coordinates
  • Business place address proof (as mentioned in Step 2)

Step 5: Open Bank Account 

You'll need a separate bank account for your business transactions upon registration. To complete the process, banks will require either of the following documents as legal entity certificate:

  • PAN card (business)
  • Aadhar card (personal)
  • Business registration certificate
  • Address proof (business location)
  • Identity proof (personal)
  • Passport-size photographs

However, in some cases, banks might ask for a second legal entity certificate, which includes:

  • ITR4 (Income Tax Return Form 4)
  • PT certificate
  • Labour licence (complying with Indian employment laws)
  • Trademark registration certificate
  • Import Export Code (IEC) Certificate
  • Food Safety and Standards Authority of India (FSSAI) Licence
  • CA certificate for the current account

Additionally, you can register under the Udyam scheme, which benefits small and medium-sized businesses (SMEs). You get an Udyam recognition certificate and a unique number to get additional benefits, such as access to government schemes, subsidies and incentives designed to support and promote SMEs.

Compliance For Registered Sole Proprietorship In India

Annual compliance for sole proprietorships involves keeping up with your GST filings and reporting your income accurately. Upon GST registration of sole proprietorship in India, you need to file your GST returns quarterly, including forms GSTR 3B and GSTR1. 

In addition to these, here are some scenarios that will require annual compliance:

  • Renew any licences or permits obtained for your business, such as the Shop and Establishment Act licence, on time.
  • If applicable in your state, pay professional tax and submit annual returns.
  • If your business turnover exceeds the specified threshold, get an income tax audit as required under the Income Tax Act.
  •  If you have employees, ensure compliance with TDS provisions for salaries and payments.
  •  If you have registered a company under a sole proprietorship, file annual returns with the registrar of companies (ROC).

It's essential to stay informed about changes in tax laws and regulations that may affect your sole proprietorship's annual compliance requirements and seek professional advice when necessary to ensure you meet all obligations.

Final Thoughts 

Running your business as a sole proprietorship means you're in charge, making all the decisions and steering your ship in your chosen direction. While registering your business seems like a hassle, it's a smart move for the long haul. You want to avoid being tangled up in legal complications when your business is booming.

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