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Service Tax Exemption to Educational Institutions Restricted

23 Jul,2018

Presently the following services are exempt from service tax as per entry no 9 of the Mega Exemption Notification 25/2012.

Services provided :-

(a) by an Educational Institution to its students, Faculty, and Staff.

(b) by any person to an Educational Institution, by way of

   (i) transportation of students, faculty and Staff.

   (ii) Catering, or cleaning or house keeping services performed in such educational institution.

  ( iii) Services relating to admission to , or conduct of examination by, such institution.

The notification 25/2012 defines Educational Institution as an Institution providing services by way of :

(i) pre- school education and education up to higher secondary school or equivalent.

(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force.

(iii) education as a part of an approved vocational education course.

The new notification No 10/2017- ST dated 08.03.2017 has been issued to curtail the exemption granted earlier to few specific services provided to educational institutions.  The notification provides that nothing in clause (b) of entry no 9 of mega exemption notification 25/2012 shall apply to an educational institution other than an institution providing service by way of pre-school  education and education up to higher secondary school or equivalent.   The amendment is effect from April 1st 2017.

In effect the following services provided to educational institution other than an institution providing service by way of pre-school  education and education up to higher secondary school or equivalent, which were till now were exempt will be taxable to service tax with effect from April 1st 2017.

(b) by any person to an Educational Institution, by way of

   ( i) transportation of students, faculty and Staff.

  (ii) Catering, or cleaning or house keeping services performed in such educational institution.

( iii) Services relating to admission to , or conduct of examination by, such institution.


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GST

LEVIABILITY UNDER GST

23 Jul,2018

Leviability is essential feature to collect tax from any taxable person. In absence of leviablity, tax could not be collected. Under the new tax regime GST, the concept of leviablity is paradigm history in the levaiblity of indirect taxes.

1.Introduction

Leviablity gives the power to the taxation regime to collect taxes from any person.   In the absence of levy, tax could not be charged and collected. GST contains crucial provision in relating to levy of tax which are discussed hereunder.

2.Levy of tax under CGST & SGST

The power to levy tax is provided in section 8 of the revised model of GST law. Asper the relevant section Central & State GST is to be levied on interstate supply of goods and services as per the value determined of the said goods and services in terms of provision of this act. Although the rates of taxes is not notified in the law itself but the law provides for the caping of taxes rates and the said cap is fourteen percent.

3.Levy of tax under GST

The power to levy taxes is provided in section 5 of the revised model IGST law. As per the relevant section IGST is to be levied on all interstate supply of goods and services as per value determined of the said goods and services in terms of the provisions of the act. Although the rates of taxes is not notified in the law itself but the law provides for caping of tax rates and the said cap in twenty eight per cent.

IGST will be levied on goods imported into India inaccordance with the provisions of section 3 the Customs Tariff Act 1975 at the point when duties of customs are levied on the said goods.

4.Reverse Charge

Presently, payment of tax on reverse charges basis is applicable in case of provision of services. The concept will be carried forward as legacy for services and newly introduced for supply of goods. However, the goods and services tobe notified for reverse charge will be on the recommendation of the council, In the case of reverse charge the person receiving the supply has to pay taxes and the provisions of the act shall apply accordingly.

5.Electronic Commerce Operator.

In the digitization era an increasing online shopping of goods and services ,electronic commerce are also covered in the tax net and the same shall be liable to Pay taxes on notified goods and services on the recommendation of the council.

Further in the present global market, one can provide platform for supply of goods and services from any part of the world. Accordingly, if the electronic commerce operators situated in any parts of the world except India, then he hasto appoint some person on its behalf to comply with the provisions of the GST.

6. Composition of Levy

The small scale business man always enjoys some privileges. Composition levy is one of such benefits. Present laws contains different monetary limits from composition levy in addition to different monetary limits in different states. However GST being a uniform law will provide single composition scheme to be applicable through India. Accordingly business with taxable turnover not exceeding fifty lakhs can avail the option of paying composition fees. The composition fees are different for manufacturers and others. In case of manufacturing industry rate of composition is 2.5% and for others it is 1%.

7. Restriction under Composition Levy

Payment of option under composition scheme calls for limitation or restrictions, stated as under-

  1. This option is not available to the person who is engaged in supply of services. Meaning thereby the provider of service cannot opt for composition scheme. Further the language suggest that in case of a person engaged in supply of services and goods both the also the option of composition scheme in not available.
  2. The option to pay composition schemes is not available to the person who are not leviable to tax under this act.
  3. The person making inter-state supply can also not avail of this option.
  4. The electronic commerce operator who is required to collect tax at source also cannot avail of this option.
  5. The manufacturer of notified goods are also not eligible to avail of the option of payment of taxes under composition fees.
  6. In case turnover RS 50 lakhs the for the turnover exceeding RS 50 lakhs this option for paying tax   under composition scheme will not be available.
  7. The person availing the benefit of paying taxes under composition scheme are not eligible to avail of input tax credit.

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Converting a Partnership Firm into a Private Limited Company

23 Jul,2018

A partnership firm cannot think of growth on large scale without converting itself into Private Limited/Public Limited Company. Conversion of Partnership firms into a Company has its own advantages such as Limited Liability, Perpetual Succession, Transferability of shares, easy access to funds etc. Corporatisation is the need of the hour. Section 366 of Companies Act, 2013 provides the Companies capable of being to registered under the Act.

As per the provision of Section 366(1) the Companies Act, 2013, “Company" includes any Partnership Firm, Limited Liability Partnership, Cooperative Society, Society or any other business entity formed under any other law for the time being in force which applies for registration under this Part.

Key benefits of conversion

1.      Automatic Transfer:

All the assets and liabilities of the firm immediately before the conversion become the assets and liabilities of the company.

 

2.      No Capital Gain Tax:

No Capital Gains tax shall be charged on transfer of property from firm to Company (upon fulfilment of certain conditions mentioned under heading "Effect of Tax on conversion" below in this Article).

 

3.      Continuation of Brand Value:

The goodwill of the Partnership firm and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.

 

4.      Carry Forward and Set off Losses and Unabsorbed Depreciation:

The accumulated loss and unabsorbed depreciation of Partnership firm is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.

 

5.      No Stamp Duty:

All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.

 

Mandatory Conditions for Conversion

  1. All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.

 

  1. The partners receive consideration only by way of allotment of shares in company and the partners share holding in the company in aggregate is 50% or more of its total voting power and continue to be as such for 5 years from the date of conversion.

 

 

 

Effect of tax on conversion

 

Capital Gains : Section 45(1) of the Income tax Act, 1961 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D54E54EA54EB, 54F54Gand 54Hbe chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place.

Before a levy on the capital gain can be imposed, it must be ensured that, such a gain has arisen from the disposal of the asset by any one of the mode, referred to in the definition of the term ‘transfer’ in Section 2(47) of the Income Tax Act, 1961.

Section 2(47) of the Income Tax Act, 1961 (‘Act’ for short) defines the term ‘transfer’ in relation to capital asset, as including-

  • the sale, exchange or relinquishment of the asset ; or
  • the extinguishment of any rights therein ; or
  • the compulsory acquisition thereof under any law ; or
  • in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment
  • the maturity or redemption of a zero coupon bond; or
  • any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or
  • any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Section 45(4) provides for the chargeable of the tax on the transfer of a capital asset of a firm or other association of persons or body of individuals.  The Section provides that the profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.

Under Section 45(4) of the Act two conditions are required to be satisfied for the levy of tax on capital gains-

  • transfer by way of distribution of capital assets;
  • such transfer should be on dissolution of the firm or otherwise.

In case of conversion of a partnership firm into a company no capital gain shall arise if the following conditions are fulfilled:-

  • all assets and liabilities of the firm relating to the business immediately before the succession shall become the assets and liabilities of the company.
  • all the partners of the firm immediately before the succession become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession.
  • the partners of the firm do not receive any consideration or benefit, directly or indirectly in any form or manner other than by way of allotment of shares in the company.

Requirements towards conversion under Companies Act, 2013

  • Registered Partnership firm with minimum 7 Partners
  • No minimum paid up capital requirement for incorporating private as well as public company.
  • If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered
  • Minimum 7 Shareholders
  • Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.)
  • The directors and shareholders can be same person
  • DIN (Director Identification Number) for all the Directors
  • DSC (Digital Signature Certificate) for all the subscribers and Directors.

Procedures for conversion of Partnership Firm to Private Company

 STEP 1: Hold a meeting of the partners to transact the following business

  • Assent of majority of its partners as are present for the purpose of registering the firm under the Companies Act, 2013. Since the liability of the members of the firm is unlimited, when a firm desires to register itself as a company as a limited company, the majority required to assent as aforesaid shall consist of not less than ¾ of the partners as are present in person or where proxies are allowed, by proxy, at a meeting summoned for the purpose.
  • To authorize one or more partners to take all steps necessary and to execute all papers, deeds, documents etc. pursuant to registration of the firm as a Company.
  • To execute a supplementary Partnership Deed to align it with the requirements as under:
    • There must be at least 7 partners in the partnership firm;
    • The firm may be registered with the Registrar of Firms;
    • There must be a fixed capital divided into units ;
    • There must be provision of converting a firm into company.
    • There must be an agreement by the partners to convert the partnership to a company. This can be done by a contract in writing to this effect to which the partner’s resolution for conversion can be attached as annexure.

 (If the above requirement is not fulfilled by the firm, then the Partnership deed should be altered)

 

 

 

 STEP 2Obtaining the Name Approval in INC 1 for Proposed Company

  • An application in Form needs to be filed with the Registrar of Companies (ROC) in Form INC-1 with following attachments stating the fact that the partnership firm pro­posed to be converted under the Companies Act.
  • Certified true copy of Partnership Deed.
  • Certified true copy of the latest balance sheet of the partnership.
  • Certified true copy of the latest income tax assessment order/return.
  • Consent of all the partners stating that they have agreed to register the partnership firm as a Company.
  • Certified True Copy of the resolution passed by the firm in this regard.
  • The application is required to be digitally signed by one of the promoters.

 

Step 3: Publishing the Advertisement in Two Newspaper (English Daily and Vernacular)

 

For the purpose of clause (b) of section 374 of the Act, every ‘company’ seeking registration under the provision of Section 366 shall publish an advertisement about registration under the said Part, seeking objections, if any within twenty one clear days from the date of publication of notice and the said advertisement shall be in Form No. URC. 2, which shall be published in a newspaper and in English and the in the principal vernacular language of the district in which Partnership is in existence and circulated in that district.

 

Step 4: Affidavit

 

File an affidavit, duly notarised, from all the members or partners to provide that in the event of registration under this Part, necessary documents or papers shall be submitted to the registering or other authority with which the company was earlier registered, for its dissolution as partnership firm, limited liability partnership, cooperative society, society or any other business entity, as the case may be.

 

Step 5: Filing of E form URC 1 with ROC with Following Attachments:- (For Companies limited by Shares)

 

  1. A list showing the names, addresses, and occupations of all persons named therein as members with details of shares held by them respectively
  2. a list showing the particulars of persons proposed as the first directors of the company, their names, including surnames or family names, the DIN , passport number(if any) with expiry date, residential addresses and their interests in other firms or bodies corporate along with their consent to act as directors of the company;
  3. an affidavit from each of the persons proposed as the first directors, that he is not disqualified to be a director under sub section (1) of section 164 and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief;
  4. a copy of the deed of partnership, bye laws or other instrument constituting or regulating the company and duly verified in the manner provided in sub-rule(4)
  5. a statement specifying the following particulars:—
    1. the nominal share capital of the company and the number of shares into which it is divided;
    2.  the number of shares taken and the amount paid on each share;
    3. the name of the company, with the addition of the word "Limited" or "Private Limited" as the case may require, as the last word or words thereof;

 

f)statement of accounts, prepared not later than fifteen days preceding the date of seeking registration and certified by the Auditor together with the Audited Financial Statements of the previous year, wherever applicable shall be attached with Form No. URC. 1

If the assets of the existing company during the immediately preceding three years are revalued for the purpose of vesting of its assets with the company to be incorporated under this Act, the surplus arising out of such revaluation shall not be deemed to have been credited to the capital account or current account of partners.

 

  1.  written consent or No Objection Certificate from all the secured creditors of the applicant.
  2. written consent from the majority of members whether present in person or by proxy at a general meeting agreeing for registration under this part.

 

Step 6: Certificate of Incorporation

 

If the Registrar is satisfied on the basis of documents and information filed by the applicants, decides that the applicant should be registered, he shall issue a certificate of incorporation in Form No. INC.11

 

NOTE – As per Section 366(2) and Rule 3 of The Companies (Authorised to Registered) Rules, 2016. There shall be seven or more members for the purposes of registration of a company under this sub-rule and Section.

 

Step 7: Other Obligation of Companies Seeking Registration

where a firm has obtained a certificate of registration under section 367, an intimation to this effect shall be given within fifteen days of such registration to the concerned Registrar of firms under which it was originally registered, along with papers for its dissolution as a firm.

Conclusion

Therefore, for enlarging or growth of a small scale business led by few partners into a large scale business, corporatization of firm is the needed.


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