Q: How do I Register as a Sole Proprietor in India?
Learn the basics of sole proprietorship in India and what you need to do to get started freelancing.
For a while now, many people in India have chosen self-employment as their main way to make a living. Over half of the 473 million workers are self-employed, as it is one of the best ways to find work in India. You too can become self-employed in India, setting your own hours, choosing what work you do, and being your own boss. An easy and inexpensive way to do this is to become a sole proprietor. Here we break down the basics of becoming a sole proprietor in India, outlining what you need to do to get started and be successful. The information here should not be used in place of legal counsel.
What exactly is a sole proprietor in India?
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The Indian government classifies a sole proprietor as a single-person establishment in which the individual owns and manages the business. As a sole proprietor, you get to keep all profit you generate (after taxes, of course), and you can avoid double taxation since you only pay taxes under your name and have no separate income tax.
What’s the registration process like for sole proprietors?
There’s no formal registration process with the government to become a sole proprietor in India! This means you don’t have to pay any fees, nor are there minimum capital investment requirements. To get started with your business, you legally only have to do two things. First, choose a name for your business. Second, pick a location from which you will do all your business. That’s all it takes to comply with Indian law in starting as a sole proprietor.
However, if you want to receive payments in your business’s name, you will need to open a bank account for that, which will require you to have some forms of government registration (e.g., Shop Establishment Act license, GST, etc.). There are a few options for registering your business in order to get a bank account:
Registering under the Shop Establishment Act
You can register your sole proprietorship under the Shop Establishment Act if you have a shop as the place of your business. This means you have a physical place where you sell your goods or services, excluding factories, commercial establishments, hotels, or dining/entertainment venues. If you meet these requirements, then you can obtain your Shop and Establishment Act License by applying through the local Municipal Corporation near you in India.
Registering for GST (Goods and Services Tax)
Another way to register as a sole proprietor is to apply for GST (Goods and Services Tax) registration. You can do this if your business deals with exchanging goods and services. GST combines both VAT and Service Tax registration and is an excellent way to get identification for your sole proprietorship. Just make sure that you meet all compliance requirements after you register — you must collect tax from your customers/clients and file your GST returns properly.
However, if your business has a yearly turnover of less than Rs. 20 Lakh, then it is not mandatory to register and collect Goods and Services taxes. In that case, it may even be bad for your business to register for GST as you will have to follow compliance and add undue stress on your business. See this site for details on GST registration in India.
Registering with the Ministry of Micro, Small and Medium Enterprises (MSME)
You can also consider getting a “Udyog Aadhaar” identification number through the Ministry of MSME. This gives you a unique identity for your business and counts as registration of your sole proprietorship.
Invoicing in India
In India, all transactions that are taxable must have compliant GST invoices. For goods, you issue an invoice at the time of the movement of goods or wherever they are made available to the customer. For services, you issue an invoice within 30 days of supplying the service. If you are dealing with continuous supply, then you issue the invoice at the time of supply or within 30 days of payment. You must hold onto invoice documents for six years. Be sure to include the following items on your invoice:
- Supplier’s details, GST number, & digital signature
- Invoice number and date
- Customer details and GST number
- Details of taxable goods (including HSN code) or/and services (in Liquid, you’ll enter your purpose code for your services when submitting your bank account information)
- Quantity of goods
- Delivery state
- Net cost of the supplies
- Details of any discounts
- GST rate(s) applied by CGST, SGST and IGST
Now you’re ready to start your own sole proprietorship!
That’s all you really need to know about the basics of sole proprietorship in India. Becoming a sole proprietor is an easy process that won’t make a dent in your wallet. As long as you follow proper guidelines and think ahead when planning out your business venture, you’ll have a smooth time of it. Don’t be afraid to dive in and start your journey to self-employment in India today!
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Updated: February 11, 2021
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.