In India's complex Goods and Services Tax (GST) . framework, an authorized representative plays a crucial role by legally representing taxpayers in various proceedings. Section 116 of the GST Act defines authorized representatives' roles, qualifications, and limitations. This article will explore the concept, qualifications, disqualifications, and repercussions related to authorized representatives under GST.
Section 116(2) of the GST Act specifies the following individuals who can act as authorized representatives:
Relatives or Regular Employees: A relative or a regular employee of the taxpayer can be appointed.
Advocates: Advocates qualified to practice in any Indian court can represent a taxpayer, provided they are not debarred from practicing.
Professional Experts: Chartered Accountants, Cost Accountants, or Company Secretaries holding a valid Certificate of Practice are eligible.
Retired Government Officers: Officers retired from Commercial Tax Departments or GST Boards at the rank of Group B or above, with at least two years of service, can act as authorized representatives after a one-year cooling-off period.
GST Practitioners (GSTP): Registered GST practitioners can also represent taxpayers before GST authorities, appellate authorities, or tribunals.
The following individuals are disqualified under Section 116(3):
Dismissed or Removed Government Officials: Permanently disqualified from acting as representatives.
Convicted Persons: Those convicted under GST or related laws.
Individuals Found Guilty of Misconduct: As determined by the prescribed authority.
Insolvent Persons: Disqualified while insolvency continues.
Yes, a retired government officer can act as an authorized representative. However, they must:
Have served in a post of Group B or above for at least two years.
Observe a one-year waiting period post-retirement before representing taxpayers.
Disqualification applies:
Permanently: For individuals dismissed from service, convicted, or found guilty of misconduct.
Temporarily: For those declared insolvent, applicable only during the insolvency period.
What are the Repercussions of Misconduct by an Authorized Representative?
If an authorized representative is found guilty of misconduct:
For Non-Professional Representatives: The GST Commissioner may disqualify the person from representing taxpayers after allowing them to be heard.
For Professionals: Chartered Accountants, Advocates, and Company Secretaries are referred to their respective regulatory bodies for disciplinary action.
Yes, GST practitioners are legally permitted to act as authorized representatives. They can represent taxpayers in:
GST Departmental Proceedings
Appellate Authority Hearings
Tribunal Hearings
Aspect | Authorized Representative | GST Practitioner (GSTP) | Authorized Signatory |
---|---|---|---|
Role | Represents taxpayers in legal proceedings. | Prepares and files GST returns on behalf of taxpayers. | Signs GST-related documents for compliance purposes. |
Scope | Limited to representation. | Broad compliance activities. | Primarily signing authority. |
Eligibility | Includes advocates, CAs, CS, etc. | Requires GSTP certification. | No specific certification needed. |
GST Officers
Appellate Authorities under GST
GST Tribunals
Note: Personal appearance is mandatory if the individual is required to appear for examination under oath.
Here’s a sample format for authorization:
[Letterhead of the Registered Person] Date: [Insert Date] To, [GST Officer’s Name/Designation] [GST Office Address] Subject: Authorisation for Representation Under GST Dear Sir/Madam, I, [Name of the Taxpayer], holding GSTIN [GSTIN Number], hereby authorise [Name of the Representative], [Designation], to represent me in all matters concerning [Specify Case/Proceeding] under the GST Act. Sincerely, [Signature of Taxpayer] [Name and Designation of Taxpayer]
Authorized representatives under GST support taxpayers by representing them in complex proceedings and ensuring compliance. Understanding authorized representatives' qualifications, limitations, and procedures helps taxpayers choose the right individual or professional for their representation needs. For expert assistance in GST compliance and representation, consult ADCA (Anil D’Souza and Associates), one of Bangalore's most trusted chartered accountancy firms .
An authorized representative is approved to represent a taxpayer in GST-related proceedings.
Similar provisions exist under the Service Tax Act for appointing representatives in proceedings.
An authorized representative focuses on legal representation, while GST practitioners assist with compliance and filings.
A similar provision exists in the Income Tax Act for representation during assessments or appeals.
This act defines the legal framework for authorized representatives in corporate and legal matters.
Mr. Anil D'Souza, one of the few entrants of an elite list of chartered accountants in Bangalore can help you in person with understanding the concept of authorized representative.
Accommodation services are under the purview of tax net since a long time It was a handsome source of revenue under service tax law and the legacy is continuing in refined manner,even under GST law.
1.Introduction
Accommadation service is the service to provide a place to live or stay, it has been introduced in the service tax net since positive list regime.The same is carried forward in the GST law also.Under GST law there is classification of services and accordingly accomdation services have been classified into the various categories according to the practice prevailing in the industry.
2. Classification
Accommodation services have been classified under HSN/SAC 9963 wherein the further classification ia as under.
Heading/Group |
Service Tariff Code (HSN/SAC) |
Description of Service |
99631 |
996311 |
Room or unit accomdation services provided by Hotels, INN,Guest House , club, etc |
|
996312 |
Camp Site Services |
|
996313 |
Recreational an vocational camp services |
99632 |
996321 |
Room or unit accomdation services for students in student residences |
|
996322 |
Room or unit accomdation services provided by Hotels, Capms, Paying Guests, etc. |
|
996329 |
Other room or unit accomdation services not specified else where |
|
|
|
3.Nature of supply
Accommodation services are generally provided at the premises used for providing accomdation services. Since the GST is destination based consumption tax, therefore, the place of supply of accomdation services is the place where the property used forproviding such services is situated and the nature of supply is intra – State supply. However, before reaching at the conlusion we need to understand the relevantprovisions of the GST law.
The relevant provisions of law determaining the nature of services are coverd under the provisions of section 8 and setion 12 of the IGST Act,2017 read together.
According to setion 8(2) of the IGST Act,2017 supply of services where the location of the supplier and the place of supply of services are in the same State or the same Union territory shall be treated as intra-state supply.
According to setion 12(3)(b) of the IGST Act,2017, the place of supply of service by way of lodging accomdation by a hotel, inn, guest house ,home stay , club or campsite, by whatever name called and including a house boat or any other vessel shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.
Thus, on a combined reading of the above two provision,one can easily figure out the nature of supply of accomdation services is intra-State supply.
4.Whether accomdation services can be an inter-State supply
Although by referring to the provisions cited above, it can be inferred that the basic philosophy of implematon of destination based consumption tax goes in line of taxing accommodation services as intra-State supply. Howeve, the following provisions of IGST Act,2017 are worth noting-
(a)Provisio to section 8(2) : The said provision reads as –“the intra-State supply of services shall not include supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit”.
(b) Section 7(5) (b) : Supply of goods or services or both to or by a Special Economic Zone developer or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the course of inter –State trade or commerce.
The direct implication of the above provisions on accomdation services is that the said services if provided to any unit in SEZ shall not be considered as intra-State supply. In other words, it shall be considered as inter –State supply.
Hence, it can be fairly concluded that the accommodation services, when provided to any unit in SEZ or by unit in SEZ, evolve a concept divergent to the basic intent of the GST law of taxing the services on a consumption basis.Now the question that flashes in the minds is the need of such a provision. The purpose of the introduction of such provisions can be understood with the provisions of section 16 of the IGST Act, 2017
The implication of sections 7(5), 8(2) and 16 of the IGST Act, 2017
The implication of sections 16 and 8(2) can be understood i two parts. In one part the supplier of services is outside the SEZ and in another part the supplier of services is in the SEZ. The impact on both the transaction shall be different.
(i) Supply to SEZ – Zero- rated supply
Accordingly to section 16 of the IGST Act, 2017, “zero-rated supply “ means any of the following supplies of goods or services or both namely:- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
The provision stated in section 16 clearly mandates that the accommodation services provided to SEZ developer or to a unit in SEZ shall be treated as zero-rated supply. To put it differently, the same shall be considered at par with the export of services. Thus, such services shall fall under zero-rated supply under GST law and shall be eligible for benefits attributed to zero-rated supplies including a refund of taxes paid on the relevant, services, subject to the other provisions of GST law.
(ii) Supply by SEZ-Inter-State-supply
On a close reading of section 8(2) and section 16 as mentioned above, it can be inferred that accommodation services provided by the unit in SEZ to any person outside SEZ shall be treated as inter-State supply. Meaning thereby that the said services provided by SEZ shall be considered as inter-State supply and IGST shall be considered as inter-State supply and IGST shall be chargeable on the same.
(iii) Supply within SEZ–Zero–rated supply
Since in case of supply within SEZ the recipient shall always be in SEZ, therefore, such supply shall always fall within the meaning of zero-rated supply. Hence, supplies within SEZ shall be eligible for benefits at par with the benefits available to zero-rated supply.
5. Conclusion
Accommodation services are generally taxed as intra-state supply, however, the law contains the relevant provisions for treating the same as inter-state supply also. Thus, before reaching any conclusion about the place of supply, it is essential to refer the law as a whole and relevancy of sections 7(5) and 8(2) cannot be undermined.
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Recently the Delhi high Court in Bostom Scientific India (p) Ltd.v.Asst.CIT 2017 Tax Pub (DT) 3985 (Del –HC) has give it’s verdict regarding allowability of expenditure incurred by pharma companies on sponsoring medical conference in and outside India. The learned author analyses the impugned issue in the light of this recent verdict.
Background
It is general practice of pharma companies to sponsor and conduct medical conferences in & outside India and for this purpose these companies also make arrangements for travel and accommodation of doctors attending the conferences. In a recent past, a serious controversy arose as regards allowability of expenditure incurred b pharma companies for organising such conferences. These expenditure incurred by pharma companies for organising such conference.these expenditure are claimed to be allowable as business expenditure for being incurred for business purpose, however, the department tends to disallow the same by invoking Explanation 1 to section 37 (1).
The Finance (No. 2) Act, 1998 has inserted an Explanation to section 37(1), with retrospective effect from 1-4-1962, so as to clarify that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
The pharma companies incr expenditure to sponso and conduct doctors’ conferences , to distribute its product amongst doctors as free samples, to give gift articles to doctors , etc. These expenditure are classified as advertisement and sales promotion expenditure and claimed to be allowable on the ground of being incurred wholly and exclusively for the business purposes.
The Medical council of India in excersise of its statutory powers amended the Indian medical Council (Professional Conduct, Etiquette and Ethics) Reguations, 2002 (the Regulations ) on 10-12-2009 imposing a prohibition on the medical practitioner & their professional associations from taking any gift travel facility , hospitality, cash of monetary grant from the pharmaceutical and allied health sector industries.
Section 37(1) of the Income Tax Act provides for deduction of any revenue expenditure (other than those failing under sections 30 to 36) from the business Income if such expenses is laid out/expended wholly or exclusively for the purpose of business income if such expense is laid out/expended wholly or exclusively for the purpose of business or profession. However,the explanation appended to this sub-section denies claim of any such expense, if the same has been incurred for a purpose which is either an offence or prohibited by law.
Thus the of any expense incurred in providing above mentioned or similar freebies in violation of the provisions of Indian medical Council (Professional Conduct Etiquette and Ethics ) Regulations, 2002 shall be inadmissible under section 37(1) of the Income Tax Act beingan expense prohibtited by the law. This disallowance shall be made in the hands of such pharmaceutical or allied health sector industries or other assessee which has provided aforesaid freebies and claimed it as a deductable expense in it’s accounts against income.
It is also clarified that the sum equivalent to value of freebies enjoyed by the aforesaid medical practitioner or professional associatiosns is also taxable as business income or income from the other sources, as teh case may be,depending on the facts of each case.The assessing officers of such medical practitioner or professional associations should examine the same and take an appropriate action.
However,the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations,2002 which has been amended on 10-12-2009 prohibits medical practitioners and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied health sector industries.
Thus, the expenditure incurred on freebies are disallowed on the ground of being incurred in violation of the provision of Indian medical Council ( Professional Conduct, Etiquette and Ethics) Regulations, 2002.- circular No. 5/2012,dt.1-8-2012.
In live Healthcare Ltd. v. DCIT (2016) 161 ITD 63 (Mum),the Mumbai Bench of the Tribunal held that the expenditure on foreign travel and accomdation of doctors and their spouses was incurred with the intent and the objective of profiteering form the distribution and entertainment that had a direct nexus with promoting the sales and profitability which made such expenditure violative of the provisions of the said regulations of 2002.It held that the expenditure was incurred to seek favours from the doctors by way of recommendation of the company’s product which was an illegal gratification ,was against public policy,was unethical and was prohibited by law. Accordingly,the expenditure in question was liable for disallowance.
However in PHL Parma (p) Ltd. v. ACIT (2017) 163 ITD 10(Mum),the decision was given in favour of the assessee by observing that the code of conduct has meant to be followed and adhered to by the medical practironers and doctors alone and did not apply in any manner to pharmaceutical companies. The Indian Medical Council did not have any jurisdiction nor had any authority upon the pharmaceutical companies and could not have prohibited such companies in conduct of their business. The CBDT in issuing Circular No. 5, dt. 1-8-2012 had enlarged the scope of the said Regulations by applying it to the pharmaceutical companies without any enabling provisions to do so. Further the circular in any case could not be reckoned retrospectively i.e., it could not be applied before the date of its issue, i.e., on 1-8-2012.
Thus the expenditure incurred by the assessee company was in the nature of sales and business promotion and was to be allowed; the gift articles bore the logo of the assessee and could not be held to the freebies,the free samples proved the efficacy of the products of the products of the company and again were not in violation of the said Regulations framed by the Medical Council of India.
In Syncom Foundations (I) Ltd. ( IT PPEAL Nos. 6429 & 6428 (Mum) of 2012, it was observed that CBDT circular would not be applicable in the assessment years 2010-11 and 2011-12 as it was introduced w.e.f. 1-8-2012. Similarly it was held in UCB India (P) Ltd.v. ITO (IT Appeal No. 6681 (Mum) of 2013, dt 13-5-2016), that the CBDT circular colud not have a retrospective effect.
In Boston Scientific India (P) Ltd v. Asstt. CIT 2017 Tax Pub (DT) 3985 (Del-HC), the assessing officer on the specific heads of ‘advertisement and business promotion’ and travel related expenses ‘ made the following disallowances :
(i) Expenditure of Rs. 13,14,548 was stated to be constituting freebies provided to medical consultants and other doctors, disallowable in view of Explanation 1 to section 37(1) of the Act , read with CBDT Circular No. 5/2012, dt.1-8-2012.
(ii) Expenditure of Rs 19,06,000 incurred on conducting seminars conventions, meetings, etc., for the purpose of Appellant’s business.
This was disallowed on the ground that details were scanty, despite ample opportunity being given to the assessee .
(iii) Expenditure of Rs 8,00,000 incurred on sponsorship for organizing conference/seminor. This was disallowed on the ground that the payment was made after the event had place.
On appeal before ITAT , it was held that as the assessee had incurred expenses in the garb of marketing the cardiac machine, onus was upon the assessee to prove that the expenses incurred did not violate any law that may be applicable. The burden lies uopon the assessee which has not been discharged by evidences/materials. Merely by placing the bills of payments, the travel details, the hotel details , where the doctors were stationed , and the seminars / conferences that were actually attended by such doctors. Assessee had also not demonstrated that the doctors by participating in such conferences and accepting the hospitality extendedby it (the assessee ) have not contravened any MCI Regulations.
The High Court ,however, said that the ITAT placed an unfair burden on the assessee to prove that the above expenses was incurred bona fide for the business purpose of the assessee. The assessee had placed before the ITAT all the relevant details thereby discharging the initial onus. Thereafter,it was open to the Revenue to prove to the contrary . It was not possible for the assesee to show that doctors “actually delivered any lectures, attented any meetings for, providing training courses and seminars for assessee, etc.
As regards other disallowances, it was held that since the ITAT proceeded on and conjectures and failed to deal with the contentions of the assessee in that regard , it is only fair that the ITAT considers the entire appeal of the assessee on merits afresh.
Thus, the High Court rendered decision in favour of assessee and against the revenue and all the contentions of the assessee raised in the appeal before the ITAT would be considered afresh.
8. Conclusion
The decision of the Delhi High Court has provided some rays of hope in favour of Pharmaceutical Companies for doctors. If relief is provided, it wil be of great help in sharing and upgrading knowledge in the field of medical science and ultimately whole mankind would get benefitted therefrom.
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The learned author takes up for discussion a very recent Tribunal decision in which the assesse had made reimbursement of expenditure to a certain party, which the assessing officer treated as payment to clearing and forwarding agent, therefore, attracting section 194C and consequently 40(a)(ia). The Tribunal, however, departed thus view
As per section 40 of the income Tax Act, 1961 (in short, ‘the Act’), certain amounts mentioned therein are not allowed as deduction, notwithstanding anything to the contrary in sections 30 to 38, in computing the income chargeable under the head “Profit and gains of business or profession”. Section 194C of the Act lays down provisions in respect of TDS on payment to contractors.
Recently, in ACIT, Kottayam v. St. Mary’s Rubbers Private Ltd., Kottayam 2017 TaxPub (DT) 2153 (Coch-Trib) [I.T.A. Nos. 224/coch/2016 date of decision 15-06-2017], the Revenue, aggrieved on the deletion of disallowance by CIT(A) of Rs.60,80,063 made by the assessing Officer(AO) under section 40(a)(ia) of the Act for non-deduction of tax at source on payment made by the assesse o C&F agents, filed appeal before ITAT, Cochin.
Facts in brief
The assesse, a manufacturer and seller of centrifuged latex, had filed its return of income for the impugned assessment year, declaring income of Rs.70,89,989. An assessment under section 43(3 was completed on 21-12-2011, computing total income of the assessee at Rs.77,87,14. Thereafter, the assessment was paid without deducting tax at source. During the course of assessment proceedings, it was noted by the AO that the course of assessment proceedings, it was noted by the AO that assessee had paid Rs.60,80,063 as clearing and forwarding charges to one
Mark Logistics. Claim of the assessee before the AO was that these were reimbursement of expenditure incurred by he said agent. As per the assessee, the said C&F agent was incurring expenditure on its behalf and therefore, According to him, the assessee should have deducted tax at source on the payment effected to Mark Logistics. Since assessee had not deducted such tax, AO applied section 40(a)(ia) of the Act and made a disallowance of Rs.60,80,063.
They also stated that they had deducted tax at source while effecting payments to various person with whom they had entrusted the work of assessee. CIT(A) sought a remand report from the AO>As per the CIT(A), in the remand report, the AO has admitted that amounts paid by assessee to Mark Logistics were re-imbursements. CIT(A) held that payment of Rs.60,80,063 made by the assessee to Mark Logistics were in the nature of reimbursement of expenditure and the payment received by them were not C&F charges. Relying on the judgment of the Hon’ble Gujarat High Court in the case of CIT v. Narmada Valley Fertilizer Co. ltd 2013 taxPub(DT) 2222 (guj-HC); (2014) 361 ITR 192 (Guj), the CIT(A) held that re-imbursement of expenditure, deduction of tax was not required. He deleted the disallowance made under section 40(a)(ia) of the Act.
Submission by Revenue
DR, assailing the order of the CIT(A), submitted before ITAT that assessee had paid Rs.60,80,063 for the service received by the assessee from Mark Logistics, which were contractual in nature. According to him, these were not reimbursement of expenditure and even if it was reimbursement, as per the DR, there would have been profit booking by Mark Logistics in built in the billings. In his opinion , AO has rightly considered the payment as liable for deduction of tax at source under section 194C of the Act. According to him , CIT(A), merely based on the submissions of the assessee, had allowed the claim of the assessee. Reliance was placed on the judgment of the Hon’ble jurisdictional High Court in the case of CBDT v. Cochin goods transport Association (1999) 236 ITR 993 (ker) and the judgement of the Hon’ble Apex Court in the case of Associated Cement Co. Ltd. v. CIT and Another (1993) 201 ITR 435 (SC)
Reply by Ar
In reply, AR submitted that the Delhi Bench of the Tribunal in the case of ITO v. Deepak Bhargawa 2017 Taxpub (DT) 21520(del’B-Trib) [ITA No.343/Del/2012, dated 13-11-2014] had clearly held that section 194C would not be applicable for reimbursement of expenditure. As per the AR, facts of this case were very similar to that case. Reliance was also placed on the decision of the Bangalore Bench of the Tribunal in case of DCIT v. Dhanyaa seeds (P) Ltd. 2014 Tax Pub (DT) 2664 (Bang ‘b’-Trib) : (2014) 64 SOT 15 (bang ;B’-trib) and that of the Hon’ble Gujurat High Court in the case of Principle CIT v. Consumer Marketing (India) (P) Ltd. 2017 Taxpub (DT) 2154 (Guj-HC)
Decision by ITAT, Cochin
The Tribunal considered the effector CBDT Circular No. 715, dated 08-0-1995 and observed that the said Circular was applicable only where consolidated bills ere raised inclusive of contractual payments and reimbursement of actual expenditure. Same view was taken by the Bangalore Bench of ITAT, Cochin in the case of Pr. CIT v. Consumer Marketing (India) (p) Ltd. (supra) held that when separate bills are there for reimbursemet of expenditure received by C&F agent, TDS was not required to be made on reimbursement. The assessee in addition to reimbursement of expenses, separately paid brokerage and commission of Rs. 2,52,410 which was subjected to disallowance in the original assessement. Hon’ble Members of the ITAT held that the CIT(A) was justified in deleting the disallowance made under section 40(a)(ia) of the Act.
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As businesses mature, many partnership firms explore conversion into a private limited company to unlock new growth opportunities and advantages. This blog will explore the reasons for conversion, the step-by-step process, advantages over a partnership, essentials for conversion, and compliance requirements under the Companies Act/b>, 2013.
Converting a partnership firm into a private limited company can provide significant benefits:
Limited Liability: Partners' personal assets are protected from business liabilities.
Perpetual Succession: The company continues to exist independently of its owners.
Easier Capital Access: Private limited companies can raise funds more easily through equity and debt.
Enhanced Credibility: Being a registered company improves credibility with clients, suppliers, and investors.
Share Transferability: Shares in a private limited company can be transferred, allowing for smoother ownership transitions.
Hold a Meeting of the Partners:
Attain the consent of at least 75% of the partners.
Authorize one or more partners to take necessary steps for registration.
Prepare Necessary Documentation:
Draft and execute a supplementary partnership deed aligning with the conversion requirements.
Obtain Name Approval:
File Form INC-1 with the Registrar of Companies (ROC) for name approval, including required attachments like the partnership deed and financial statements.
Publish Advertisements:
Publish advertisements in two newspapers (one English and one vernacular) notifying the public about the conversion.
File Incorporation Documents:
Submit the incorporation application, including Memorandum of Association (MoA) and Articles of Association (AoA), along with other statutory documents.
Obtain Certificate of Incorporation:
Upon successful registration, the ROC issues a Certificate of Incorporation, officially marking the conversion.
Limited Liability: Shareholders are only liable for the company’s debts up to their shareholding amount.
Attracting Investment: Easier to attract investors due to structured equity options.
Tax Benefits: Private limited companies may benefit from various tax deductions and incentives.
Structured Management: A formal structure allows for defined roles and responsibilities, improving operational efficiency.
Registered Partnership Firm: The firm must be registered with a minimum of seven partners.
Shareholders and Directors: At least seven shareholders and two directors are required for a private limited company.
DIN and DSC: All directors must obtain a Director Identification Number (DIN) and Digital Signature Certificate (DSC).
Ensure adherence to provisions outlined in the Companies Act, including filing forms, maintaining statutory registers, and adhering to corporate governance norms.
Understand the legal obligations for ongoing compliance, such as annual filings and audits, to maintain the company's good standing.
Converting a partnership firm into a private limited company is a strategic move that provides various benefits, including limited liability and enhanced growth opportunities. Following the outlined steps and ensuring compliance with the Companies Act, 2013 is crucial for a smooth transition. Engaging with a Chartered Accountant, like Anil D’Souza and Associates (ADCA),can provide invaluable guidance throughout the conversion process, helping partners navigate the complexities and set the foundation for future success.
Yes, a partnership firm can be converted into a private limited company by following the legal requirements outlined in the Companies Act, 2013.
Yes, it is possible to change a partnership to a limited company through a formal conversion process, which includes obtaining partner consent and filing necessary documents with the ROC.
The accounting procedure involves the valuation of assets and liabilities, recording the transfer of ownership, assessing tax implications, and preparing final accounts for the partnership.
There are generally no capital gains tax implications during the conversion if specific conditions are met, such as all partners becoming shareholders. Additionally, accumulated losses and unabsorbed depreciation can be carried forward.
The conversion of a partnership firm into a Limited Liability Partnership (LLP) is governed by Section 55 of the Limited Liability Partnership Act, 2008.
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Limited Liability Partnership Act- 2008 gave a new and easy way to run a business with less of compliance which also reduces compliance cost and provides tax benefits etc. LLP helped small business/ new entrepreneurs to run their business in an easy and cost-effective way. Let’s have an overview of the comparison between Private Limited Company and LLP.
LLP is governed by Limited Liability Partnership Act- 2008 which came in to force on 1st day of April 2008. This Act was introduced with the idea of promoting MSME Sector (Micro Small Medium Enterprise) with the advantage of self-governance and less compliance.
LLP is an alternate corporate body, comprising the benefit of both Company and Partnership.
A registered limited company in India (Private or Public) has a lot of complex formalities and incurs additional overheads for managing affairs including mandatory board meeting, maintenance of statutory records, filling of e-forms with MCA etc. Absence of such mandates for LLP combined with advantages such as non-applicability of dividend distribution tax on profit repatriation, transfer of profit rules and deemed dividend profit issues, MAT provisions.
In India, formation, registration, and regulation of an LLP is exclusively governed and controlled by the rules, provisions, and regulations provided in the LLP Act of 2008 and the LLP Rules of 2009. The Ministry of Corporate Affairs (MCA), Government of India, and its well-equipped web portal [www.llp.gov.in] is directly concerned for establishing an LLP.
The comparative chart of compliances to be made by a company and LLP is given below:
Particulars |
LLP |
Private Company |
Maintenance of Statutory Records |
No statutory registers are required to be maintain by LLP |
As per Companies Act,2013 many statutory registers are required to be maintained eg. Register of Members etc. |
Convening of Meetings |
No such requirement |
Require to hold Meetings as per Section- 173. (At least Two Board Meeting and one Annual General Meeting for Small Company and At least four Board Meeting and One Annual General Meeting for other than Small company). |
Addition & deletion of Directors |
Require to amend LLP Agreement and File E-form- 3 & E-form-4. |
Require to Pass Resolution in General Meeting, File e-form-DIR-12 and require many documents from the person who is appointed as Director. (As per Section-152 of Companies Act, 2013.) |
Increase in Capital |
Only require to amend LLP Agreement and File e-form Form-3. |
Require to Pass Ordinary resolution in General Meeting and file form SH-7. |
Annually form filling requirement |
Only Two annual E-form- 8, E-form-11 |
There are much formsE-form-AOC-4 E-form- MGT-7, E-form- MGT-14 E-form-ADT-1 |
Loans & borrowings |
As per LLP Agreement |
There is Cap for Loans and Borrowings as per section 179 & 180, Require to hold Board Meeting and file form with ROC. |
Related Party Transactions |
No restrictions |
Transaction to be at arm’s length price only and as per provisions of Secton-188 of Companies Act-2013. |
Audit of Accounts |
Require only if turnover above 40 lacs or Contribution more than 25 lacs. |
Audit is Compulsory. |
Benefits of LLP as compared to Corporates
Particulars |
LLP |
Private Company |
Members |
Minimum 2 Partners |
Minimum Member-2, Maximum Member- 200 |
Easy to Form, Run and manage |
No Minimum Capital requirement for Incorporation |
Minimum Capital for Incorporation of Private Limited Company is Rs. 1,00,000/- and for Public Limited Company is Rs. 5,00,000/-. |
Management through |
LLP Agreement |
MOA and AOA of the Company |
Benefits under Income Tax Law
Procedure to convert a Company into LLP.
Designated Partners of LLP must have their DIN and DSC.
Any private company or unlisted public company can be converted into LLP. However, in this case LLP shall take the same name as that of the company at the time of conversion.
Attachments: Board Resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form
File LLP Form-2
Attachment:
LLP agreement has to be drafted line with LLP Act. It is not mandatory to file LLP agreement at the time of registration and same can be file within 30 days from the date of incorporation. Designated partners are responsible for doing all acts, matters and things that are required to be done for complying with the provisions of the LLP act. They are liable to all penalties imposed on the LLP. So it is very important to draft LLP agreement with professional help.
File LLP E-Form-18 with the ROC
Attachment:
Attachment: LLP Agreement
As per notification dated 15th October, 2015 issued by Ministry, Form-14 is not required to be filed in case of conversion of private company/unlisted public company into LLP.
Attachment:
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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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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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