All about start ups formation and your first venture

The First question that every start up faces is "what should be the organisational format to proceed with?"

Many startups end up going for a costly business format even though not necessary. One should always consider below mentioned things for choosing the correct business format so that the funds don't get diverted to unnecessary activities and also avoiding there by complicated legal compliances. 

There are five business formats currently which are commonly adopted by startups. i.e. Individual or proprietorship, Partnership firm, Limited Liability Partnership (AKA LLP), Limited Company and Association of person (AKA AOP, BOI).

Following points one must take in to account before starting a venture. 

1. Business as a Freelancer (Individual / Proprietorship) 

If you are selling services as a freelancer or individual, there is no need to register a company. Freelancers such as consultants, authors, designers or any one providing services just need a bank account in their name or a facility like 'PayPal' to receive overseas payments. 

It doesn't matter how the payment is received. The question here is: for what the payment is received. Self-employed professionals have to pay taxes on their income just like any individual would on their income. The normal tax slabs and respective rates that apply for employees also apply for freelancers. Apart from this you also need to consider in to account the Service tax which is an Indirect Tax levied on Gross amount of Fees you charge to your clients. In case you are charging a lump sum fees the Service tax will be calculated on inclusive basis. 

Although a proprietorship concern does not require any registration, all specific business licenses are required to be obtained depending on their applicability. e.g. if you are providing a service and has a turnover more than 10 Lacs in a particular financial year, you need to obtain service tax registration. Click here for a list of common licenses required to run a business. Click here to know more

2. Partnership Company: 

A General Partnership Firm (many times referred as Partnership Firm) is a business entity formed by 2 or more people. This business form has not been very popular in India in recent few decades. A GP is not a separate legal entity in the eyes of law. Although it is treated as a separate entity for all taxation purposes (direct taxes or indirect taxes). The law also allows the partners of a GP firm to sue or to be sued in the name of firm (only applicable for registered firms). As per Indian Partnership Act, 1932, 'partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. Read more....

3. Limited Liability Partnership: 

LLP is a separate legal entity from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership. The LLP has a perpetual succession. The liability of the partners are limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature.

The minimum number of Partners or Designated Partners is 2. The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners is governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act 2008. To form LLP Click here 

A firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the LLP Act. On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be. Read more.....

4. Private Limited Company: 

A Private Limited Company is a Company limited by shares in which there can be maximum 200 shareholders. It cannot offer its shares or debentures to Public, cannot make or accept deposits from Public and there are restriction on the transfer of shares. The liability of each shareholder is limited to the extent of the amount of shares subscribed. However, the liability of a Director / Manager of such a Company can at times be unlimited. Read more ....

5. Association of person or Body of Individual:

This is not a common formate for business. Moreover it is also not tax friendly. The taxation is always on higher side. Generally these are formed for a non profit organisations. Read more...

I hope this post helped you get an overview of the different types of business formations available in India. The format would also depend on future predictions, Business Plan, Proposed Angel investments and so on. 

CA Anand Mutha 

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Simplification of Service tax Registration procedure Budget 2015

ORDER No. 1/2015-SERVICE TAX has been issued in order to simplify the Registration of single premises under Service tax W.e.f. 01/03/2015

 The legal provisions for registration in service tax are contained in section 69 of the Finance Act, 1994, rule 4 of the Service Tax Rules, 1994 and the Service Tax (Registration of Special Category of Persons) Rules, 2005. Paragraph 2 of Circular 97/8/2007-Service Tax dated 23-8-2007 and Order No. 2/2011-Service Tax dated 13-12-2011 also explain some of the procedural aspects of registration in service tax.

In supercession of Order No. 2/2011-Service Tax dated 13-12-2011, the Central Board of Excise and Customs specifies the following documentation, time limits and procedure with respect to filing of registration applications for single premises, which shall come into effect from 1-3-2015.

General procedure 
 (i) Applicants seeking registration for a single premises in service tax shall file the application online in the Automation of Central Excise and Service Tax (ACES) website www.aces.gov.in in Form ST-1. (ii) Registration shall mandatorily require that the Permanent Account Number (PAN) of the proprietor or the legal entity being registered be quoted in the application with the exception of Government Departments for whom this requirement shall be non-mandatory. Applicants, who are not Government Departments shall not be granted registration in the absence of PAN. Existing registrants, except Government departments not having PAN shall obtain PAN and apply online for conversion of temporary registration to PAN based registration within three months of this order coming into effect, failing which the temporary registration shall be cancelled after giving the assessee an opportunity to represent against the proposed cancellation and taking into consideration the reply received, if any.  

E-mail and mobile number mandatory: 
The applicant shall quote the email address and mobile number in the requisite column of the application form for communication with the department. Existing registrants who have not submitted this information are required to file an amendment application by 30-4-2015. 

Registration Number in 2 days:
Once the completed application form is filed in ACES, registration would be granted online within 2 days, thus initiating trust-based registration. On grant of registration, the applicant would also be enabled to electronically pay service tax. 

Singed Registration Certificate Dispensed with:
Further, the applicant would not need a signed copy of the Registration Certificate as proof of registration. Registration Certificate downloaded from the ACES web site would be accepted as proof of registration dispensing with the need for a signed copy.  

Documentation required to be submitted within Seven days

 The applicant is required to submit a self attested copy of the following documents by registered post/ Speed Post to the concerned Division, within 7 days of filing the Form ST-1 online, for the purposes of verification:- 

 (i) Copy of the PAN Card of the proprietor or the legal entity registered. 
(ii) Photograph and proof of identity of the person filing the application namely PAN card, Passport, Voter Identity card, Aadhar Card, Driving license, or any other Photo-identity card issued by the Central Government, State Government or Public Sector Undertaking. 
(iii) Document to establish possession of the premises to be registered such as proof of ownership, lease or rent agreement, allotment letter from Government, No Objection Certificate from the legal owner. 
(iv) Details of the main Bank Account. 
(v) Memorandum/Articles of Association/List of Directors.
(vi) Authorisation by the Board of Directors/Partners/Proprietor for the person filing the application. (vii) Business transaction numbers obtained from other Government departments or agencies such as Customs Registration No. (BIN No), Import Export Code (IEC) number, State Sales Tax Number (VAT), Central Sales Tax Number, Company Index Number (CIN) which have been issued prior to the filing of the service tax registration application.  
(vii) Business transaction numbers obtained from other Government departments or agencies such as Customs Registration No. (BIN No), Import Export Code (IEC) number, State Sales Tax Number (VAT), Central Sales Tax Number, Company Index Number (CIN) which have been issued prior to the filing of the service tax registration application.

 Premises Verification only by Authority of Additional /Joint Commissioner.: 
Where the need for the verification of premises arises, the same will have to be authorised by an officer not below the rank of Additional /Joint Commissioner.

Revocation of Registration: 
The registration certificate may be revoked by the Deputy/Assistant Commissioner in any of the following situations, after giving the assessee an opportunity to represent against the proposed revocation and taking into consideration the reply received, if any: 
(i) the premises are found to be non existent or not in possession of the assessee. 
(ii) no documents are received within 15 days of the date of filing the registration application. 
(iii) the documents are found to be incomplete or incorrect in any respect.

Other Points:
The provisions of sub-rules (5A) and (6) of rule 4 of the Service Tax Rules, 1994 may be referred to regarding change in any information or details furnished by an assessee and transfer of business to another person, respectively. Similarly, sub rule (7) of the Service Tax Rules, 1994 may be referred to in case a registered person ceases to provide the service for which he has been granted registration.  

Paragraph 2.0 of Circular 97/8/2007-Service Tax dated 23-8-2007 consisting of subparagraphs 2.1 to 2.7 may be treated as withdrawn since there have been changes in the relevant legal provisions since the issuance of that Circular. The current legal provisions in the Service Tax Rules, 1994 and the Service Tax (Registration of Special Category of Persons) Rules, 2005 may also be referred to.  

Changes in Service tax in Budget 2015 (proposed)

Rate of Service Tax

The rate of Service Tax will be increased from 12% to 14% from a date to be notified by the Government after the enactment of the Finance Bill, 2015. It is noticed that the Education Cess and Secondary and Higher Education Cess has been subsumed in the revised rate of Service Tax.

Thus, from the date when the new provision comes into effect, the service provider will not be liable to pay Education Cess or Secondary and Higher Education Cess which will be subsumed in the enhanced rate of 14%.

However, there is no transition provision for utilization of these accumulated cesses as proviso to Rule 3(7) (b) of the Cenvat Credit Rules, 2004 provides that the credit of Education Cess or Secondary and Higher Education Cess can be utilized only for payment of Education Cess or Secondary and Higher Education Cess respectively.

Inclusion of reimbursable expenses in the value of taxable services

Whether out of pocket expenses or reimbursable expenses incurred by the service provider in the course of providing the taxable services has to be included in the value of taxable services was examined by the Hon'ble Delhi High Court Intercontinental Consultants &Technorats (P.) Ltd. v. Union of India [2012] 28 taxmann.com 213 (Delhi) where the petitioner filed a writ petition before the High Court for quashing the show cause notice issued by the Service Tax Department for recovery of Service Tax on amount received as reimbursement of expenses such as hotel accommodation, travelling etc. under Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.

The Hon'ble Delhi High Court while deciding the petition held as follows:

- Rule 5 (1) of the Rules is ultra vires section 66 and section 67 of the Finance Act, 1994 since it travels beyond the scope of the aforesaid sections.

- The expenditure or costs incurred by the service provider in the course of providing the taxable service can never be considered as part of the gross amount charged by the service provider for the services provided.

- The reimbursement of expenses for air travel tickets, hotel accommodation, etc. may also lead to double taxation.

Though the Delhi High Court decision is in favour of the Assesse, the department has filed an appeal to the Supreme Court against the decision of the High Court which is pending for disposal.

Amendment to Section 67 of the Finance Act

To overcome the decision of the Hon'ble Delhi High Court in Intercontinental Consultants, the definition of consideration in Explanation to Section 67 has been amended to include:

- Any amount that is payable for the taxable services provided or to be provided

- Any reimbursable cost incurred by the service provider and charged in the course of providing or agreeing to provide a taxable service (except such conditions to be prescribed)

Thus, after the amendment there is no doubt that any expenditure incurred by the service provider for providing any taxable services has to be included in the value of taxable services unless specifically excluded and Service Tax would be chargeable on the total value including the reimbursable expenses incurred by the service providers.

However, the inclusion of reimbursable expenses for the period prior to the amendment is yet to be decided by the Hon'ble Supreme Court.

Maharashtra VAT security deposit refund

Grant of refund of security deposit Rs.25000 under mvat act. Voluntary deposit scheme was applicable wef 1.5.2011. As per rule 60A(2)(b) an app for refund of deposit shall be filed after a period of 36 months from d end of month containing d date of effect of d reg certificate but before d end of d period of 48 months from d end of d month containing d said date.
So friends check date of effect of RC of ur client & file app for refund of security deposit. Otherwise u may not get refund..

This is for ur information.
CA Anand Mutha

Small company Redefined

Companies (Removal of Dilficulties) Order, 2015 has been released by MCA dated February 13, 2015

In the Companies Act, 2013 (hereinafter referred to as the said Act, -
(as in section 2, in clause(85), in sub-clause (i), for the word "or" occurring at the end, the word "and" shall be substituted; and (b) in section 186 of the said Act, in sub section (11), in clause (b),after item (iii), the following item shall be inserted, namely:-
"(iv) made by a banking company or an insurance company or a housing finance company, making acquisition of securities in the ordinary
course of its business.".

The impact is as follows:

Small Company - ' A small company is now defined as a company (other than public company) whose paid up capital is upto Rs 50 lakhs AND turnover upto Rs 2 crores. Earlier it was OR.

Amendment in Section-186- The provision of section 186 except sub section (1) shall also not apply to any acquisition made by a banking company or an insurance company or a housing finance company, making acquisition of securities in the ordinary course of its business.

Levy of mandatory fee for delayed filing of TDS return & Sec 234E is constitutionally valid

Levy of mandatory fee for delayed filing of TDS return & Sec 234E is constitutionally valid;

Delay in filing TDS returns has cascading effect and IT Department cannot process deductee's tax status until TDS return is filed by deductor; Delay in filing TDS return results in additional burden upon department due to deductor's fault, hence levy of fee u/s 234E is to compensate for additional work burden forced upon the Department ; HC observes that "Section 234E of the Act is not punitive in nature but a fee which is a fixed charge for the extra service which the Department has to provide due to the late filing of the TDS statements"; TDS return is regularised by paying fee u/s 234E, and is a privilege and special service provided to deductor by allowing him to submit TDS return beyond due date; HC rejects petitioner's argument that fee u/s 234E is collected in the guise of tax; Absence of "right to appeal" against Sec 234E fee cannot make levy & section invalid ; HC says " It must be noted that a right of appeal is not a matter of right but is a creature of the statute, and if the Legislature deems it fit not to provide a remedy of appeal, so be it"; Statute relating to economic activities should be viewed with greater latitude than laws touching civil rights  : Bombay HC

The ruling was delivered by Chief Justice Mohit Shah and Justice B. P. Colabawalla.

[TS-44-HC-2015(BOM)]

गुंतवणूक नियोजन आणि धन संपन्न निवृत्ती

गुंतवणूक नियोजन आणि धन संपन्न निवृत्ती

मित्रानो
श्रीमंत आणि धनसंपन्न होणे हे कोणाही संसारी मनुष्याचे स्वप्न असते.  पण की श्रीमंत होणे हे स्वतःच्याच हातात असते हे खूप कमी लोकांना माहित असते.

मी जर तुम्हाला सांगितले कि एक लहान आणि काळजीपूर्वक केलेली गुंतवणूक तुमचा  दरवर्षी Rs.60,000 पेक्षा अधिक  कर वाचवु  शकते  तर ….

काळजीपूर्वक केलेली गुंतवणूक नियोजन सुमारे 6,50 लाख अधिक कर मुक्त उत्पन्न देऊ शकते.


तुम्हाला गुंतवणूक नियोजन करण्याची गरज आहे कि नाही त्याचा अंदाज खालील चेकलिस्ट वरून तुम्ही काढू शकता.


१) आपण पगारदार आहात आणि  वरील कर पात्र  पगार उत्पन्न रुपये 250,000 येत असल्यास.  किंवा

२) आपण पगारदार आहात आणि  तुमच्या एम्प्लोयर ने तुमचा टीडीएस कापला असेल किंवा

३) आपण व्यवसाय करता आणि तुमचा करपात्र नफा रुपये 250,000 किंवा अधिक असल्यास किंवा

४) आपणास  चालू वर्षात  मालमत्ता / जमीन / विक्री करून मोठा भांडवली नफा झालेला आहे.

  जर आपण वरील पैकी कुठलीही एक अट लागू होत असल्यास आर्थिक वर्ष २०१४ - २०१५ (एप्रिल-मार्च)  तर तुम्ही
१)  आपल्या संपूर्ण आर्थिक वर्षाचे  कर मूल्यांकन करणे आणि
२) आपल्या कर बचत गुंतवणुकीचे नियोजन करून  जास्तीत जास्त कर बचत करणे
३) लागू असेल तेथे आगाऊ कर भरून व्याज वाचवणे.

सद्ध्या तुमच्या विविध  ध्येय आणि उदीष्ठांची (उदा. शिक्षण, लग्न, नियोजित विशेष कार्यक्रम, निवृत्ती) पूर्ती करण्यासाठी विविध गुंतवणूक पर्याय उपलब्ध आहेत. जसे सोने, चांदी, जमीन अशा जुन्या पर्यायान्सोबतच म्युच्युअल फंड, ETF, सरकारी रोखे सारखे नवीन पर्याय नक्कीच तुमचे श्रीमंत होण्याचे मार्ग सुकर करतील.

अधिक माहिती
anandmutha@armutha.in