Registration of Sole Proprietorship Company in India
This is the most common form of business in India. If you are alone or if you wish to have absolute control over your business, this is the preferred way to start. In the eyes of law, the Proprietor and the proprietorship business is a single entity and does not differentiate between both of them. This means that all the assets, liabilities, profit, loss etc. of the business are property of the proprietor and they are also taxed at individual rates instead of business rates. Other advantages includes:
- Lowest rates of taxation. Individual rates apply instead of corporate rates.
- Not a separate entity, so need not file 2 different returns. Lower compliances.
- Absolute control, authority and responsibility over business.
- Easy to start and easy to close.
NRIs and PIOs can form a proprietorship business with proper approval from RBI. However, the profits earned cannot be repatriated.
Sole Proprietorship Firms does not need any registration with any Government agency. However, various licenses are applicable to do business e.g. Service Tax, VAT, IEC, Shops & Establishment license etc. eLagaan can help to obtain the required licenses for your business.
For detailed description of each license click on the name of the License below.
- Business Licenses
- New Registration - ESI
- New Registration - PF
- New Registration - Professional Tax
- New Registration - Shops and Establishment (S and E)
- New Registration - VAT /CST /TIN
- New Registration - Service Tax
Here's a list of most common licenses in India that your business might require:
- Service Tax Registration
- PAN Card
- TAN (Tax Collection & Deduction Account Number)
- VAT/ CST Registration
- Shops & Establishment License
- Central Excise License
- Importer Exporter Code
- Professional Tax
- Employee Provident Fund Registration
- ESI (Employee State Insurance) Registration
What is Employees' State Insurance (ESI)?
ESI has been created to provide medical benefits to workers and employees of factories and other commerical establishments whose wages/ salary is under a specified ceiling. This ceiling keep changin on timely basis and is currently Rs.15000/- per month with effect from 01-May-2010.
Who should take ESI registration?
- Factories employing 10 or more persons irrespective of whether power is used in the process of manufacturing or not.
- Shops, hotels, restaurants, cinemas including preview theatre, road motor transport undertakings and newspaper establishment employing 20 or more persons.
- Private Medical and Educational Institutions employing 20 or more persons in certain States.
ESI in a nut shell
- Applicable if you hire 10 and more employees (for factories) and 20 and more employees (for shops, hotels, cinemas etc.) drawing a salary/wage upto Rs.15000 per month.
- Monthly payments and Half yearly returns are filed.
- These states & UTs are not covered under ESI scheme - Nagaland, Manipur, Tripura, Sikkim, Arunachal Pradesh, Mizoram, Delhi, Chandigarh and Pondicherry.
What is Employee Provident Fund?
This is a fund created and managed by a Central Government Trust where employers and employees contribute specified amounts every month during the employment tenure of the employee. The contribution attracts an interest payable by the EPFO. Provident Fund accout helps employees to take care of their various needs like:
- Family obligations like marriage etc.
- Children's education
- Financing of insurance policies
Who should take PF registration?
- Voluntarily - Any employer employing less than 20 people can voluntarily opt for PF registration. This is done to implement better employee benefits and retention and also help protect employee's interests.
- Establishments employing 20 or more persons and engaged in any of the 180 industries / Classes of Businesses specified.
- Co-operative Societies, employing 50 or more persons & working without the aid of power.
- Establishments not coverable statutorily can come under the coverage of the Act statutorily.
- An establishment continues to be covered under the Act, irrespective of the fall in the employment strength.
PF in a nutshell
- Applicable if you hire 20 and more employees. Voluntary registration available for lower strengths.
- Allowed as valid expense for employers. For employees the contribution is exempted for calculating taxable salary.
- Monthly returns need to be filed.
- Not applicable in the state of Jammu & Kashmir
What is Professional tax?
A tax levied by State Government (mostly governed by Municipal council of the State Government) for profession or employment.
Who should take Professional tax registration?
Every company which transacts business and every person, who is engaged actively or otherwise in any profession, trade, calling or employment is liable to register and then pay professional tax.
Types of Registration
- Employer - Applicable for the company or the person who is treated as an Employer. Even if the company/ person doesnot employ any work force, this registration is applicable. In most of the states, this is a fixed amount (around Rs.2500) which is paid annually.
- Employee - Applicable for any employee who is in service/ employment of any company. Tax rates are based on income slabs and are paid monthly/ quarterly through their employer.
Professional Tax in a nutshell
- State based tax for employing professionals. Many states like Delhi, Rajasthan and Union Territories etc. donot have professional tax. Check your respective tax laws for applicability of professional tax.
- Fixed tax rates for employers irrespective of income/ revenues
- Fixed tax rates for employees based on income slabs
- Monthly/Quarterly returns need to be filed, wherever applicable
What is Shops & Establishment (S&E) registration?
Shops & Establishment registration helps the State Government to provide minimum benefits and relief to unorganizaed sector employees. It also helps maintain and regulate conditions of work and employment. This is issued per premises and doesnot have a centralised registration concept.
Who should take S&E registration?
Any commercial outfit like Shops, Commercial Establishments, hotels, restaurants, eating houses, theatres and other places of public amusement or entertainments etc. where a commercial activity is conducted.
S&E in a nutshell
- State based license. Applicable if you are opening a shop or commercial establishment. Please refer to your State laws for more details.
- Fees vary based on no. of people employed
- Annual returns (in most cases) need to be filed. In few states the renewals are also done on annual basis
- Specified records and registers need to be maintained
What is VAT?
VAT is a multi-point tax on value addition which is collected at different stages of sale with a provision for set-off for tax paid at the previous stage/tax paid on inputs. This is applicable to intra-state sales.
What is CST?
CST is same as VAT and is applicable for Inter-state sales only.
Who is a dealer?
'Dealer' means any person who carries on business and includes-
- any person who, for the purposes of or in connection with or incidental to or in the course of his business buys, sells, goods directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration;
- any department of the Central Government or a State Government, a local authority, Panchayat, Municipality, Development Authority, Cantonment Board and each autonomous or statutory body or an industrial, commercial, banking, insurance or trading undertaking whether or not of the Central Government or any of the State Governments or of a local authority, if it buys, sells, supplies or distributes goods, in the course of specified activities which may be prescribed from time to time;
- a factor, commission agent, broker, del credere agent, or any other mercantile agent by whatever name called, who carries on the business of buying, selling , supplying or distributing goods on behalf of any principal, whether disclosed or not;
- an agent of a non-resident (where such non-resident is a dealer under any other sub-clause of this definition);
- a local branch of a firm or company or association of persons, outside The State where such firm, company, association of persons is a dealer under any other sub-clause of this definition;
- a club, association, society, trust, or cooperative society, whether incorporated or unincorporated, which buys goods from or sells goods to its members for price, fee or subscription, whether or not in the course of business;
- an auctioneer, who sells or auctions goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal;
- a casual trader; or
- any person who, for the purposes of or in connection with or incidental to or in the course of his business disposes of any goods as unclaimed or confiscated, or unserviceable or scrap, surplus, old, obsolete or as discarded material or waste products by way of sale;
VAT in a nutshell
- VAT is a State based tax. If you are dealing in taxable goods within a state, then VAT registration should be obtained.
- Exemption limit for VAT registration vary from state to state and also on the nature of entity and activities. Please refer to state VAT laws for more details on applicability of VAT on your trade.
- CST is applicable for inter-state trades. If you are dealing in taxable goods across the states then CST is applicable and should be charged.
- VAT can be set off. This means if you have paid VAT on your purchases the same can be set off against VAT on your sales and the net amount should be deposited to State Government.
- CST can be set off. This means if you have paid CST on your purchases the same can be set off against CST on your sales and the net amount should be deposited to Central Government.
- VAT and CST cannot be set off against each other.
- VAT returns are required to be filed every Month or every Quarter depending on your turnover. Please refer to your State VAT rules for exact slab for monthly returns or quarterly returns. NIL returns are required to be filed in time if there has not been any business during the period. Late returns are liable for penalty.
What is Service Tax?
Service tax is, as the name suggests, a tax on Services. It is a tax levied on the transaction of certain services (as on date most of the services has been brought under service tax purview) specified by the Central Government under the Finance Act, 1994.
It is an indirect tax (akin to Excise Duty or Sales Tax) which means that normally, the service provider pays the tax and recovers the amount from the recipient of taxable service.
Who is liable to pay service tax?
Normally, the ‘person’ who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government (Sec.68 (1) of the Act). However, in the following situations, the receiver of the Services is responsible for the payment of Service tax :
- Where taxable services are provided by foreign service providers with no establishment in India , the recipient of such services in India is liable to pay Service Tax,;
- For the services in relation to Insurance Auxiliary Service by an Insurance Agent , the Service Tax is to be paid by the Insurance Company
- For the taxable services provided by a Goods Transport Agency for transport of goods by road, the person who pays or is liable to pay freight is liable to pay Service Tax , if the consignor or consignee falls under any of the seven categories viz. (a) a factory (b) a company (c) a corporation (d) a society (e) a co-operative society (f) a registered dealer of excisable goods (g) a body corporate or a partnership firm
- For the taxable services provided by Mutual Fund Distributors in relation to distribution of Mutual Fund the Service Tax is to be paid by the Mutual Fund or the Asset Management Company receiving such service.
Service Tax in nutshell
- You get an exemption from service tax payments if your gross revenue has not crossed Rs.10 Lacs in a year. This is a kind of shelter for small businesses and once you have crossed Rs. 9 Lacs of turnover in a particular financial year, you should apply for the service tax registration.
- Once you receive the service tax registration, you may start charging to your customers additionally for service tax. Please note that service tax is your responsibility to pay, irrespective of whether you have charged your customer service tax additionally or not.
- Service tax exemption of Rs. 10 Lacs is based on your turnover in the previous financial year. This means if your turnover has been 10 Lacs or more in the previous financial year, you need to pay service tax on each and every rupee in the current financial year (irrespective of your current turnover).
- E.g. You started your business in FY 2005-06 and your turnover in FY 2005-06 was 5 lacs, FY2006-07 was 12 lacs, FY 2007-08 was 9 lacs, FY 2008-09 was 15 lacs and FY2009-10 was 8 lacs. This is how you shall traverse in service tax. You should register for service tax in FY FY2006-07 when you cross 9 lacs of turnover and start collecting/ paying service tax on your revenues more than 10 lacs (in the above example on 2 lacs of turnover). In FY 2007-08 you should pay service tax on complete 9 lacs. In FY 2008-09 you may choose not to pay service tax till you cross 10 lacs of turnover (please note that you should also not collect the service tax in this case till 10 lacs of turnover). In FY2009-10 you again have to pay service tax on each and every rupee (here 8 lacs).
- Currently export of services is exempted from service tax. This exemption is applicable for calculating 10 Lac limits.
- You may choose to obtain a service tax registration before crossing 10Lac specified limit. The above example helps you to understand how service tax will be applicable.
- You get a set off of service tax. This means if you have paid service tax while availing services of another company or person, then the same can be set off from your service tax payments and the balance should be deposited with the Government. Set off is applicable for related activities only and provided you have not claimed 10 lac exemption during the period.
- Service tax returns are required to be filed every half year. If you have not done any business during a half year period then NIL returns should be filed in time else you may have to incur penalty for late returns