The sole proprietorship is not a separate legal entity in the eyes of law and its income is taxable in the hands of the proprietor of the firm. An individual may have income from various sources, However while filling the tax return all the sources is clubbed to arrive at taxable income. In that process, the income earned out of the proprietorship business is added in the income from business and profession.
The proprietorship business is subject to conditions, differential treatment of depreciation and other expenses in terms of the provisions contained in the Income Tax Act 1962 at par with other forms of the business. However the tax rate is applicable on the total income of the proprietor and is based on the slab system of taxation
The Taxation is to a great extent dependent on the residential status of the assessee, normally a resident is taxed for all his income whether received in India or outside India, However subject to double taxation avoidance agreement.
The Tax Rates for Individuals are as under: (as amended by the finance Act of 2013)