What is subsidiary company in India

slider3Subsidiary company is any company whose interests are held and controlled or held by another company. Paid up equity share capital and preference share capital of the subsidiary company can be used to determine the holding company, subsidiary company relationship between two companies.

What is a Subsidiary Company?

There’s often a lot of confusion regarding the position of the subsidiary company and what it does. A subsidiary company is a company that is either owned or owned in part by another company. The company that owns the subsidiary is known as a parent company or a holding company. It should be noted that a holding company does slightly differ from a parent company, though.

What is WOS (Wholly Owned Subsidiary)

When one company is 100% owned by another company, it is called Wholly Owned Subsidiary of the company who had made 100% investment in it.

How To Set Up a Subsidiary

To setup one of these companies, you only need a sole director. The requirement for a company secretary was waived some years ago. The only restriction is that the sole director cannot then act as the company secretary. When you register as a sole director, you will enter both your residential address and a service address. Only the service address will appear in the public records.

The key here is that in the various documentation you submit regarding shareholders you will have both an individual director and another company as a shareholder. You are prohibited from having an entire company owned by another company.

Once you submit the documents, you will have a decision within 24 hours from Companies House.

Conclusion

Opening up a subsidiary isn’t a decision that you should take lightly. It isn’t always necessary and it may be better to simply open a different company from scratch. You have to make this decision by yourself. And it may be better to employ a professional agent to help with the opening of your subsidiary.

 

Know more about how to register company in India

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Ease of doing business: Government plans to introduce new integrated from for company registration.

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The government plans to introduce a new version of the integrated company incorporation gurgaon form in a measure aimed at enhancing ease of doing business that targets reduction in average number of days for incorporating a company to one to two days from more than four days at present.

The new form, INC29, will have an option for entities to apply for director identification number or DIN and reservation of name through a single e-form.

“This new version of form INC29 will allow up to five directors to be appointed and greater flexibility in proposing a name for a company. Suggestions from the stakeholders are being taken,” the government said in a press release.

The reservation of a name, incorporation of company and appointment of directors of the proposed company can be filed in the integrated form. The government said the time taken for company registration gurgaon has already been halved through measures introduced to enhance ease of doing business.

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Online Services May Face Google Tax

The digital space has grown rapidly in the past few years and is expected to grow substantially in next few years too. The biggest beneficiaries of this rapid growth in the digital space are companies earning through digital ads like Google,Facebook,Twitter,LinkedIn etc.

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Moreover, these companies are located outside India, and hence they are not even subject to any taxes in India. These new business models have created new tax challenges by challenging the current manner of levy of tax which are based on the presence based on permanent establishment rules..

The ‘Google Tax’ or ‘Facebook Tax’ which was first announced in the FY17 budget statement by Finance Minister Arun Jaitley will be levied from June 1. Here’s all you need to know about it — what Google Tax is, who will pay it, and its implications —

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As the name suggests, it’s got something to do with e-commerce companies.

The Google Tax was announced to introduce a tax on the income as accrue to a foreign e-commerce company outside of India. Google Tax or ‘equalisation levy’ as it’s called in India, is expected to impact the bottomlines of giants like Google, Facebook, and others.


Why has the tax been introduced?

The tax has been aimed at technology companies that make money via online advertisements. Their revenue is mostly routed to a tax haven country. This tax will help bring the said companies under the tax radar in India. With this new tax, India has also joined the list of other Organisation for Economic Cooperation and Development (OECD) and European countries where a similar tax is already in place.

The government has earned Rs.100 crore in revenue on account of the equalisation levy so far. Companies like Facebook, Yahoo, Twitter and Google earn significant revenues from India from local advertisers. A committee set up by the Central Board of Direct Taxes to examine indirect taxation in India of e-commerce had recommended an equalisation levy of 6-8 per cent on 13 broad services based on the OECD’s Base Erosion and Profit Shifting guidelines.

VAT Registration in India

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Value Added Tax or VAT is a mandatory requirement for all kinds of business. Proprietorships, partnerships, private limited companies, manufacturing firms and even traders of any kind of products need VAT registration. VAT is similar to Central Service Tax (CST) and Taxpayer Identification Number (TIN). They use the same 11 digit number.

What is VAT?
VAT is an indirect tax levied on goods and services when they are sold to the ultimate customer. VAT is paid by the producers to the government. The producers then collect the tax amount from the consumer, by adding it to the price.
A registered business may also apply for the Input Tax Credit (ITC) and apply it on future sales. This will relieve the company of paying VAT themselves. With ITC registration, the VAT amount is added to the retail invoice and the customer makes the payment.

When is VAT Registration Compulsory?
Businesses with an annual turnover of more than Rs.5 lakhs (in some states it is Rs.10 lakhs), must acquire a registered VAT id. The VAT rates vary from state to state, business categories and the type of goods delivered. The amount of VAT charged is controlled by the state governments. This is why it varies from place to place.
The tax is based on value addition to manufactured goods. VAT id owners having an annual turnover of Rs. 50 lakhs are entitle to the Composition Scheme. Under this scheme the business must pay only a small percentage of tax on its gross turnover. However, it requires the said business to compromise its ITC agreement and forgo its benefit.

Acquiring a VAT id
To obtain a VAT id you need to go through the process of VAT id registration. The procedure involves 6 basic steps.

Step – 1 Locate Central Tax Office
Identify the Central Tax Office within the city your business is based. The tax office should house the VAT registration department as well.

Step – 2 Obtain Registration Form
Request for a VAT id registration form from the VAT office.

Step – 3 Attach Valid Documents
Fill out the application form with the correct details and attach the following documents to it:
– Central Sales Tax registration certificate (Form A)
– Professional Tax registration certificate
– Proof of address and ID of the proprietor, partner or director
– Four passport size photographs of the proprietor, partner or director
– Bank account number and PAN card number of the proprietor, partner or director
– Documents stating the details of your business activities
– In case of a partnership, a copy of the Partnership deed
– Incase of a private limited company, a copy of the memorandum of association and articles of association
– A copy of the rental agreement of the business

Step – 4 Verification
At this step, the local VAT authorities will inspect your business premises at a time scheduled by them.

Step – 5 Collect Registration Certificate
The last step after verification and fee payment requires you to collect the Taxpayer Identification Number (TIN) provided immediately. The VAT registration certificate will be issued either the next day or within a week via post.

Why is VAT Registration Important?
VAT is a primary tax that adds to the nation’s revenue and economy. As a result it is a mandatory tax for all business establishments. The registration process is very easy. The fees are fixed and the verification process is simple.

Source : http://www.ajsh.in/blog

Union Budget 2017 highlights

2017-02-04-12_32_32-union-budget-2017Finance minister Arun Jaitley presented the Union Budget 2017 in Parliament on Wednesday. The biggest highlight in the 2017 budget was the slashing of income tax by half for individual tax payers, ban on cash transactions over Rs. 3 lakhs and reduction in holding period to 2 years for capital gains. In this article, we look at the highlights of the 2017 Budget with respect to an Entrepreneur or Business Owner in India.

Related : Company formation in India

Income Tax
Income tax rate has been slashed from 10% to 5% for individuals who earn between Rs.2.5 lakhs to Rs.5 lakhs. Now after rebates, even a person with a Rs.3 lakhs income could enjoy zero tax liability. Since, proprietorship firms are taxed similar to individuals, micro enterprises having income of less than Rs.5 lakh would enjoy the benefits in tax reduction.

 

Tax Break for Startups
Continuing to build on the 2016 Budget by extending special support for Startups, the Finance Minister has increased the period of profit-linked deductions available to Startups to 3 out of 7 years from the current 3 out of 5 years.

 

Budget 2016-17 kick-started the process. Several deductions were reduced and sunset dates put for others along with reductions in tax rates for some categories of businesses – new manufacturing companies set up after March 2016 were given the option of being taxed at 25 percent provided they did not claim any exemption and companies with turnover less than Rs 5 crore got a 1 percent reduction. However, some new exemptions were given to start-ups, with certain conditions.

This year, admittedly, Jaitley has not moved forward on withdrawing exemptions even as he reduced corporate tax rates.

But let’s look at who has got this benefit: the small and medium enterprises sector. Income tax for companies with an annual turnover of up to Rs 50 crore has been brought down to 25 percent. A big chunk of this lot was paying an effective tax rate of 30.26 percent, while the large companies (turnover above Rs 500 crore) paid an effective tax rate of 25.9 percent. So Jaitley has in a way done the tax equivalent of social levelling. Large companies have not got any tax relief this year.

 

Stimulating Bank Credit
To stimulate bank credit to businesses, various measures have been announced as follows in the 2017 Budget:

  • The allowable provision for Non-Performing Asset (NPA) of Banks has been increased from 7.5% to 8.5% to improve the risk appetite of Banks.
  • In line with the ‘Indradhanush’ mission, Rs. 10,000 crores has been allocated in the 2017 Budget for recapitalisation of Banks.
  • Lending target under Pradhan Mantri Mudra Yojana hase been increased to Rs. 2.44 lakh crores. Priority under the scheme will be given to borrowers from certain backgrounds like Dalits, Tribals, Backward Classes.

Foreign Direct Investment (FDI)

India has already marked its presence as one of the fastest growing economies of the world. It has been ranked among the top 10 attractive destinations for inbound investments. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor-friendly.

The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors and simplifying other conditions of the FDI policy. FDI policy reforms are meant to provide ease of doing business and accelerate the pace of foreign investment in the country.

Foreign Direct Investment (FDI)

FDI because the name suggests, it’s associate degree investment directly created by a remote company into business in another country. Such investment may well be either within the kind of business enlargement in another country or may well be a results of acquisition of the corporate.

Company formation in India

Direct Foreign investments in India approval were introduced by the then Finance Minister Dr. Manmohan Singh in 1991 under Foreign Exchange Management Act to promote such investments thereby increasing supply of domestic capital & increase the economic growth.

As per Foreign Exchange Management Act, ‘FDI’ means investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000.

Advantages of FDI in India

There are several benefits of increasing foreign direct investment in India. First of all, with more FDI, consumers will be able to save 5 to 10 percent on their expenses because products will be available at much less rates and to top it all, the quality will be better as well. In short, it will be a win-win situation for the buyers. It is also expected that the farmers who face a lot of economic problems will also get better payment for their produce. This is a major benefit considering how many farmers have been giving up their lives lately. It is expected that their earnings will increase by 10 to 30 percent.

FDI is also supposed to have a positive effect on the employment scenario by generating approximately 4 million job opportunities. Areas like logistics will be benefited as well because of FDI and it is assumed that 6 million jobs will be created. The governments – both central and state – will be benefited because of FDI. An addition of 25-30 billion dollars to the national treasury is also expected. This is a substantial amount and can really play a major role in the development of Indian economy in the long term.

Steps Taken by Government to Promote FDI

The Indian Government has taken a number of steps to show its willingness to allow more foreign direct investment in the country. In the infrastructure development sector, it has relaxed the norms pertaining to area restriction, the laws regarding gaining a comfortable exit from a particular project and the requirements relating to minimum capitalization. If companies are ready to commit 30 percent of their investments for affordable housing, then the rules for minimum capitalization and area restriction will be waived off. It is expected that this will benefit the construction sector a lot, especially in the form of greater investment inflow.

The Indian Ministry of Finance has also proposed that 100 percent FDI will be allowed in railways-related infrastructure. However, this does not include the operational aspects. While it is true that the foreign investors will not be allowed to intervene in railway operations, they will be able to provide for high-speed trains, such as bullet train, and enhance the overall network in the process.

Who can invest in India?

  •  A Non-resident entity means a person resident outside India.
  • Non Resident Indian or Person of Indian Origin (PIO holder) or Overseas Citizen of India (OCI holder).
  • A body corporate means a company incorporated outside India.
  • Foreign Institutional Investor (FII) means an entity established or incorporated outside India which proposes to make investment in India and which is registered as a FII in accordance with the Securities and Exchange Board of India (SEBI) (Foreign Institutional Investor) Regulations 1995..
  • Foreign Venture Capital Investor (FVCI) means an investor incorporated and established outside India, which is registered under the Securities and Exchange Board of India.

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Direct Indirect Tax Difference

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A tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or administrative division. Failure to pay tax is punishable by law.Tax is not a voluntary payment or is a contribution imposed by government, state or administrative division to enable them to meet the expenses.

So if anybody earns an income, he should share a portion of the same with the government. In India, taxes are divided in Direct Indirect Tax.

The way in which taxes are imposed, decides whether the tax is direct or indirect.

If a tax is levied directly on a person income then they are called direct taxes

Whereas the indirect taxes are levied on a product or a service the incidence of which is borne by the consumers who ultimately consume the product or the service.

For example I earn Rs. 12 Lac as salary. Suppose I need to pay Rs. 8000 as income tax on this salary income. Since the income tax of Rs. 8000 is directly levied on my salary income hence income tax is direct taxes.

Suppose in second case, I paid Rs. 950 (Rs. 900 basic amount + Rs. 50 as service tax) as my mobile bill to Airtel. Airtel will retain Rs. 900 and pay the Service tax Rs. 50 to the government.

Difference between Direct Tax and Indirect Tax:

There are different implications of direct and indirect taxes on the country. However, both types of taxes are important for the government as taxes include the major part of revenue for the government.

Key differences between Direct and Indirect Tax are:

  • Direct tax is levied and paid for by individuals, Hindu undivided Families (HUF), firms, companies etc. whereas indirect tax is ultimately paid for by the end-consumer of goods and services.
  • The burden of tax cannot be shifted in case of direct taxes while burden can be shifted for indirect taxes.
  • Lack of administration in collection of direct taxes can make tax evasion possible, while indirect taxes cannot be evaded as the taxes are charged on goods and services.
  • Direct tax can help in reducing inflation, whereas indirect tax may enhance inflation.
  • Direct taxes have better allocative effects than indirect taxes as direct taxes put lesser burden over the collection of amount than indirect taxes, where collection is scattered across parties and consumers’ preferences of goods is distorted from the price variations due to indirect taxes.
  • Direct taxes help in reducing inequalities and are considered to be progressive while indirect taxes enhance inequalities and are considered to be regressive.
  • Indirect taxes involve lesser administrative costs due to convenient and stable collections, while direct taxes have many exemptions and involve higher administrative costs.
  • Indirect taxes are oriented more towards growth as they discourage consumption and help enhance savings. Direct taxes, on the other hand, reduce savings and discourage investments.
  • Indirect taxes have a wider coverage as all members of the society are taxed through the sale of goods and services, while direct taxes are collected only from people in respective tax brackets.
  • Additional indirect taxes levied on harmful commodities such as cigarettes, alcohol etc. dissuades over-consumption, thereby helping the country in a social context.

Both direct and indirect taxes are important for the country as they are intricately linked with the overall economy. As such, collection of these taxes is important for the government as well as the well-being of the country. Both direct taxes and indirect taxes are collected by the central and respective state governments according to the type of tax levied.