Tax calculation

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This query is : Resolved

Sanjay (Querist)

30 August 2013 Respected sir/ma'am
I want to know that if sole proprietor, who owns service firm and having turnover 8Lakhs, so he is not register under service tax. So how will he pay tax on what rate? On profit or else?. And second case if turnover goes to 12lakhs and he(firm) register under service tax, so now he has to pay service tax- and after service tax, is there any liability to pay tax from profit.? I would appreciate if you provide me information about taxation for the sole proprietor having service firm. Thanks in advance.
Please reply with your valuable answer.

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)

31 August 2013 Service tax registration requirement once the turnover crosses the Rs.9 lakhs and service tax can be charged beyond Rs.10 lakh . based on previous year turnover

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Sanjay

Sanjay (Querist)

01 September 2013 Thanks sir,
But I want to know that if service provider/Firm is paying service tax, after that also, is it mandatory for owner of firm/service provider to pay income tax. Please provide information on income tax for the owner of service provider.

Regards

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

26 July 2025 Sure! Here’s a clear explanation for your queries about taxation for a sole proprietor running a service firm:

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### 1. **When turnover is ₹8 lakhs (below service tax threshold):**

* Since turnover is below ₹9 lakhs (the threshold for service tax registration at that time), the firm **does NOT need to register for or pay service tax**.
* **Income tax** is payable on the **profit** earned by the sole proprietor (i.e., Revenue - Expenses).
* Income tax rates depend on the individual’s total taxable income and applicable slabs.
* So, tax is charged **only on the net profit** of the business, not on turnover.

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### 2. **When turnover crosses ₹12 lakhs (above service tax threshold):**

* The firm **must register for service tax** and **pay service tax** on the turnover exceeding the threshold.
* Service tax is a tax on the **gross receipts from providing services** (turnover).
* **Service tax paid is a business expense**, so it reduces the profit.
* Income tax is still **payable by the owner on the net profit** (Revenue - Expenses, including service tax paid).
* So, **yes**, even after paying service tax, the owner must pay income tax on the **profit earned**.

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### Summary:

| Situation | Tax on Turnover? | Income Tax on Profit? | Service Tax Payable? |
| ------------------- | ---------------------------- | --------------------- | -------------------- |
| Turnover ₹9 lakhs | Yes (service tax applicable) | Yes | Yes |

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### Important Notes:

* Service tax is **collected and paid separately** to the government, not part of income tax.
* Income tax is on the **owner’s total taxable income**, which includes business profit.
* The owner needs to file **Income Tax Return** declaring business profit and pay income tax accordingly.

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If you want, I can help you with example calculations or guide on how to file returns for the sole proprietor. Would that be useful?

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