Question

Explain, in detail, the various formalities required to start a business.

Answer 1

Various formalities for starting a business in India include the following :
(i) Obtain PAN Number from Income Tax Department:
(a) Permanent Account Number (PAN) a ten-digit alphanumeric number, issued by the Income Tax Department enables the department to link all transactions of the person with the department.
(b) These transactions include tax payments, TDS/TCS credits, returns of income/wealth/gift/FBT, specified transactions, etc.
(c) It is mandatory to quote PAN in all documents related to financial transactions like sale or purchase of any immovable property valued at five lakh rupees or more, sale or purchase of a motor vehicle or vehicle, a time deposit, exceeding fifty thousand rupees, with a banking company, a deposit, exceeding fifty thousand rupees, in any account with Post Office Savings Bank, a contract of a value exceeding one lakh rupees for sale or purchase of securities, etc.
(ii) Open a Current Account in any Commercial Bank:
(a) Any person(s) competent to contract and satisfactorily introduced to the Bank may open an account in his/her own name.
(b) Accounts can be opened for sole proprietorship firms, partnership firms, private limited and public limited companies, Joint Hindu families, trusts, clubs, associates, etc.
(c) Accounts can be opened by minors of 14 years and above, if able to read and write, (a) Various documents related to firm are also to be provided.
(iii) Register a Limited Liability Partnership (LLP): Limited Liability Partnership (LLP)
(a) The Limited Liability Partnership (LLP) is an alternative corporate business vehicle which provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement.
(b) The LLP form enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.
(c) It is governed by the provisions of the Limited Liability Partnership Act, 2008.
(d) TO register an Indian LLP, firstly apply for a Designated Partner Identification Number (DPIN), which can be done by filing e-Form.
(e) Acquire the Digital Signature Certificate (DSC) and register the same on the portal. This is the only secure and authentic way that a document can be submitted electronically.
(f) All filings done by the LLP(s) are required to be filed with the use of Digital Signatures by the person authorised to sign the documents.
(g) Thereafter, entrepreneur need to get the LLP name approved by the Ministry.
(h) Once the LLP name is approved, entrepreneur can register the LLP by filing the incorporation form.
(iv) Register Company (Pvt. Ltd/ Public Limited Company): The following steps are involved in incorporating a private or public company in India:
(a) Name of the Business Entity
(b) Register for e-filing at MCA (Ministry of Corporate Affairs) portal
(c) Apply for Director Identification Number (DIN)
(d) Obtain Digital Signature Certificate (DSC)
(e) Register DSC at MCA website
(f) Apply for approval of the name of the company
(g) F ormulate Memorandum of Association
(h) Formulate Articles of Association
(i) Verify, Stamp & Sign Articles of Association
(j) Verify the various forms required for incorporation of company
(v) Register for Service Tax:
(a) Service tax, an indirect tax, which normally the service provider pays the tax and recovers the amount from the recipient of taxable service.
(b) Normally, the person who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government.
(c) 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 factory, a company, a corporation, a society, a co-operative society, a registered dealer of excisable goods, 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.
(vi) Register for VAT/Sales Tax:
(a) VAT is a tax on the final consumption of goods or services and is ultimately borne by the consumer.
(b) The State Governments, through Taxation Departments, are carrying out the responsibility of levying and collecting VAT in the respective States.
(c) The Central Government is playing the role of a facilitator for the successful implementation of VAT.
(d) The entire design of VAT with input tax credit is crucially based on documentation of tax invoice, cash memo or bill.
(e) Every registered dealer, having turnover of sales above an amount specified, needs to issue to the purchaser serially numbered tax invoice with the prescribed particulars.
(f) This tax invoice is to be signed and dated by the dealer or his regular employee, showing the required particulars.
(g) For identification/registration of dealers under VAT, the Tax Payer’s Identification Number (TIN) is used. Sales Tax: Sales tax is levied on the sale of a commodity, which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax. It is levied under the authority of both Central Legislation (Central Sales Tax) and State Governments Legislations (Sales Tax).
Some states also levy additional tax, surcharge, turnover tax, etc.
Sales tax is recovered from the buyer as a part of consideration for sale of goods.
Under state Sales Tax ID number entrepreneur(s) collect and pay tax for any service or product sold, which, qualifies for taxation in the state.
(vii) Excise Duty (If Applicable): Excise duty is a tax on manufacture or production of goods.
“State Excise” duty and “Central Excise” duty are the two type of excise duty which are to be paid to state government and central government respectively.
Subject to specified conditions, generally the following categories of persons are required to get themselves registered with the Central Excise department.
Subject to specified conditions, the various categories of persons need not obtain Central Excise registration.
Apply to the nearest Central Excise Division Office in Form A.l along with a self-attested copy of the PAN issued by the Income Tax Department. After post verification, a regular Registration certificate in form RC is normally issued immediately.
(viii) Shop and Establishment Act: Shop and Establishment Act is to provide statutory obligation and rights to employees and employers in the unorganised sector of employment, i.e., shops and establishments. Shops and Establishment Act is a State Act and therefore State specific Shops and Establishment Rules should be followed for getting knowledge on registration and maintenance of different registers.
(ix) Customs Duty: Customs Duty is levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India.
(x) File Entrepreneurship Memo-randum at DIC (Optional): Entrepreneur may File Part I of Entrepreneurs Memorandum to the District Industries Centre. This may be necessary for claiming certain incentives/subsidies and for certain formalities at the state level.
(xi) Apply for TAN: All persons who are required to deduct tax at source or collect tax at source on behalf of Income Tax Department are required to apply for and obtain TAN.
(xii) Permissions required at the Construction Stage: Following permissions are required to be obtained from the government:
(a) Application for plot/shed, offer letter etc, Allotment of plot/shed, payment of balance occupancy price, taking over possession thereof, Application for issuance of NOC/ SSI registration, Execution of Lease Agreement, Application for grant of connection for construction water, Application for grant of connection for construction power.
(b) Post Construction Clearances: It includes: Building completion/ drainage completion/tree plantation certificate, Permission for mortgage, NOC from Pollution Control Board, Final Fire clearance, NOC from Environment department, Industrial safety permit, Sanction of permanent power, Sanction of permanent water and sewerage connection.
(xiii) Employee’s Provident Fund:Applicable for establishments employing 20 or more persons and engaged in industry.
(xiv) Employee’s State Insurance (ESI) Scheme: The Act is applicable to non-seasonal factories employing 10 or more persons and is extended to shops, hotels, restaurants, cinemas including preview theatres, road- motor transport undertakings and newspaper establishments employing 20 or more persons.