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Sole proprietarship: tax question

Ashish (Owner) (30 Points)

28 July 2016

Greetings! I have a "Coaching institute" and I am sole Proprietar for it. The total revenue is 30 lakhs and every quarter, I pay service tax ( @ 14%) on the revenue.

My total running expenses are 10 lakhs. So, this leaves a net profit of 20 lakhs (much less than that actually, because I have already paid a whopping 14% service tax on the revenue).

My question is: Is this 20 lakhs considered my income and do I again have to pay personal income tax on it?

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4 Replies

Dinesh Mertiya (PROFESSIONAL) (761 Points)
Replied 28 July 2016

according to data provided by you , Rs 20 Lakh is your income
you shall have to pay income tax on your earnings

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Ashish (Owner) (30 Points)
Replied 28 July 2016

Thanks Dinesh. So, doing some Math here:

My revenue = 30 laks

I pay around 4.5 lakhs in Service taxes ( @ 14%)

I incur around 10 lakhs expenses

So, I am left with 15.5 lakhs

Now, I pay around 25%-30% tax on this.

So, I am finally left with around 11-12 lakhs!

Is there something significant (apart from PPF/LIC etc.) that can be done to reduce this liability? Things such as changing the structure of the company, HUF etc. Sorry, I don't know this stuff too well, and hene, just throwing some possibilities.

CMA Poornima Madhava (CMA) (13097 Points)
Replied 28 July 2016

You need to pay income tax on 20 lacs (not 15.5 lacs). Here is the calculation:

Revenue 30 L (exclusing service tax)

(-) Expenses 10L

Balance 20L (pay tax on this balance).

CMA Poornima Madhava (CMA) (13097 Points)
Replied 28 July 2016

It is beneficial to do business under proprietorship concern because income tax slab rates are applicable. In case of HUF also, it is the same. But if you change the constitution to firm/company, flat rate of tax is applicable (higher than individual rate). But one has other benefits in case of company/LLP.
Tax planning: Expense accounting is the area which helps you to reduce your tax liability. Make sure you account all the expenses in order to get the benefit.
Deduction: Being proprietorship concern, you may claim deductions u/s 80C to 80U (as applicable). Many of such deductions are not applicable for companies/firms.

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