ITR Filing After Sole Proprietorship Conversion | TaxBuddy Guide

Converting from a sole proprietorship to a private limited company marks a huge milestone for any growing business. It brings credibility, better fundraising opportunities, and limited liability — but also more complex tax responsibilities.

Among the most confusing parts of this transition is Income Tax Return (ITR) filing. Which ITR form do you use? Do you file one return or two? What happens to the income earned as a sole proprietor before conversion? These are just a few of the questions entrepreneurs face during this change.

Let’s break it all down.

What Happens When You Convert to a Private Limited Company?

A sole proprietorship and a private limited company are two different legal entities. The income earned under each is treated separately under the Income Tax Act.

When you convert, the PAN changes. The GST registration changes. Even the bank account must be in the new company's name. That’s why, for income tax filing, the pre-conversion and post-conversion periods must be treated as separate taxpayers.

This also means you’ll have to file two separate ITRs for the same financial year:

1. ITR for the sole proprietorship (till the date of conversion)
   
   
2. ITR for the private limited company (from the date of incorporation)
   
   

Which ITR Form to File as a Proprietor (Pre-Conversion)?

Before the conversion, your income was considered individual income from business or profession. Therefore, you must file:

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• ITR-3: If you were running a business or profession under your own name
  
  
• ITR-4 (Sugam): Only if you opted for the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE
  
  

Use your individual PAN and include all business income, expenses, capital gains (if any), depreciation, and any carry-forward losses you’re eligible for.

This return will capture the period from April 1st until the date of conversion.

Which ITR Form to File as a Private Limited Company (Post-Conversion)?

Once the private limited company is incorporated, it is treated as a separate legal entity under the Income Tax Act. For this period, file:

• ITR-6: This is the prescribed form for all private limited companies (except those claiming exemption under Section 11)
  
  

This return includes the company’s income from the date of incorporation till March 31st of the financial year.

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Note: Even if your company didn’t generate any revenue post-conversion, filing ITR is still mandatory.

Important Dates to Remember

• For individual taxpayers and proprietors (not subject to audit), the ITR filing deadline has been extended to 15th September 2025 for FY 2024–25 (AY 2025–26).
  
  
• For companies and businesses requiring audit (such as most private limited companies), the due date remains 31st October 2025.
  
  
• If you miss the deadline, you can still file a belated return with applicable late fees until 31st December 2025.

However, filing on time ensures you can carry forward any business losses or depreciation.

How to Handle Carryforward Losses and Depreciation

One of the most misunderstood parts of this transition is what happens to your unabsorbed depreciation or business losses as a sole proprietor.

Unfortunately, you cannot transfer these to the new private limited company, because:

• The PAN has changed
  
  
• The taxpayer is legally different
  
  
• Losses are carried forward only by the same assessee
  
  

However, you can still claim these losses under your individual PAN in the future if you have other sources of business income (such as consulting or freelancing).

For the company, fresh depreciation and asset records must be maintained from the date of incorporation.

Don’t Forget GST & TDS Adjustments

Conversion often requires:

• Cancelling old GST registration and applying for a new one
  
  
• Closing previous TAN and applying for a new company TAN
  
  
• Transferring or accounting for input tax credit
  
  
• Re-assigning TDS liabilities (if you were deducting TDS as a proprietor)
  
  

Make sure these transitions are reflected in your tax return and reconciled in your books to avoid mismatches.

Common Mistakes to Avoid

1. Filing only one ITR for the whole year under one PAN
    Each entity must file separately, using its respective PAN.
   
   
2. Using ITR-3 for company income or ITR-6 for individual income
    Each form serves a different taxpayer class. Incorrect form = defective return.
   
   
3. Mixing old and new GST numbers in invoices
    Keep billing and returns clean. Segregate GST filings accordingly.
   
   
4. Not updating bank accounts or professional service agreements
    If your contracts still reflect your personal name post-conversion, it could create confusion in taxation and payments.
   
   
5. Ignoring audit requirements
    If your turnover post-conversion exceeds the prescribed limit or your company has complex transactions, audit under Section 44AB might be mandatory.

How TaxBuddy Simplifies This Transition

With so many moving parts, even experienced business owners can feel overwhelmed. That’s where TaxBuddy becomes your transition partner — not just your filing assistant.

Here's how we make the switch seamless:

• Pre-conversion Consultation: Know exactly when and how to split your books, what to carry forward, and how to notify the authorities.
  
  
• Dual ITR Filing Support: Our experts help you file two accurate, compliant returns under two PANs — without overlapping income or deductions.
  
  
• Entity-Specific Filing Tool: Our smart ITR platform detects if you’ve undergone conversion and prompts you for the right documents and entries.
  
  
• Document Management: We ensure your digital signature, MOA, TAN, and ROC filings are aligned with your tax filing needs.
  
  
• GST and TDS Compliance Check: From ITC migration to TDS reconciliation, we align your compliance records pre- and post-conversion.
  
  
• One Dashboard View: Monitor your filing status for both entities and track refund, notices, and due dates — all in one place.
  
  

No CA? No problem. Whether you use our DIY tool or assisted expert filing, we ensure nothing is left to chance.

Conclusion

Switching from a sole proprietorship to a private limited company is a smart move — but only if your compliance journey transitions just as smoothly.

Filing your ITR the right way during this change is not just about ticking boxes — it's about protecting your financial credibility, avoiding future scrutiny, and setting a clean base for your company’s future growth.

With TaxBuddy, you're not just filing a form — you're filing it with full context, clarity, and compliance confidence.