SuperCA

One Stop Solution for all your taxt related needs

[superca]

15 Explanation On Why Online GST Return Filing Is Important

You will also be liable to pay interest and a late fee if online GST return filing is not done within the due date....

[superca]

15 Explanation On Why Online GST Return Filing Is Important.

A GST return contains all the details of sales, purchases, tax collected on sales and tax paid on purchases that needs to be filed compulsor

[superca]

15 Explanation On Why Online GST Return Filing Is Important

A GST return contains all the details of sales, purchases, tax collected on sales and tax paid on purchases that need to be filed compulsori

[superca]

15 Explanation On Why Online GST Return Filing Is Important.

A GST return contains all the details of sales, purchases, tax collected on sales and tax paid on purchases that need to be filed compulsorily by all registered taxpayers. Once you file GST returns, you will need to pay the resulting tax liability i.e money that you owe the government.

The details of sales and purchases of the goods and services plus the tax paid and collected have to be furnished by all registered individuals, traders, organizations, and companies. Such details are submitted by online GST return filing and on the basis of this, the tax authorities calculate tax liability.

[superca]

Reverse Charge Mechanism in GST

In the Reverse Charge Mechanism in GST, tax is paid by the receiver directly to the government; it does not go through the supplier, read mo

[superca]

Section 194N of Income Tax Act

the ITR filing tax department can easily access the data of huge cash transactions and further investigation into the matter related to the

[superca]

Section 194N of Income Tax Act

the ITR filing tax department can easily access the data of huge cash transactions and further investigation into the matter related to the

[superca]

Reverse Charge Mechanism in GST

It is always the case where the supplier of goods and services is liable to pay the GST. But, when it comes to Reverse Charge Mechanism, the receiver of goods and services has to pay the tax, meaning that the tax liability is reversed. Reverse Charge means the liability to pay tax while GST return filing is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.

According to the normal GST return filing procedure, the supplier sells goods/services to the receiver and the latter pays the former for the same. This payment also includes GST, which the supplier then pays to the government. But, in the case of the Reverse Charge Mechanism in GST, tax is paid by the receiver directly to the government; it does not go through the supplier and is not part of the exchange of goods/services.

When is a reverse charge applicable?

Several acts govern the reverse charge scenarios for intrastate transactions. Section 9(3), 9(4) and 9(5) of Central GST and State GST deal with it. Also, sections 5(3), 5(4) and 5(5) of the Integrated GST Act govern the reverse charge scenarios for inter-state transactions. Let’s take a closer look at these scenarios.

Supplies of goods under reverse charge mechanism:

Time of supply under reverse charge mechanism (RCM)

The time of supply under GST means a particular point of time when the goods or services are supplied or provided. Using the time of supply, you can find the tax rate applicable on goods or services, the person liable to pay tax and due dates for paying GST and GST return filing. Under the reverse charge mechanism, the method to determine the time of supply is different for goods and services.

In the case of goods supplied under RCM, the time of supply will be the earliest of the following dates:

-Date of receipt of goods

-Date immediately after 30 days from the date of issue of an invoice by the supplier

In the case of services rendered under RCM, the time of supply will be the earliest of the following dates:

-Date of payment

-Date immediately after 60 days from the date of issue of invoice by the supplier

In case, the time of supply cannot be determined under the given conditions above, then the time of supply will be the date of entry in the books of account of the recipient.

RCM Provisions Under GST Return filing Forms — GSTR 1 — GSTR 2

In case the supplier is registered, but the goods or services come under a reverse charge mechanism, ITC cannot be claimed by the supplier as the tax is not credited by him but the receiver is paying the taxes. In the case of importers of goods, taxes need to be paid under a reverse charge mechanism to the Government on the import while GST return filing.

The details of the charges pertaining to the inward supply of goods or services are to be mentioned in the GST Return filing form 1. The details of inward supply are stated in GST Return filing form 2. Further, the person needs to get registered under GST irrespective of the turnover, if he/she is liable to pay tax under the reverse charge mechanism

Final Words

The main purpose of the reverse charge mechanism is to collect indirect tax easily and conveniently from the recipient while GST return filing so as to increase tax revenues more effectively in cases where the supplier of particular goods or services is situated in non-taxable territories or not well versed with the tax laws.

[superca]

How to claim maximum ITC under GST

GST taxation structure allows businesses across India to claim input credit (ITC) for the tax they paid while purchasing capital goods for their company. Input Tax Credit (ITC) simply means the tax already paid by a person at the time of purchase of some goods or services which is available as a deduction from tax payable while GST return filing.

Claiming Maximum ITC Under GST

The ITC on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.

➤ Keeping a Regular follow-up with your dealers

Every taxpayer should follow up with their dealer on a regular basis for timely uploading their sales invoices in the GST return filing form GSTR-1. The GSTR-2A/2B of the recipient taxpayer will get auto-populated with the ITC values once the suppliers upload their sales invoices in the GST return filing form GSTR-1 return, and the recipient will be able to claim this credit in their GSTR-3B return.

➤ Identify tax payable on an Reverse Charge Mechanism basis

Under the reverse charge mechanism, tax should be paid by the recipient instead of the supplier. Thus, the expenses must be carefully analyzed by the taxpayers and inward supplies should be identified on which tax is to be paid on a reverse-charge basis. This tax should be paid timely, thus enabling ITC claims on these amounts in the next tax period.

➤ Keeping proper records of books of accounts

Taxpayers should ensure accurate records of all their sales, purchases and expenses. The Invoice copies should be maintained either in digital mode or paper-based. This will facilitate accurate ITC claims and make way for easy reconciliations while GST return filing.

➤ Consistent reconciliations

Input tax credit claimed by the person has to match the details that are specified by the supplier in the GST return filing. In case there is a mismatch the supplier and the recipient will be informed about the discrepancies once the GSTR 3B is filed.

Thus, the taxpayers should regularly check their GSTR-2B and reconcile the same at frequent intervals with the purchase register. It will in turn help in identifying defaulting suppliers and following up with them to upload the relevant invoices. Regular reconciliations help in identifying missed/mismatched/unclaimed ITC and claim the same within the prescribed time frame.

➤ Identifying debit notes raised at any subsequent time.

Taxpayers must check that a well-defined system is there for identifying debit notes raised at a later date so that any additional ITC can be claimed timely.

Time limits for claiming ITC under GST

ITC can only be claimed for tax invoices and debit notes which are less than a year old. In any other case, the last date to claim ITC is the earlier of the following:

➤ Before filing valid GST returns for the month of September following the end of the financial year applicable to that invoice. For example, for an invoice issued on June 26, 2018, ITC should be claimed by September 2019.

➤ Before filing a relevant annual return.

Cessation

Claiming ITC in GST return filing helps you reduce the tax you have already paid on inputs and pay the balance amount. For availing of this benefit, there is a proper set of guidelines. It ensures the accountability of the suppliers to pay the required tax also prevents the overall increase in the price.

[superca]

How to file income tax for Sole Proprietorship Business

Sole proprietorship registration is the registration of a “One Man Business Entity”. All the investments for the Sole Proprietorship business are done by the single proprietor who bears all the losses and enjoys all the profits. The overall control of the business, as well as its management, is in his hands. He can appoint individuals for conducting the business, but the ownership will rest solely with him. Sole proprietorship registration is the most simple one with minimal compliance procedures. Any individual who wants to start a business from home or on a premise with a minimum amount can opt for Sole proprietorship registration. It can be started within the time span of 10-15 days

This type of business is one of the most popular types of business to begin in the unsystematic sector, specifically among micro and small businessmen, traders or merchants due to its simple structure and slab-wise tax benefit. The majority of the unorganized sectors prefer Sole Proprietorship registration.

How Sole Proprietors are taxed?

Sole proprietorship registration business structure has minimal legal, regulatory and registration requirements and therefore is the simplest business structure as for incorporation and setting up is concerned and is extensively popular among small business owners.

The income tax returns of Sole Proprietors’ are to be filed every year unless there is an exemption. Since the proprietor and the proprietorship firms are considered as one single person, its income is added to that of the proprietor and the individual's tax return is filed according to the applicable slab rates. Two forms are to be filed depending on the nature of the proprietorship.

Form ITR-3

This form should be used to file Income tax if the proprietorship firm is run by a Hindu Undivided Family (HUF) or by any proprietor.

Form ITR-4 Sugam

The proprietorship firm uses this form for proprietorship tax filing under a presumptive tax scheme. This is done to reduce the burden of compliance of small businesses.

As mentioned before the income tax of a firm having sole proprietorship registration is the same as that of the proprietor meaning, the business income of the proprietorship is added into the income of the proprietor himself. Therefore the business taxes become the personal taxes of the proprietor. He is still entitled to all tax deductions offered to individuals or Hindu Undivided Family (HUF) as the case may be.

Income Tax Slab Rate (FY 2020-21 onwards) for firms with sole proprietorship registration

Tax slab rates for sole proprietorship income tax return filing wherein the proprietor's age is above 60 years but less than 80 years at any time during the previous year.

Tax slabs for proprietorship firms where the age of the proprietor is above 80 years.

Tax slab for firm with sole proprietorship registration where the proprietor is a non-resident individual ( Irrespective of the proprietor's age)

Surcharge

The surcharge is payable over and above the income tax calculated as per the income tax rate provided below. The applicable surcharge for Financial Year 2020-21 is detailed below.

Steps For Sole Proprietorship Firm Income Tax Return e filing

Income tax return for firms with Sole Proprietorship registration is complete online. Once the financial statement for the proprietary business is ready, prepare for the firm's computation sheet.

Step 1 - Register yourself at the e-filing portal; if already registered you have to log in using your PAN.

Step 2 - Download Income Tax Return Form

Step 3 - Prepare Financial statements of the firm and Computation sheet of the firm

Step 4 - Fill details in the Income Tax Return form

Step 5 - Validate tax return form & generate xml file

Step 6 - Upload xml file at income tax site

Step 7 - E verify ITR with evc / otp / post

The due date for ITR return filing

The deadline for filing the income tax return for sole proprietors is dependent upon whether it needs to be audited under the Income Tax Act,1961 and whether it has conducted any international transactions.

- Proprietorship that doesn’t require an audit has to file their returns by the 31st July.

- Proprietorship that requires to be audited needs to file their returns by the 30th of September.

- Proprietorships that have conducted any international transactions or certain specified domestic entities have to file their returns by 30th November.

[superca]

Documents Required for Sole Proprietorship Registration

Registration of the firm is the overriding and most important step for any business organization. Company registration is very essential for protecting your business and securing its rights. It shields the business from personal liability and protects from other risks and losses and at the same time provides more customer attraction, more capital contribution, greater stability and increases the company's potential to expand. Before registering your company, you should have clarity on the kind of business you are into, your goals and objectives since each of these types come with their own legal implications. There are various forms of businesses available that one can register with. Among all, sole proprietorship registration is the most simple one with minimal compliance procedures. Any individual who wants to start a business from home or on a premise with a minimum amount can opt for the Sole proprietorship business type. It can be started within the time span of 10-15 days.

In this article, we’ll talk about the various documents which are required while going for offline or online sole proprietorship registration.

Sole Proprietorship registration is a cakewalk. But before going for offline or online sole proprietorship registration, you need to take care of some basic things. Firstly, you have to decide on a suitable business name and choose a suitable location as the designated place for doing your business.

Let’s now understand how an individual can register for a sole proprietorship in India. Even though a sole proprietorship business does not need any specific registration, the owner is advised to get a few registrations done in order to establish the existence of the firm:

Registration under Shop and Establishment Act

It will provide you with the license or the right of doing business in your locality/state. It can be done by submitting an application to the city’s local Municipal Corporation.

Udyog Aadhaar under Ministry of MSME

A proprietor can apply for Udyog Aadhaar in order to get a UIN provided by the MSME. The firm can register itself to avail of the benefits of the various schemes introduced by the Ministry of MSME by getting the Udyog Aadhar.

GST registration

It is also seen as another way of getting your sole proprietorship registered but it is not mandatory for sole proprietorship registration. Getting registration under GST will also help the owner to keep an eye on his taxation through all the transactions made in the name of the firm.

Documents Required for Sole Proprietorship Registration

The entire process for Sole Proprietorship registration can be completed online. The following documents are required to be uploaded by the person:

➢ Identity Proof - Aadhar & PAN Card

Aadhar card is now a necessity for applying for any type of registration in India. Also, the income tax return can only be filed if the person has linked his PAN card with the Aadhar number. Likewise, PAN is equally essential. You can’t file your income tax return until you get a PAN. So if you don’t have a PAN number, apply for it at the earliest.

Open the Bank Account in the name of Business

After this, Generating a current account is considered to be the groundwork for starting this business. A current account ensures safe payments in the proprietorship’s name. Once you have secured the PAN and Aadhar Number, you can approach any designated bank opening a current account. Common documents required for serving this purpose include PAN, Aadhar Number, GST registration, and address and identification proof.

➢ Address Proof

A proof must be provided to ensure the registered office address of the Pvt. Ltd company. Any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, which must not be older than two months at the least can act as Proof of evidence

If the registered office is rented, the rent agreement and a NOC from the landlord has to be submitted. This acts as an authorization from the Landlord to use the premises by the company as its registered office.

➢ Passport size photos

While there is no strict specification regarding the size and resolution of the image, it is preferred that the photograph have a white background.

Cessation

A Sole Proprietorship business does not take more than 15 days to set up and start functioning. This simplicity makes it popular among small traders and merchants. It's also much cheaper, of course. This is the other reason why it's the most widely used business structure. However, it also has disadvantages like Lack of Resources, Unlimited Liability, Lack of Credibility, issues in raising funds easily and inability to add Partners.

[superca]

Threshold limit in case of service or trade to apply for GST Registration

GST Registration is a process for applying for a unique GSTIN i.e. GST Identification Number on the GST Portal. The taxpayer requires GSTIN to collect and pay GST on the outward supplies i.e. sales and claim GST input tax credit on the inward supplies i.e. purchases.

As per the GST rules, it is compulsory for a business/supplier that has a turnover of above Rs.40 lakhs (Rs 10 lakhs for special category states present in hill states and North-Eastern states) to register as a normal taxable entity. Also, there are various types of GST Registrations described under the GST Act. Types of Registration depends on the nature of the business. Undergoing the registration procedure is difficult without recognising its different forms. That’s why it is very necessary that we should be aware of their types & acquire a better idea regarding the same.

GST Registration for Traders

The applicability of GST to trading in securities is a confusing question that is very common amongst traders. It should be noted that GST is not applicable to income from trading in stocks, shares, mutual funds, futures, options etc. However, it is mandatory to register under GST if the Aggregate Turnover exceeds the threshold limit of Rs. 40 Lakh (Rs 10 lakhs for special category states present in hill states and North-Eastern states) for sale of services.

The GST Act specifically excludes “Securities” from the definition of Goods. Section 2(52) clearly states that Goods means any movable property except money and securities. The definition of Services means anything other than goods, money and securities. Hence, trading in shares and securities is not considered as supply as per the GST Act and falls outside the purview of GST and the securities traders are not required to register under GST. In the GST regime, the aggregate turnover includes the sum of the sale of goods and services. Since ‘securities’ are excluded from the definition of goods and services, the aggregate turnover should not include trading turnover to determine the applicability of GST Registration.

Also, GST is not payable by the stockbrokers on these recoveries as long as the conditions of the pure agent as provided in Rule 33 of the CGST Rules, 2017 are met. If not, then valuation will be done as per section 15 of the CGST Act, 2017 read with Rule 27 of CGST Rules, 2017.

However, it should be noted that if a broker is earning brokerage income from securities trading, GST registration is mandatory if such brokerage exceeds the threshold limit. Since the stockbrokers are engaged in the business of supplying the stockbroking service, appropriate GST is payable on the same.

Trading Expenses

Since expenses incurred on share trading such as brokerage, turnover fees, transaction charges etc fall under the definition of Services as per the GST Act, the GST is applicable on it.

Expenses incurred on trading in securities also include CGST, SGST or IGST. This is the GST on trading expenses which the trader pays for trading transactions. Such expenses can be claimed against the profit/loss from trading while filing the Income Tax Return.

Return Filing?

All the Registered Dealers are required to file GST returns irrespective of the type of business or turnover or profitability during the return filing period. Under the GST Regime, even a dormant business that has obtained GST registration must file their GST return.

Two monthly returns and one annual return has to be filed by a regular business which amounts to 26 returns in a year. The number of GST filings varies for quarterly GSTR-1 filers which are 17 in a year. There are separate GST returns required to be filed in special cases, for instance, for composition dealers who have to carry out GST filings 5 times a year.

For traders, turnover as per ITR must match with sales reported in GST Return. If the trader does not have GST Registration, he/she need not report details of GSTIN in the Income Tax Return. If the trader has income from any business other than securities trading and has GST Registration, it is advisable to report the trading turnover from securities trading under Non-GST Supply in the GST Return.

[superca]

How to choose a name for a Private Limited Company and its governing rules

Company Registration is the overriding and most important step for any business organization. In order to protect your business and secure its rights, company registration is very essential. It shields the business from personal liability and protects from other risks and losses and at the same time provides more customer attraction, promotes greater capital contribution and greater stability and increases the company’s perspective to expand and grow.

Choosing a company’s name is a cautious step in the company registration process. It is very crucial to choose your business structure and its name as it indirectly affects your business. Thus, before going for company registration, you should have clarity on the kind of business you are into, the name, your goals and objectives since each of these has its own implications.

The name of a company is something that needs to be unique, desirable and one of its kind to make it stand out from the rest. Hence, there are specific guidelines for choosing a name for a Private Limited Company. In this article we’ll talk about the basic rules about the naming of the firm one should keep in mind while applying for offline or online company registration.

First of all, let’s get to know some basic things about private limited companies. Private Limited Company in India lies somewhere between a partnership firm and a widely owned public company. It can be registered with a minimum of two people. A person can be both a director and shareholder in a Private Limited Company. It offers limited liability or legal protection to its shareholders. The liability of the members of a Private Limited Company is limited to the number of shares held by them. The Company can start its business after getting the certificate of incorporation which can be incorporated within 15 working days.

Guidelines for the availability of name

The applicants and Registrar of Companies are advised to comply with the following guidelines while applying or approving the proposed name while company registration:

A company name need not be a brand name but it is a name that is the base of the brands that the firm manufactures. However, in case the proposed name is indicative of any activity, the same will be appropriately reflected in the main object clause of the Memorandum of Association (MoA) while company registration

If the Company’s main business is finance, housing finance, chit fund, leasing, investments, securities or a combination thereof, such name shall not be allowed unless the name is indicative of such related financial activities, like Chit Fund/ Investment/ Loan, etc.

If it includes the words indicative of a separate type of business constitution or legal person or any connotation thereof, the same shall not be allowed. Example- co-operative, sehkari, trust, LLP, partnership, society, proprietor, HUF, firm, Inc., PLC, GmbH, SA, PTE, Sdn, AG etc.

Abbreviated names such as ‘XYZ limited’ or ‘23K limited’ cannot be given to a new company. However, in case the company is well known in their respective field by abbreviated name, then they are allowed to change their names to abbreviations of their existing name after following the requirement of Section 21 of the Companies Act, 1956.

If the proposed name is identical to the name of a company dissolved as a result of liquidation proceeding should not be allowed for a period of 2 years from the date of such dissolution since the dissolution of the company could be declared void within the period aforesaid by an order of the Court u/s 559 of the Act.

Moreover, if the proposed name is identical with the name of a company which is struck off in pursuance of action u/s 560 of the Act, then the same shall not be allowed before the expiry of 20 years from the publication in the Official Gazette being so struck off since the company can be restored anytime within such period by the competent authority.

If the proposed names include words such as ‘Insurance’, ‘Bank’,‘Stock Exchange’, ‘Venture Capital’, ‘Asset Management, ‘Nidhi’,‘Mutual fund’ etc, the name may be allowed with a declaration by the applicant that the requirements mandated by the respective regulator, such as IRDA, RBI, SEBI, MCA etc. have been complied with by the applicant.

If the proposed name includes the word “State”, the same shall be allowed only in case the company is a government company. Also, if the proposed name contains only the name of a continent, country, state, city such as Eurape limited, Germany Limited, Delhi Limited, Mysore Limited,  shall not be allowed.

If a foreign company is incorporating its subsidiary company, then the original name of the holding company as it is maybe allowed with the addition of the word India or name of any Indian state or city..

Change of name shall not be allowed to a company which is defaulting in filing its due Annual Returns or Balance Sheets or which has defaulted in repayment of matured deposits and debentures and/or interest thereon.

A proposed name for a company should not be identical to that of an existing company or limited liability partnership name.

It should not be undesirable & offensive which Violates the Emblems and Name Act or Trademark or Includes offensive words.

The name should not include the use of the word “British India” as it is not approved by MCA.

The names that imply patronage are not allowed as well. It should also not be Generic.

The name should not be associated with the Embassy or consulate or foreign government.

Format

A preferred format as per the MCA to name the company is – Unique Component + Descriptive name + Private Limited. In this, the unique component needs to be creative, imaginative, and distinct in nature, while the descriptive name defines your business in brief and gives perks of your work/business.

After you choose the name, MCA will ask to describe the significance and the main objective behind that name in one or two sentences.

[superca]

Requirement of Updating DIN every year

Director identification number (DIN) refers to a unique identification number that is given to a person desiring to be a director or an existing director. Through DIN, details of the directors are maintained in a database. It is an 8-digit unique identification number and has lifetime validity.

The concept of a Director Identification Number (DIN) has been introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, all the existing and intending Directors have to obtain DIN within the prescribed time frame as notified.

In this digitised era, application in eForm DIR-3 was sufficient to obtain DIN. For any individual who wants to be a director in one or more companies, this was only a one time process. However, now with the move of the MCA to update its registry, all directors with a DIN will have to update their KYC details annually in eForm DIR-3 KYC. This annual KYC for all DIN holders has been made mandatory by the MCA w.e.f. 10th July 2018 by including Rule 12A to   and Qualifications of Directors) Rules, 2014. This compliance is mandatory even for Disqualified Directors. MCA will automatically deactivate those DINs for which the form is not filed.

This process will regularly update data in the reports of the Government in respect of each individual who is holding the DIN and also deactivate the DIN’s which are not being used and where renewed data is not available. Just like online company registration, filing of DIR 3 KYC is also an online process.

Consequences of not filing eForm DIR-3 KYC

There are several consequences of non-filing of the form which we’ll talk about in the following.

If the DIN holder does not file his annual KYC within the due date of each financial year, such DIN shall be marked as 'Deactivated due to non-filing of DIR-3 KYC' and shall remain in such Deactivated status until KYC is done with a fee of Rs. 5000 as ROC Fees as prescribed under Companies (Registration Offices and Fees) rules.

DIN of the Individual who has failed to file the KYC form will be temporarily deactivated which will result in the Company not being able to file any forms containing the DIN of the Individual. Companies shall also not be able to file any annual form like AOC-4 and MGT-7 with ROC and any other form with DSC of the director whose DIN has been deactivated. Further, Till the time he can't be appointed as a director in any new Company or LLP which has got their company registration and can’t resign from any Company or LLP.

Also, there are many provisions of the Companies Act, 2013 and LLP Act, 2008 that provide for the requirement of Directors or as Designated partners to sign documents under the respective Act with DIN. Hence, the company shall not be able to get any dox signed from such a Director due to the deactivation of his/her DIN.

MCA will reinstate the DIN upon the filing of KYC.

Documents Required

- PAN of Director

- Proof of permanent address (Latest Bank Statement/ Latest Mobile or Electricity Bill)

- Copy of Aadhaar Card (Mandatory for Indian Director)

- Copy of passport if they have the same

- Mobile No  & Email (for OTP Verification)

- Digital Signature of Director

- A declaration has to be provided by the applicant duly attested by practising professionals.

Cessation

After company registration, all the Directors holding DIN must annually update their DIN as the failure of this will cause hindrance in the smooth functioning of the firm after company registration and a penalty of Rs. 5000. Directors should always be compliant right from the time of company registration.

[superca]

Sole Proprietorship registration is a popular type of enrollment of unregistered business institution owned, managed, and operated by a single person.  Sole proprietorship is the “One Man Business Entity”. All the investments for the business with sole proprietorship registration is done by the single proprietor who bears all the losses and enjoys all the profits. The overall control of the business as well as its management is in his hands. He can appoint individuals for conducting the business, but the ownership will rest solely with him.

[superca]

Conversion of Sole Proprietorship to OPC and its Governing Rules

One Person Company and Sole Proprietorship are two different business structures & also are different in terms of their working but sometimes people get confused between them due to their similar-sounding words.

Sole Proprietorship registration is a popular type of enrollment of unregistered business institutions owned, managed, and operated by a single person.  The sole proprietorship is the “One Man Business Entity”. All the investments for the business with sole proprietorship registration are done by the single proprietor who bears all the losses and enjoys all the profits. The overall control of the business, as well as its management, is in his hands. He can appoint individuals for conducting the business, but the ownership will rest solely with him.

Whereas one the other hand, One person company registration is an improved and better form of sole proprietorship registration. One person companies are a great business organization structure for medium-sized businesses. The Company which has only one person as to its member. It is a fusion of Sole-Proprietorship and Company form of business. In order to enable a person who is carrying on the business in the Sole-Proprietorship firm to enter into a corporate outline with relaxed or concessional requirements under the Act, the Companies Act 2013 had brought in the new concept of OPC.

This business structure gives the single promoter full control over the company and at the same time limiting his liabilities to safeguard his personal assets. The owner of this company is a shareholder. Similar to a Private Company, OPC may also appoint a distinct individual as director for its management. The appointment of a nominee is mandatory in the case of OPC.

Since OPC is an improved and better form of a sole proprietorship firm and thus conversion of the firm with sole proprietorship registration into One Person Company is a good business decision.

Prerequisites of Converting Sole Proprietorship to One Person Company:

– An individual can form a company with one single member and one director. The director and member can be the same person but can be a member in only one OPC

– One shareholder must be a resident of India.

– It shall have a minimum of one director, Only individuals can be designated as directors.

– The minimum authorised & subscribed share capital of Rs.1 lakh is prescribed. Further, the name of the OPC should be unique and should not be similar to any existing company name or trademark.

– A person must be appointed as the nominee.

– The name of the company shall be ending with the words ‘(OPC) Private Limited

Procedure

The following procedure needs to be followed for the conversion of business with sole proprietorship registration to OPC –

Step 1 – Obtaining Director Identification and Digital Signature Certificate

Step 2 – Applying for name approval

The following step is to get the Company’s name approved. The name can be approved in the Form SPICe+ 32 application. Only one preferred name along with the significance of keeping that name can be given in the Form SPICe+ 32 application. In case the name gets rejected, another name can be submitted by applying another Form SPICe+ 32 application. The name of the company is to be ended with the words ‘(OPC) Private Limited

Step 3 – Drafting Memorandum of Association (MoA) and Articles of Association (AoA) describing the objectives and the rules of the company which are to be submitted to the ROC

Step 4 -Submit all the necessary documents required and then apply for the incorporation of the company to the Ministry of Corporate Affairs (MCA). The forms to be submitted to the MCA are:

Required Documents

➤ Proof of Identity

– Proof of identity for Directors/Shareholder (Voter ID/Passport/Driving License)

– PAN Card for Indian Nationals /Passport for Foreign Nationals ( Both are Mandatory)

– Address proof of Directors and Shareholder (Out of Latest bank statement, telephone bill, mobile bill, electricity bill or gas bill should be submitted as residence proof. Ensure that statement shouldn’t be more than 2 months old)

➤ Proof of Registered office

– Conveyance/ Lease deed/ etc. along with rent receipts (anyone)

– Copy of the utility bills (Telephone/Gas/Electricity bill) (must not be older than two months)

– If the registered office is rented, the rent agreement and a NOC from the landlord has to be submitted.

A Nominee has to be appointed as there is only one director and member. The consent of the Nominee is to be taken along with the PAN and Aadhar card in Form INC 3. The declaration and consent of the proposed Director are also taken in Form 9 and DIR 2 respectively. Apart from all, you need a declaration by a professional certifying that all the compliances are met.

Step 5 – The Registrar of Companies (ROC) will issue a Certificate of Incorporation upon verification of all documents.

Cessation

Both Sole Proprietorship and OPC are beneficial in their own domain. Both have their own merits and shortcomings. Hence, it solely depends upon the motive and objectives of the entrepreneur when it comes to converting a business with sole proprietorship registration to OPC. Individuals who want to start a business from home or on a premise with a minimum amount can opt for Sole proprietorship registration. But with time and after a decent growth, if you want to start a corporation with less compliance, then Converting it to One Person Company is the best choice for you.

In short, the choice of business structure varies from person to person and business to business depending upon their intention. On that account, the decision must be taken after careful consideration of all the factors involved and see if it genuinely brings about privileges intended.

It was the overall process of converting a business with offline or online sole proprietorship registration into a private limited company. It should also be noted that almost the same procedures mentioned above apply in other cases, where one legal entity converts into any other legal firm.

[superca]

Conversion of Sole Proprietorship to Partnership and its Governing Rules

Partnership Firm and Sole Proprietorship are two different business structures & also are different in terms of their working.

Sole Proprietorship registration is a popular type of enrollment of unregistered business institutions owned, managed, and operated by a single person.  The sole proprietorship is the “One Man Business Entity”. All the investments for the Sole Proprietorship business are done by the single proprietor who bears all the losses and enjoys all the profits. The overall control of the business, as well as its management, is in his hands. He can appoint individuals for conducting the business, but the ownership will rest solely with him.

A Sole Proprietorship is easy to start but can also hamper your growth with time. After all, it’s difficult to build a big business as a single person. If one is looking to add partners to their business without any hassle or hindrance, then it is recommended to switch to a partnership from sole proprietorship registration. Conversion of business to partnership is possible and you can always choose to do so. It is very common for sole proprietors to convert their business into partnerships and private limited companies after the business starts growing. But due to a ton of information scattered online, many people get confused.

It should be noted that there is no specified provision on how to convert a sole proprietorship registration into a partnership. But still, there are various mentions in the GST Act on converting a sole proprietorship registration into a partnership firm. It includes obtaining GST registration for partnership, Drafting a partnership deed followed by transfer of unutilised Input Tax Credit (ITC) to partnership firms, and cancellation of GST of sole proprietorship registration.

Procedure For Conversion Of Proprietorship Into A Partnership

Drafting of the Partnership Deed

Drafting of the Partnership Deed would be the first step in the conversion of a sole proprietorship into a partnership firm. The major inclusion in the deed must be the declaration about the sole proprietorship which is being converted into a partnership by adding more partners and bringing in investment. The deed must state how much capital will each partner invest, how the profits and losses are split and what happens after retirement to one or more partners.

The deed must also state the details of all the changes expected to occur with the introduction of the new business partners. Due sare should be taken to include the details of the capital invested by each partner, salaries and shares in profits to be paid to partners, rate of interest on capital, profit-sharing mechanism and responsibilities in case of losses. There should be no reason for vagueness that may lead to unnecessary future disputes. Further, the deed shall mention the proposed date for starting the operations of the partnership.

All changes that will occur on account of the introduction of the new partners should be recorded. If there is a change in the registered address of the business, the same should be included as well.

A new registration is not a necessary procedure in this case. Registering the deed will enable the partners to file suits between them or on the behalf of the partnership firm. The sole proprietorship immediately gets dissolved after the deed is attested and accepted by all the partners and the partnership deed becomes effective.

Obtaining GST Registration for Partnership

Once the partnership deed is ready, the taxpayer has to apply for the PAN number with the income tax department as it is a mandatory prerequisite to apply for registration under GST.

Once the GST number is successfully generated, it is required to open a current account of the firm. After this, complete the process of seeding such Bank account details to GST registration.

The partnership firm shall also have to apply for registration under other statutes as the nature of the business demands. In case the sole proprietorship firm owns a trademark, the change regarding the inclusion of partners needs to be added in the trademark registry as well.

Stamp Duty

For confirming the validity of a partnership deed, the partners must pay the stamp duty required as per the capital of the firm. The amount of stamp duty payable depends on the amount of capital contribution by partners. The rate of duty is prescribed under the State Stamp Act that differs for every State. Amount of ₹ 500 is included in our package.

Cancellation of Sole Proprietorship Registration

Now finally, in a proprietary firm, file all GST Returns and pay pending taxes.

Once all tax dues are paid off, apply for cancellation of Sole Proprietorship Registration through Form GST REG 16 giving reasons as ‘Change in legal Structure of firm’. It will also ask to enter the GST number of the new Partnership firm.

After this, transfer all assets and liabilities into partnership firms as the sale of the business by the proprietor to a partnership firm. Further, the proprietorship firm under offline or online sole proprietorship registration has to file all GST returns till the new GST registration of the partnership’s date is announced. The partnership firm has to start filing the GST returns from the date of new online GST registration.

It has been provided under the GST laws that in case of such conversion, there is no need to pay GST on such transfer of assets from one entity to another.

However, it is also provided that, in case of conversion, existing firms should cease to be taxable persons at all i.e there should not be any movement in existing firms after transfer of all assets.

It was the overall process of converting a proprietorship firm into a partnership business. It should also be noted that almost the same procedures mentioned above apply in other cases, where one legal entity converts into any other legal firm.