Everything You Must Know About Authorized Representative in GST

Introduction

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.

Who is Qualified to be Appointed as an Authorized Representative?

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.

Who is Not Qualified to be Appointed as Authorized Representatives?

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.

Can a Government Officer be an Authorized Representative?

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.

What is the Time Period Until Which the Disqualification is Valid?

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.

Can a GST Practitioner be an Authorized Representative under GST?

Yes, GST practitioners are legally permitted to act as authorized representatives. They can represent taxpayers in:

  • GST Departmental Proceedings

  • Appellate Authority Hearings

  • Tribunal Hearings

What is the Difference Between an Authorized Representative, GST Practitioner, and Authorized Signatory?

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.

Authorities Before Which the Authorized Representatives Can Appear

  • GST Officers

  • Appellate Authorities under GST

  • GST Tribunals

Note: Personal appearance is mandatory if the individual is required to appear for examination under oath.

Draft of Letter of Authorisation to Appear Before GST Officials

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]
    

Conclusion

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 .

FAQs

Who is an authorized representative in GST?

An authorized representative is approved to represent a taxpayer in GST-related proceedings.

Who is an authorized representative under the Service Tax Act?

Similar provisions exist under the Service Tax Act for appointing representatives in proceedings.

What is the difference between an authorized representative and a GST practitioner?

An authorized representative focuses on legal representation, while GST practitioners assist with compliance and filings.

Who is an authorized representative as per the Income Tax Act?

A similar provision exists in the Income Tax Act for representation during assessments or appeals.

What is the Authorized Representative Corporation Act?

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).

  1. Explanation 1 to section 37(1) disallow illegal expenditure

              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.

  1. Nature of expenses incurred  by pharma companies

             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.

  1. CBDT’s clarification as regards allowability of expenses incurred in providing freebies to medical  practioner

              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.

  1. Judical  controversy as regards allowability  of expenditure  incurred  by pharma companies

           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.

  1. Applicability of CBDT Circular No. 5/2012

             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.

  1. Recent decision of delhi High Court in Boston Scientific India (P) Ptd.’s  case

               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.

Why Convert a Partnership Firm into a Private Limited Company?

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.

Step-by-Step Process for Converting a Partnership Firm into a Private Limited Company

  1. 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.

  2. Prepare Necessary Documentation:

    • Draft and execute a supplementary partnership deed aligning with the conversion requirements.

  3. 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.

  4. Publish Advertisements:

    • Publish advertisements in two newspapers (one English and one vernacular) notifying the public about the conversion.

  5. File Incorporation Documents:

    • Submit the incorporation application, including Memorandum of Association (MoA) and Articles of Association (AoA), along with other statutory documents.

  6. Obtain Certificate of Incorporation:

    • Upon successful registration, the ROC issues a Certificate of Incorporation, officially marking the conversion.

Advantages of a Private Limited Company Over a Partnership Firm

  • 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.

Essentials for Converting the Partnership Firm into a Private Limited Company

  • 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).

Compliance with the Companies Act, 2013

  • 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.

Conclusion

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.

Frequently Asked Questions (FAQs)

Can I Convert a Partnership Firm to a Private Limited Company?

Yes, a partnership firm can be converted into a private limited company by following the legal requirements outlined in the Companies Act, 2013.

Can You Change a Partnership to a Limited Company?

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.

What is the Accounting Procedure Involved in the Conversion of Partnership to a Limited Company?

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.

What are the Tax Implications of Conversion of Partnership Firm into a Company?

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.

Which Section for Conversion of Partnership Firm into LLP?

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.

  • It contains the benefit of Limited liability to partner and Flexibility of Partnership.
  • LLP is a corporate body and granted the legal status the same as that of the company.
  • Unlike the partnership in LLP the liability of the partner is limited up to the contribution made by them.

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

  • Saving of Dividend Distribution Tax. (There is no provision of Dividend Distribution Tax in LLP)
  • Saving of MAT Tax. (Because LLP don’t give credit of MAT)
  • Saving of Income Tax due to Interest and remuneration payable to partners as salary payable to directors.

Procedure to convert a Company into LLP.

  • Obtain DIN(Director Identification No) & DSC (Digital Signature)

Designated Partners of LLP must have their DIN and DSC.

  • Board Meeting
  • Call meeting of board of Director.
  • Pass Resolution for Conversion of Company into LLP.
  • Pass Resolution to authorize any director to Apply for Name of LLP.
  • Application for Name availability

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.

  • File LLP E-Form-1 with ROC

Attachments: Board Resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form

  • Obtaining Name approval Certificate
  • Filing of Incorporation documents

File LLP Form-2

Attachment:

  • Proof of Address of Registered office of LLP.
  • Subscription sheet signed by the promoters along with the consent of partners.
  • Detail of LLP(s) and/ or company(s) in which partner/ designated partner is a director/ partner
  • Drafting of LPP Agreement

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.

  • Filing of application for Conversion

File LLP E-Form-18 with the ROC

Attachment:

  • Statement of shareholders.
  • Incorporation Documents & Subscribers Statements in Form 2 filed electronically.
  •  Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor.
  • List of all the Secured creditors along with their consent to the conversion.
  • Approval of the governing council (In case of professional private limited companies)
  • NOC from Income Tax authorities and Copy of acknowledgment of latest income tax return.
  • Approval from any other body/authority as may be required.
  • Particulars of pending proceedings from any court/Tribunal etc.
  • REGISTRAR OF LLP TO ISSUE A CERTIFICATE OF REGISTRATION in Form19 as to the conversion of the LLP. The Certificate of Registration issued shall be the conclusive evidence of conversion of the LLP.
  • Filing of LLP E- Form -3

Attachment: LLP Agreement

  • Filing of E-Form 14 (Intimation to Roc)

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:

  • Copy of Certificate of Incorporation of LLP formed.
  • Copy of incorporation document submitted in Form 2
  1. Conversion of a Private Company to LLP is comparatively beneficial in terms cost, benefit and compliance.The conversion from the existing corporate structure can be made to a LLP while retaining the advantages of Limited Liability and less compliances.LLP may be more suitable for small entrepreneur and professionals particularly. 

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GST

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.

Read More

1. A Simple Guide To Resolve Your GST Registration Rejected Application

2. Filing Of NIL GSTR 3B Through SMS

3. Special Economic Zones - Related Issues Under GST


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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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