Save Rs 588 on a 2-Year Ad-Free CAclubindia Pro Membership. Subscribe Now!

Is it mandatory to convert sole proprietorship

371 views

Save Share

Atharv Sankliya

1359 Points Posted on 21 October 2022

is it mandatory to convert sole proprietorship to company or LLP if sole proprietorship cross the turnover and profit about 100s of crore ?

Replies (4)

Quick Summary

If your sole proprietorship surpasses significant turnover and profit thresholds (hundreds of crores), it's not mandatory to convert to a company or LLP. However, a tax audit under Section 44AB becomes compulsory. While conversion isn't required, limited companies benefit from lower corporate tax rates and exemptions unavailable to proprietorships, making it a common strategic move.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

212569 Points Posted on 21 October 2022

No. Only tax audit u/s. 44AB is mandatory.

Ltd companies enjoy corporate tax benefits, where taxes are levied on profits at lower rate. On the other hand, a proprietorship not being a corporate entity cannot take advantage of the corporate taxation structure’s exemptions and benefits. That is one of the main reason for conversion.