VAT Registration in India

Portrait of a young smiling business woman outdoor

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.

Original Source : http://ajsh.in/blog/foreign-direct-investment-fdi/

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.

How to Register Foreign Companies in India

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India is one of the fastest growing economies in the world with healthy resources and a large market base. In the past few years, there is a great boost in foreign direct investment in India (FDI) because of the changed regulatory environment in the past few years. Therefore, it is very easy for foreign nationals to start a business in India.

Sometimes people get often confused in “Indian Company” and “Foreign Company”. If a foreign national incorporates a company in India then it is an Indian Company. But when a foreign company set up a branch office in India then it is known as Foreign Company.

Foreign Direct Investment (FDI)

The amount/capital to be invested by any foreign national/NRI shall be classified as FDI in India. In 1990s, there was high number of restrictions on FDI in India where as today, there are amendments in all the rules and regulations of company formation in India.

FDI is classified as

  •  Business where FDI is not allowed at all.
  • Business sectors where permission is required from Foreign Investment Promotion Board(FIBP)
  •  Business where no permission required.

All foreign nationals/ NRI’s must go through FDI policy before company incorporation in India in order to check any restrictions, prohibition in the proposed business activity

Entry Strategy into Indian Market

A foreign company can commence operations in India by incorporating a company under the companies Act, 1956 through registration of company or establishing a branch or liaison office.

Establishing a private limited company is the easiest and fastest way to set up in India. FDI of up to 100% into a public limited or private limited is permitted under the FDI policy wherein no approval from RBI or central government is required. For the purpose of registration or incorporation, an application has to be filed with Registrar of companies (ROC). For more information please visit http://dca.nic.in.

Read more: How to Register Foreign Companies in India

 

Why Do You Need Accounting Services?

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Bookkeeping is necessary in every business whether it is a small or large scale business. As a small business owner, following basic accounting principles is essential for success, record-keeping and financial analysis is key to not only monitoring your expenses, but to discovering new avenues of growth. In addition, it ensures you stay responsible for tax obligations to the government and to your employees.

Accounting closely monitors your accounts receivable to illustrate trends or behaviours in your customer base. It can also cut down on the costs you incur by pursuing late payers. Establishing a detailed budget to help discover inefficiencies within your operations. Sudden changes in vendor costs or sales revenues can alert you to important industry changes. Understanding your financial position in order to spot problem areas that could interfere with loans earmarked for expansion.

Taxes are unavoidable. Depending where you operate and the nature of your business, the IRS has very specific requirements about the documentation you’re required to file. Submitting improper or inaccurate documentation can get you into trouble, and it can be extremely costly in terms of fees and penalties. Preparing the required tax documentation has its benefits though, and it can give you vital information about the health of your business. Monthly or quarterly financial statements, cash flow statements, and asset and income statements can provide a clearer picture of your business than your bank balance. Understanding IRS requirements and how you can make them work for you can give you a deeper understanding of your company’s financial health.

As your accounting strategy, review your company’s financial goals. Whether you are a solo entrepreneur or you employ a staff, your survival hinges on clearly stated financial objectives. You may be in business to reap as much profit as you can, or you may be interested in sharing a product or service that you believe in. Either way, one of the most common reasons small business fail is because cash flow runs dry. To prevent this disaster, your business should implement policies for efficient record-keeping and a sound financial strategy.

A qualified accountant can assist in numerous ways outside of managing day-to-day finances like advising on how best to structure a company before it’s formed, consulting on the financial details of your business plan, identifying potential cost savings in operations, managing payroll, developing a financial safety net, liaising with the IRS in the event of an audit.

The financial implications of business ownership are extensive, yet critical to a company’s success. Having a dependable, efficient accounting service can free up your time to focus on the things you love about your business.

How To Register A Trademark In India

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When an outsider looks for startup business, the first thing they notice is the trademark. A trademark is the identity of a business lies. It is the name and symbol under which a business undertakes its trade and commerce, which represents the company.

In India, trademarks are regulated by the Trade Marks Act of 1999. The Act aims to provide registration and better protection towards trademarks while preventing the use of fraudulent marks.

How to Choose a “Good” Trademark

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The mark(s) should be easy to remember.

It should be short and easy to spell and write.

It may be aesthetically appealing.

It should not ideally be descriptive in its nature.

It can be fanciful and coined, to avoid confusion.

“APPLE/ASUS/DELL/HP/LENOVO” for computers are an example of a non-descriptive and arbitrary mark, which makes for good trademarks.

“KODAK” for cameras is a coined term; that also makes a good trademark.

“MICROSOFT” for software, “LAKME/AMWAY/AVON” for makeup, are all good examples.

How to Apply For a Trademark?

Conduct a trademark search that will let you know if there are similar trademarks that are already registered.

Apply for a trademark registration. You can do this by yourself through the Government website, or get a lawyer to do it for you. The procedure of application is laid down in the Trade Marks Act, 1999.

An application number is allotted for every pending registration, which can be tracked on the website.

If the application is accepted, it will be published in the Trademark Journal. If there are no oppositions, your trademark will be registered to you. However, if there are oppositions, there will be a hearing in the Trademark Hearing Office to decide on the final registration of the mark.

Benefits of Registering Your Trademark

A registered trademark identifies and advertises the good/service.

It protects the commercial goodwill of the trader/owner of the trademark.

It protects consumers from buying forged or inferior goods.

In the case of an infringement of a registered trademark, the owner has the option of civil and criminal remedies. In the case of an unregistered trademark, the only remedy available to the owner is the option of filing a suit of passing off.

In India, it is not compulsory to register a trademark. However, there are certain obvious benefits of registration of the same. The benefits are enumerated as above: