Proprietorship Firm · Chapter 4
Documents, bank account and tax for a Proprietorship
In short
A proprietor needs PAN, Aadhaar and address proof, plus two proofs of the business to open a current account. Profit is taxed as the owner's income, often under the presumptive scheme.
A proprietorship runs on the owner's own identity: the proprietor's PAN and Aadhaar, plus Registrations such as Udyam or GST that prove the business exists. Banks need at least two such business proofs to open a current account, and all business profit is taxed as the proprietor's personal income, often under the simpler presumptive scheme.
What documents does a proprietor need?
| Purpose | Typical documents |
|---|---|
| Owner identity | PAN card; Aadhaar (or passport, voter ID or driving licence) |
| Place of business | Electricity bill or property tax receipt; rent or leave-and-licence agreement with the owner's consent, if rented |
| Proof the business exists | Udyam certificate, GST certificate, Shop and Establishment certificate or intimation, IEC, professional tax Registration |
| Banking | Cancelled cheque or bank statement of the business account |
| Photograph | Recent passport-size photograph of the proprietor |
Keep both soft and hard copies. The same set is asked for again and again — by banks, payment gateways, marketplaces and large clients.
Do I need a separate PAN for my proprietorship?
No. A proprietorship uses the proprietor's personal PAN for everything: income tax, GST Registration and bank accounts. The Income-tax law does not treat the proprietorship as a separate person, so a separate PAN is neither needed nor allowed.
If you have to deduct tax at source (TDS) — for example on rent, contractor or professional fees above the prescribed limits — you will also need a TAN (Tax Deduction and Collection Account Number), applied for separately.
How do I open a current account for a proprietorship?
A current account in the trade name keeps business money separate from personal money, and most payment gateways and business clients expect it. Banks follow the Reserve Bank of India's Know Your Customer (KYC) rules. For a proprietary concern, those rules ask for:
- The proprietor's KYC — PAN and an officially valid document such as Aadhaar.
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Any two documents proving the business or activity in the name of the proprietorship. RBI's list includes:
- Registration certificate, including the Udyam Registration Certificate
- Certificate or licence under the Shop and Establishment Act
- GST (or earlier sales tax/VAT) certificate
- Certificate from professional tax or other tax authorities
- IEC or a licence or certificate of practice from a professional body
- Complete income tax return in the proprietor's name reflecting the business income, duly acknowledged
- Utility bills such as electricity, water or landline in the business name
If you genuinely cannot produce two, RBI's rules allow a bank to accept one, provided it verifies the business through contact point verification and other information. See the RBI website for the current KYC directions. Minimum balance, charges and extra paperwork differ from bank to bank.
How is a proprietorship taxed?
The profit of the business is added to the proprietor's other income (salary, rent, interest and so on) and taxed at the individual slab rates under whichever tax regime the proprietor uses. There is no separate business tax rate for a proprietorship.
A note on the new Income-tax Act
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. Returns filed in 2026 for FY 2025-26 still follow the 1961 Act; income earned from 1 April 2026 (tax year 2026-27) follows the new Act. The main ideas below carry over, but section numbers have changed — for example, the presumptive schemes in Sections 44AD and 44ADA now sit in Section 58 of the new Act.
Which ITR form: ITR-3 or ITR-4?
| Form | Used when |
|---|---|
| ITR-4 (Sugam) | Resident proprietor opting for presumptive income, with total income up to ₹50 lakh (other conditions apply) |
| ITR-3 | Proprietor computing profit from regular books, or not eligible for ITR-4 |
Always check the current year's form instructions on the Income-tax e-filing portal.
What is presumptive taxation?
Presumptive taxation lets a small business declare profit as a fixed share of turnover, instead of keeping detailed books.
| Scheme (old section) | Who | Limit | Deemed profit |
|---|---|---|---|
| 44AD | Resident businesses | ₹2 crore turnover; ₹3 crore if cash receipts are within 5% | 8% of turnover; 6% of receipts by banking or digital modes |
| 44ADA | Specified professionals (e.g. doctors, lawyers, architects, engineers, CAs) | ₹50 lakh gross receipts; ₹75 lakh if cash receipts are within 5% | 50% of gross receipts |
You may declare a higher profit if you actually earned it. Under the business scheme, if you opt out within five years of opting in, you may be barred from using it again for the next five years and may need books and an audit. Read the full conditions before opting in.
Advance tax, audit and GST returns
- Advance tax: presumptive taxpayers generally pay all advance tax by 15 March; others pay in instalments through the year.
- Tax audit: required above ₹1 crore turnover (₹10 crore if cash transactions are within 5%) for businesses outside the presumptive scheme, and above ₹50 lakh for professionals.
- GST returns: if registered, you file GST returns (such as GSTR-1 and GSTR-3B, or the composition scheme returns) even in months with no sales.
Key takeaways
- A proprietorship uses the owner's PAN; there is no separate PAN for the business.
- Banks need the proprietor's KYC plus two proofs of the business, such as Udyam and GST certificates.
- Profit is taxed at the proprietor's personal slab rates, filed in ITR-3 or ITR-4.
- Presumptive taxation (old Sections 44AD/44ADA, now Section 58 of the Income-tax Act, 2025) can simplify tax for small businesses and professionals.
Frequently asked questions
Which documents are needed to open a current account for a proprietorship?
Banks follow RBI's KYC rules. You need the proprietor's own KYC, such as PAN and Aadhaar or another officially valid document, and usually any two proofs that the business exists in its name. Accepted proofs include Udyam Registration Certificate, Shop and Establishment certificate or intimation, GST certificate, IEC, professional tax Registration, complete income tax return and utility bills in the business name. Some banks add their own requirements.
Does a proprietorship need a separate PAN?
No. A proprietorship uses the proprietor's personal PAN for income tax, GST Registration, TDS and bank accounts. It cannot apply for a separate PAN, because it is not a separate person under the Income-tax law. If the proprietor must deduct TDS, for example on rent or contractor payments above the limits, a TAN (Tax Deduction Account Number) is needed, which can be issued in the business name.
Which ITR form does a sole proprietor file?
A sole proprietor usually files ITR-3 if business or professional income is computed from regular books of accounts. If the proprietor opts for the presumptive scheme and total income is within ₹50 lakh, the simpler ITR-4 (Sugam) can be used, subject to its other conditions. The correct form can change each year, so check the instructions published on the Income-tax e-filing portal before filing.
What is presumptive taxation under Section 44AD?
Section 44AD of the Income-tax Act, 1961 lets small resident businesses declare profit as a fixed percentage of turnover instead of keeping detailed books: 8% of turnover, or 6% of receipts through banking or digital modes. It is available up to ₹2 crore turnover, or ₹3 crore if cash receipts are within 5%. From tax year 2026-27 the same scheme continues under Section 58 of the Income-tax Act, 2025.
Can a proprietor pay a salary to himself?
No, not for tax purposes. A proprietor and the proprietorship are the same person, so money the proprietor withdraws is simply a drawing of their own profit, not an expense. It is not deductible and no TDS applies. A proprietor can, however, pay a genuine, reasonable salary to family members or others who actually work in the business, and that salary is taxed in the hands of the person who receives it.
