Deductions Allowed In Tax Regime

Navigating the Maze: Deductions Allowed In Tax Regime

Introduced in the Union Budget 2020, the new tax regime launched an era of dual system of taxes for individuals and Hindu Undivided Families (HUFs). With new tax slabs and rates, individuals can opt for either of the two methods in place, i.e. old and new tax regimes. However, once you choose either of the two methods, the taxpayer will have to stick to the chosen regime for that financial year.

Tax season can be a daunting time for taxpayers who want to maximize their deductions. New tax regime deductions are expenses that you can subtract from your taxable income. It effectively reduces the amount of income taxes you pay, thus lowering your tax liability. Think of it as chipping away at your taxable income.

Not all expenses qualify as deduction allowed in new tax regime, numerous deductions are available under various sections of the tax code. While most deductions and exemptions have been discontinued, some deductions allowed in new tax regime include HRA, LTA, 80C, 80D, and more.

Understanding the deductions in your specific tax regime is crucial to minimizing tax burden and saving your hard-earned money.

List of Deductions Allowed In New Tax Regime

Let’s look into some of the deductions and exemptions that are still allowed:

Deduction under Section 80 CCD(2): This deduction applies to salaried individuals as they can claim a deduction for the employer’s contribution to the pension scheme. Employees working in the private sector can claim 10% of their salary. Under the subsection of Section 80CCD, the new tax regime deductions for government employees is up to 14% of basic salary + dearness allowance.

  • - Standard Deductions: Budget 2023 has extended the standard deduction of Rs. 50000 to the new tax regime for FY 2023-24 onwards. With this, the benefit from standard deduction remains the same under new and old tax regimes.

  • - Gratuity: Gratuity payouts i.e. the amount paid on completion of 5 years or more of continuous service is a deduction under new tax regime. The limit for gratuity that is tax-free is Rs. 20 lakhs during the lifetime of a taxpayer. Gratuity paid on the death of a taxpayer is fully exempted.

  • - Leave encashment: Section 115 BAC, allows non-government employees to use leave encashment as tax exemption. This income is not taxable up to a limit of Rs. 3 lakhs.

  • - Public Provident Fund (PPF) and Sukanya Samriddhi Account earnings: The interests earned and maturity amounts received from both these schemes are tax exempted.

  • - EPF Contribution by Employer: Employer contribution to Employee Provident Fund (EPF) which is up to 12% of basic and dearness allowance is a deduction available in new tax regime. The exemption applies to a maximum contribution of Rs. 7.5 lakhs annually for all such accounts.

  • - Amount withdrawn from NPS: An amount withdrawn up to 60% of your NOS account balance at maturity is tax deductible. Partial withdrawals of up to 25% of your self-contribution are tax-free.

  • - Voluntary Retirement Scheme (VRS) Proceeds: VRS proceeds of up to Rs. 5lakhs are exempted from tax.

  • - Allowances for Official Duties: The permissible deductions in the new tax regime include; transport allowances for specially-abled individuals, allowances to cover transportation costs, compensations for travel expenses from official tours, and daily allowances.

Choosing Between Old & New Tax Regime

There are many new tax regime deductions, however, several major deductions from the old tax regime are not allowed in the new tax regime. These include:

  • - Section 80D deduction for health insurance payment

  • - Section 24 (b) deduction for interest paid on home loan

  • - Section 10 (5) Leave Travel Allowance (LTA)

  • - Deduction from family pension under 57 (iia)

  • - House Rent Allowance (HRA) under section 10 (13A)

Total Deductions Tax Regime Beneficial
Rs. 1.5 Lakhs or less New regime
Rs. 1.5 lakhs to Rs. 3.75 lakhs Depends upon Income level*
Rs. 3.75 lakhs or more Old regime

*If gross total income is less than R.s 7.5 lakhs or Rs. 10 lakhs any tax regime can be followed. For gross total income Rs. 8 to 9 lakhs, old tax regime shall be beneficial and for gross total income above Rs. 10 lakhs, the new tax regime will be beneficial.

The government introduced the new tax regime to simplify calculations and reduce tax burden on Indian taxpayers. Taxpayers can select from either of the two tax regimes for efficient tax planning. While choosing two tax regimes consider the two main parameters; the tax exemption you currently avail, and the deduction you currently claim.

Exemptions You Currently Avail

You will loose exemptions under the new tax regime if your taxable income includes;

  • - HRA (if you are living in rented accommodation)

  • - Food coupons

  • - Leave allowance, and

  • - Compensation for phone bills.

Deductions You Already Claim

The new tax regie excludes the following:

  • - Home loan EMI for self-occupied property

  • - 80C investments like life insurance premiums

  • - 80D investments like health insurance premiums

Calculations For Taxpayers

Taxpayers should find out the total amount of exemptions and deductions to avail. Subtract it from the income and calculate the tax payable under the old regime.

Further, taxpayers can compute taxable income without claiming such benefits. Compute the tax payable as per the new tax rates.

Taxpayers can compare the tax amounts to make a wise decision. For better understanding, it is advised that taxpayers use the comparison tool available on the official website of the income tax department.

Remember, not to make your investment decisions solely based on tax savings. For instance, the old tax regime is appropriate for life insurance policyholders as tax deductions will translate to greater savings. While life insurance does provide tax savings, it should not be the only reason for this investment.

FAQs

Is there any exemption in the new tax regime?

There are many exemptions in the new tax regime. However, taxpayers will have to forego 70 deductions in the new tax regime if they choose the new tax regime over the old one.

Is interest deduction allowed in the new tax regime?

Yes, homeowners can claim a deduction for interest on home loan under the new tax regime if the said home is put on rent. The deduction for interest paid on home loan if restricted to Rs. 2 lakhs in case of self-occupied property.

What are the benefits of new tax regime?

The government introduced the new tax regime to reduce the tax burden for taxpayers. While this new tax regime simplified the tax laws, it also removed the complicated calculations of the deduction percentages. Moreover, the new tax regime helps to save on taxes on long-term investments too.

Can we claim 80C and 80D in new tax regime?

Deductions under new tax regime including the popular ones like 80C (for investments), 80D (for medical insurance premiums), and 80E (for education loan interest) are no longer allowed.

What is the Section 10 exemption in the new tax regime?

Certain exemptions are considered special allowances under Section 10 of the Income Tax Act. These exemptions are granted to specific individuals who are high court judges, UNO employees, Supreme Court and High Court judges entitled to receive Sumptuary Allowance, and Indian citizens working as government employees outside India.

Benefits of Trademark Registration

Your company trademark is any slogan, symbol, or brand name associated with your products or services. It may contain a combination of letters, words, symbols, numerals, or all of these to identify your product source. It must be easy to read and remember and never lose its distinctive character or exclusiveness that makes it different from the others. Remember, the consumer's decision to purchase your product or service is highly influenced by the reputation and goodwill of your brand, and these are specifically generated when you own a registered trademark. There are huge benefits of trademark registration in India, with the most relevant one being your company is perceived as a reliable brand.

The Importance of Trademark Registration

One of the greatest federal trademark registration benefits is that when consumers perceive that a company with a registered trademark is highly reliable, there are fewer chances for the registered trademark owners to sell low-quality products or services as it would hurt their brand identity.

The benefits of trademark registrations do not end here. Besides making your brand, company, service, or product stand out, a registered trademark ensures no lookalike is impersonating your services or products across the market. This is one of the greatest benefits of trademark registration in India, which eliminates the possibility of rebranding. 

Another MSME benefit for trademark registration is that it safeguards the intellectual properties of a company while securing its rights at the same time. Every upcoming and existing entrepreneur needs to know about the different benefits of registration of a trademark to get one and operate in the market successfully.

Also, the trademark registration process is not too challenging, and by following the right steps, you can go through it easily and conveniently. Nowadays, more and more businesses are opting for online trademark registration because of flexibility in timing and fast procedure. Now, let's understand the benefits of federal trademark registration in detail:

Exclusive Rights

The best trademark registration benefit for MSME is helping you enjoy the exclusive right over your trademark. You can use the same trademark for all the products or services included in the classes or categories applied for trademark registration. It offers your business the exclusive right to take legal action against any entity or business that attempts to violate your right by using your business's trademark unauthorised.

Distinguishes Products or Services

A registered trademark creates a distinguished brand image or identity. This is one of the best benefits of trademark registration. And when your business has an exclusive brand identity, it creates appeal and attracts relevant customers to purchase its products or services. This makes it easier to commercialise or market a product with an exclusive brand identity that perfectly matches the market requirements. Communicate your products' quality, vision, and various other attributes along with your business enterprise with trademark registration in India.

Helps to Build Goodwill and Trust

Yet another major benefit of trademark registration is it helps establish goodwill and trust in a brand. The already-established quality of your service or product is known to every individual through your registered trademark. The trademark makes your brand popular among the customers, which builds trust in the customers, further helping create permanent and loyal customers who always choose to buy from you.

Recognition of Product or Service Quality

Trademark registration recognises the product quality of your brand because consumers attach the product quality to your brand name. This will help you to attract new customers who differentiate your business's product quality by your brand name or logo.

Asset Creation

Registering a trademark is more like creating an asset or intellectual property. Registered trademarks are ideally rights created to be assigned, sold, commercially contracted, or franchised.

Use of the ® Sign

Registering your trademark gives you the immediate right to the ® symbol on your logo. This states that you have a registered trademark, and no other business can use the same. If any third party violates this registered trademark, you have the right to take legal action against the infringer.

10 Years of Full-Fledged Protection within Affordable Range

Registering a trademark online is quick and affordable, and once you complete the process, there are no other fees you need to take care of. Your trademark remains protected for ten years, after which you need to pay a small renewal fee. So, this is one of the most cost-efficient ways for companies to create an exclusive image.

Makes it Easier to File for Global Trademark Registration

Registering your trademark in India does not offer you global brand protection. If you want to register your trademark in nations other than India, you can use your trademark registration in India as the base trademark application. This will make it easier for you to file for global trademark registration in foreign nations.

Helps to Attract Employees

A registered business trademark creates a positive image of an organisation in the young minds looking to join the big brands in the industry. Hence, more candidates are attracted to brands with registered trademarks, reducing hiring costs and other related activities.

Makes Way for Business Expansion

A registered trademark connects a company's products and its customers. Businesses can easily build a customer base by providing innovative and efficient products. Further, your trademark helps you retain and expand your customer base. Trademark registration further grants you the exclusive rights to use the trademark for ten years, which protects your business profits. By growing their business and launching new products, companies may reap the benefits of having a huge customer base.

The Bottom Line

Trademark registration in India helps to safeguard a company's brand identity. However, trademark registration online involves several procedures and government follow-ups that can be challenging. At https://adca.in/, they have the best experts to make it easier to break down the process while doing most of the work on your behalf. So, register a trademark today and protect your company's slogan, logo, or brand now!

FAQs

How important is a registered trademark?

A registered trademark prevents unauthorised use of company or individual products or services. It also helps the customers identify a brand's products or services, helping them recognise the brand on the market and distinguish it from its competitors.

What is the advantage of registering a trademark Class 12?

Registering trademark Class 12 involves vehicles and their varied accessories. This kind of registration offers vehicle protection against its use by other companies. Brands that get their bicycles, cars, mountain bikes, cycles, airplanes, trucks, and boats trademark registered get exclusive rights of the trademark, and no other company from the related field is allowed to use the same trademark.

Why is a trademark valuable?

Trademarks are valuable because they serve as symbols of the course of products or services, making it easier for customers to identify and distinguish between varied brands. They are also valuable because they offer legal protection for business owners, preventing others from using the same names or logos that may deceive or confuse consumers.

Is it compulsory to register a trademark?

No, it's not compulsory to register a trademark, but trademark registration serves as the most apparent evidence of the ownership of the trademark. If you do not want other related businesses as yours to use your logo or other information to represent their products or services, go for trademark registration.   

What is the best use of a trademark?

The best use of a trademark involves the following:

  • The identification of the source of your products or services.

  • Legal protection for your brand.

  • Guarding against fraud and counterfeiting.

It protects your brand image while ensuring that other businesses do not infringe on your intellectual property.

So, have you decided to form a business? Then knowing the difference between limited and unlimited company is necessary to determine the type of company most suitable for your proposed business. Understanding this difference and selecting the right structure can help you save your assets from business creditors. Understanding the difference between limited and unlimited liabilities is of prime importance from the perspective of the company shareholders and is elaborated below.

Understanding Limited & Unlimited Liability

The difference between limited and unlimited liability is directly related to the compulsions of the business owners, whether their compulsions are restricted to the amount of invested funds or whether they will be personally liable. Varied business and business structures hold varied liability levels regarding obligations and debts. While the owners of general partnership and proprietorship businesses may be subject to unlimited liability, where they hold responsibility for all or a certain part of the obligations and debts of their business, members of limited liability firms and corporate shareholders may, however, hold responsibility for the obligations and debts of their business to the extent of their respective investments. Such individuals also enjoy the protection of their assets.

Limited Liability Company

Limited liability involves restricting owner or investor liability to the amount of money invested or contributed to the organisation. Limited liability company owners are safer when the organisation faces bankruptcy because their losses are restricted to their share of obligations, debts, and contributions. They can, in no way, be held responsible for losses beyond the money that they have contributed. A corporation is one of the most popular forms of a limited liability organisation.

If an organisation goes bankrupt, the shareholders may lose their entire investment in the company but will not be held liable for the losses beyond their share of contribution. Such companies have several major advantages for the owners but may also have disadvantages. Of course, the managers or owners of a limited liability firm are protected against personal liability, which means their assets cannot be seized to make payments for losses. But this can make the owners behave recklessly since they are protected against all odds of losses.

Unlimited Liability Company

There is a huge difference between limited and unlimited company. In the unlimited liability company structure, the liability of the investors or owners is not limited to their share of contribution. There is no restriction on the losses that need to be borne by the owners or investors. For instance, if a company loses Rs. 100, 000 and the owner has invested Rs. 50, 000, he or she will immediately lose that money. And since it is an unlimited liability company structure, the owner’s compulsion to pay does not end with Rs. 50, 000. They must dispose of their personal property or take other measures to recover Rs. 50, 000.

Since the risk is high in an unlimited liability firm, the returns are also higher, which is a win-win situation for the owners. A higher rate of return to the owners is always possible if the company succeeds in the market.

Difference between Limited Liability and Unlimited Liability

Safety is another major point of difference between limited and unlimited company. While a limited liability firm is safe for its owners as their liability remains restricted to their share of contributions in the firm, the unlimited liability company structure is unsafe as there is no restriction on the losses the owners will have to bear.

Another difference is that the owners of limited liability firms are considered investors or providers of finances that the company can use. On the other hand, the owners of an unlimited liability firm are part of the company and are held personally responsible for the losses.

Differences in Work Procedures of Limited and Unlimited Liability Companies

When a company or individual functions in the limited liability company structure, the assets attributed to the concerned individual or company cannot be seized to repay debt compulsions attributed to the firm. Funds used for investment in the company, like the purchase of company stock, are considered company assets in question and can conveniently be seized in the event of insolvency. Other assets considered the company’s possession, like equipment, machinery, real estate, investments made in the company’s name, and even goods that have long been produced but not sold, are subject to liquidation after a seizure.

Without the limited liability company structure, many company investors might be reluctant to possess equity ownership in organisations, while businessmen would be aware of taking up new ventures. That’s because creditors and stakeholders could easily claim the owners’ and investors’ assets in case the organisation loses more money than it possesses. This does not happen with limited liability, where the most that can be lost is the invested amount and any personal asset held off-limit.

Limited liability companies are more beneficial than unlimited liability companies in that the shareholders remain protected from liabilities incurred by the firm. Also, shareholders do not need to provide additional funds above the contributions they have already made. The time, cost and formalities of setting up a limited liability firm might mean a lot of hard work. But business owners should aim to achieve the limited liability status to safeguard their personal assets when they face difficulties.

On the other hand, an unlimited liability company structure exists in sole proprietorships and general partnerships. The owners of such companies are inextricable from business and are personally accountable for the organisation’s liabilities. But besides being entitled to the losses the company makes, the unlimited liability company owners are also entitled to profits made by the company after making tax payments. Nevertheless, if an unlimited liability business owes debts, it cannot pay the same with company funds. The owners will be liable to pay off the debts, and with time their assets or wealth may be seized to cover the debt.

Unlimited liability companies are sole proprietorship businesses most of the time and are, therefore, easy to set up and even dismantle, giving business owners huge autonomy. Also, these companies do not need to disclose their fiscal records in the same way as the limited liability companies offering them major tax benefits based on the size of their profits. Such companies are also subject to fewer compliance rules retaining all of their profits after making tax payments.

Nevertheless, unlimited liability companies even have a few caveats, like they could add good stress to the business's complexities. This may prove extensively damaging if the owners are forced to use their assets to pay off huge company debt. Since unlimited liability firms carry greater risk, securing funding for such companies becomes difficult.

At the End

So, an unlimited liability company would be the right choice if you want a simple business life with limited paperwork. However, if you do not want to run the personal risk of operating an unlimited liability company, a limited liability company structure is your way to go. For any kind of help, like business establishment or taxation, company legal matters, or auditing services, contact the experts at https://adca.in/

FAQs

Why would a company be unlimited?

Being an unlimited company offers advantages like having a separate legal identity and enabling the company to take out agreements in its own name instead of the names of shareholders and directors.

Is unlimited company allowed in India?

Yes, as per Section 2 (92) of the Unlimited Company in India Act, an unlimited company can be incorporated in India either with or without share capital.

What is a co-operative company?

A cooperative is a member-owned business managed by and for the benefit of the members only. Dissimilar to traditional businesses, members of a cooperative have their voice in the way the business runs.

What is an unlimited company?

An unlimited company is where the members have unlimited liability. Therefore, the company always has the right to use all the personal assets of its shareholders to meet debts while winding up.

What are the benefits of unlimited company?

One of the major benefits of unlimited company is separate legal personality that enables the company to enter into agreements in its own name. Such companies also have the potential to outlive specific directors and shareholders.

The OPC or One Person Company structure is a sole proprietorship business structure refinement. It offers complete authority of the company to a single promoter who is the sole director and shareholder, limiting their liability towards the company. Also, there are no scopes for contributing to equity funding or employee stock options. As per Section 2(62) of the Companies Act of 2013, one-person company registration is legal in India and requires one director and one member to represent the entire company. Also, OPC company registration in India has only a few compliance requirements.

One-Person Company Registration Process

Before enforcing the Companies Act of 2013, a single individual could not form an organization. If they wanted to establish a company, it could be a sole proprietorship business with at least two members and two directors. But as per Section 2(62), now just one director and one member can form a company with the member and the director being the same person. An OPC has all the attributes of a private limited company, like limited liability, separate legal entity and perpetual succession.

Eligibility Criteria for One-Person Company Registration

Though online company registration fees are minimal, individuals need to meet the following eligibility requirements before opting for OPC registration online:

  • A resident of India can opt for OPC company registration online in the preceding calendar year.

  • The company name must be unique; it should not have any similarity to any existing trademark or company.

  • Only one member can establish an OPC.

  • A single individual cannot go for more than one online registration of OPC, or a person cannot be the nominee of more than one OPC.

  • At least one director should be there.

  • The paid-up capital limit for one-person company registration online is INR 50 Lakhs, with an average annual turnover of INR 2 Crore in the preceding fiscal year. Nevertheless, according to the latest budget, there are no paid-up capital and turnover limits for one-person company online registration in India.

  • A company should include (OPC) Private Limited in its name for effective and successful online OPC registration.

  • There's a prior condition to include the name of some other person as the nominee. So, if a subscriber dies, the nominee becomes an OPC member.

Documents Needed for One-Person Company OPC Registration

Some important documents you need for online one-person company registration are as follows:

  • Passport or PAN card

  • Scanned transcript of driver's license or voter ID

  • Foreign individuals and NRIs should present a passport

  • Latest electricity or gas invoice/landline or mobile phone invoice or bank account statement.

  • Passport-size photographs

  • Specimen signature

All these documents should be self-attested, and those from NRIs must be apostilled or notarized.

One-person company registration in Bangalore may also require the following documents:

  • Scanned transcript of the rental agreement.

  • Scanned transcript of band account statement/landline or mobile phone invoice and electricity or gas invoice.

  • Scanned transcript of NOC or No Objection Certificate from the land owner. If the member is the property owner, he or she must present a scanned transcript of the sale deed.

 

Steps to Follow in One Person Company Registration Procedure

Applicants must follow the steps below for one-person company registration in India:

  • Online application for OPC registration starts with applying for DSC or Digital Signature Certificate, which the Certifying Authority issues.

  • You must apply for the DIN or Director Identification Number in the SPICe+ Form along with all details of the Director. The DIN is for the proposed company director.

  • The next step is company name approval. The company name should be XYZ OPC Private Limited Company. At this step, you can use the RUN service to check name availability and apply for one OPC name through SPICe+ (INC 32).

  • You must file a SPICe+ form for OPC registration within 20 days of the approval date of the company name, along with all documents. Once you upload everything on the MCA portal, it will automatically generate your TAN and PAN.

  • The Registrar of Companies will give the COI or Certificate of Incorporation if they find all your documents and details appropriate.

It takes just one day to obtain the DIN and DSC of the proposed directors while obtaining the Certificate of Incorporation takes 3 to 5 days upon due payment of the one-person company registration fees. On that note, the one-person company registration charges will not be too high if you can find the best online CA services for OPC registration and registration of GST. The entire one-person company registration process in India takes around ten days, provided respective departments revert with the approvals on time.

Limitations of One-Person Company Registration

A few restrictions on one-person company registration include the following:

  • Minors cannot hold shares with beneficial interests in an OPC.

  • Minors cannot become a nominee or members of an OPC.

  • An OPC cannot be converted or registered as a company as per Section 8 of the Companies Act.

  • A one-person company cannot opt for voluntary conversion before completing 2 years from the registration date.

  • An OPC cannot take up non-banking financial investment activities.

Advantages of OPC Registration

Some primary advantages of OPC registration in India include the following:

  • Limited liability protection for the Director's assets.

  • It is very easy to manage a one-person company. OPCs do not need to conduct AGMs or annual general meetings and file very few ROC filings with the Registrar of Companies.

  • In India, OPCs are considered private limited companies. Therefore, there's better credibility of OPCs in the market with government agencies, vendors and corporate customers willing to work with them.

  • Startup entrepreneurs can use the OPC business structure to test their business model and the marketability of their products.

  • Since only a single owner controls the company, it takes little time to execute decisions.

  • It is easy to sell a one-person company as there's less cost and documentation involved.

Conclusion

So, there you go! You do not need much time to register a one-person company. The provisions for OPC registration in India are present in the Companies Act 2013. Also, OPC registration has several advantages, like limited compliances, limited liability and separate legal entity. However, you can opt for expert advice if you need help with the process. 

FAQS 

Is registration compulsory for a Person Company?

Yes, one-person company registration is compulsory as it enhances the legitimacy of a business and offers several benefits, such as a secure company name, less compliance, limited liabilities for the director, low-income tax rate, no third-party intervention, easily transferable ownership and perfect for credits and banking loans. 

Why is OPC better than private limited?

An OPC is better than a private limited company because it offers the limited liability advantages of a private limited company or PLC and the flexibility of a limited liability company.

What is a dormant company?

A company that cannot meet its annual compliances is dormant and can be struck off anytime. However, reviving a struck-off company for up to 20 years is possible.

What is the Director's Identification Number?

A unique number that all proposed and assigned company directors possess is the Director Identification Number. This number does not expire; a director can have a single DIN.

Is audit compulsory for OPC?

Yes, an audit is mandatory for an OPC. An OPC must appoint a chartered accountant as company auditor to verify its books of accounts and issue a Statutory Audit report.

Can OPC raise funds?

Yes, an OPC can easily raise funds through financial institutions and venture capital. It can also raise funds by transforming into a Private Limited Company.

Is GST mandatory for OPC?

Yes, GST is mandatory for one-person companies involved in product supply and services through different e-commerce platforms.

foreign-subsidiary

Global business expansion and hiring offer some of the most exciting business scopes. Opening a foreign subsidiary can greatly benefit businesses looking to enter the foreign market. A foreign subsidiary of an Indian company serves as a separate legal entity in the target country. It gives the parent company advantages, such as compliance risk mitigation and local tax incentives. Nevertheless, establishing a foreign subsidiary company requires heavy investment in terms of money and time. It may also expose businesses to compliance risks resulting in reputational damage, lawsuits and fines.

Here, we will go through the advantages of establishing a subsidiary of foreign company as part of a global business plan and other related information.

Features of a Foreign Subsidiary

A foreign subsidiary is a commercial establishment that operates in one country but is wholly or partially owned by a parent company in another country. Such companies are also called Daughter Companies and are separate legal entities that must meet the requirements for compliance for foreign subsidiaries in India. This entails complying with the local jurisdiction's employment and tax laws. The company that owns the foreign entity is the parent or holding company.

The features of the subsidiary company may vary between jurisdictions. However, they must all be a minimum % owned by their respective parent companies. Foreign subsidiaries work on a global expansion strategy where a company comes up with a legal entity in any foreign market for business operations in that country. The subsidiary gives the parent company growth opportunities while safeguarding it from litigation in the host country. Foreign subsidiaries can promote the parent company's products and services to the local population, hire local employees and import and export goods.

Establishing a Foreign Subsidiary in India

Establishing new foreign subsidiaries in India can give foreign companies complete control over their strategy and operations. Whether or not establishing a new foreign subsidiary in India is the right move for you is based on your business's present circumstances and future aspirations. These are a few situations where coming up with a foreign subsidiary can make complete sense:

  • When you have several remote workers in the same location

  • When your employees want the stability and advantages of working full-time instead of a contractors. Coming up with a foreign subsidiary will help you offer full-time employee status to your workers while also enjoying the peace of mind that comes with it. Giving full-time status to employees also simplifies taxes for them.

  • When you are looking to strengthen your business presence in a specific location, opening a foreign subsidiary can help you build relationships locally and work more efficiently than would be the case when running operations from abroad. Forming a subsidiary demonstrates your commitment to the area.

  • When you want to minimize financial risk, since foreign subsidiaries are separate entities from the parent companies, they come with fewer risks for the parent companies looking for global expansion.

  • When you want to reduce the burden of high tax rates. Establishing a foreign subsidiary can help your business reap tax advantages and incentives, including lower tax rates than your native country.

With these points in mind, you must also consider that establishing a foreign subsidiary is not for everyone. Always assess associated risks and research all possible expenses along with the amount of paperwork that you would have to indulge in when you want to open a foreign subsidiary.

Operational Accounting Options for a Foreign Subsidiary

Financial accounting for foreign subsidiaries that are more than 50% owned by the parent company entails consolidating their financial accounting results and records with the parent company. Financial accounting is unconsolidated for the affiliate companies that are less than 50% owned by the parent company. The financial records of such companies are separated. On that note, for a company to be a foreign subsidiary, the amount of equity participation should be above 50%. The foreign subsidiary capital structure generally describes the liabilities' side composition of the company's balance sheet. 

Benefits of Establishing a Foreign Subsidiary

The following are the advantages of foreign subsidiaries:

  • Coming up with a foreign subsidiary helps a company establish a legal entity in another country, helping it market its products and services to the local people.

  • Several overseas markets have developed manufacturing facilities enabling foreign subsidiaries to lower the cost of materials and, thus, the cost of producing goods in bulk.

  • Professionals in foreign countries offer access to new ways of thinking about technical problems and advanced technology. Thus, foreign subsidiaries get easy access to technical skills.

  • A foreign subsidiary also helps a business make new relations with local partners and develop joint ventures that reap the benefits of localized knowledge.

  • In most situations, entering a foreign market increases revenue and boosts business growth, which is impossible in one's home country.

  • Several nations welcome foreign investments openly and make it very simple for businesses to develop foreign subsidiaries. There are even incentives available for foreign investments. These include free trade zones, tax incentives, faster incorporation procedures and special economic zones.

The Registration Procedure for Foreign Subsidiaries in India

The process of foreign subsidiary registration in India goes like this:

  • The incorporation procedure starts with two directors applying for DSC or Digital Signature Certificate and the remaining directors applying for DIN or Director Identification Number.

  • Applicant should apply for the company name in Form INC-1.

  • Logging in to the Ministry of Corporate Affairs and getting a new online form to fill in details like CIN or Corporate Identification Number, entity type and proposed company name.

  • Providing documents like trademark, NOC and apostille copies of the resolution of foreign companies.

  • On approval of the proposed company name, the applicant must file Form INC-7, Form DIR-12 and Form INC-22.

  • After filing incorporation papers, applicants must pay stamp duty and ROC fees.

  • The incorporation certificate is sent after ROC verifies the paperwork and fee payment.

If you find subsidiary company registration difficult, you can always take the legal assistance of professionals at https://adca.in/subsidiary-company-registration-bangalore.php to register for a foreign subsidiary easily.

Speaking of the taxation of foreign subsidiaries in India, the Indian government taxes the income of these companies at the rate of 40%. Audit of a foreign subsidiary is also essential from time to time to ensure the entity meets all the requirements in place for a foreign subsidiary of Indian company compliance.

FAQs

What is the difference between a foreign company and a foreign subsidiary?
The main difference is that the foreign subsidiary has more rules and regulations than a foreign company. Companies with more than 50% of equity shared owned by distant companies come under the category of a foreign company.

Why should a company set up a foreign subsidiary?
It is beneficial for a company to develop a foreign subsidiary as it allows the company to establish a corporate standing in a specific overseas economy. This further generates tax advantages, boosts revenues and diversifies a company's assets for better risk management.

What are the objectives of a foreign subsidiary?
The main objective of a foreign subsidiary is to introduce the products and services of the parent company to all new and profitable markets across the world. Such companies also allow parent companies to hire full-time employees abroad without needing a middleman, like an employer of record. 

How do you account for a foreign subsidiary?
If a company reports on a US GAAP basis with control of a foreign subsidiary, consolidating tit into the US parent for financial reporting is vital. In case the foreign subsidiary does not maintain its records in US dollars, it becomes crucial to converting the financial statements into US dollars.

Can a foreign subsidiary apply for start-ups in India?
No, foreign subsidiaries cannot apply for start-ups in India. However, companies with foreign directors and shareholders can apply under the start-up Indian scheme.

What is the difference between a joint venture and a foreign subsidiary?
While a joint venture is a partnership between two or more firms, usually domestic and foreign companies, a foreign subsidiary is a separate legal entity partially or wholly owned by a foreign company.

Taxation is the key source of revenue for all Indian states, and this speaks of the importance of income tax. India's perfectly structured tax system uses both proportional and progressive taxation based on income and associated factors. The state and central governments determine income tax in India, and the money thus received is called tax revenue. The importance of tax received from individuals also lies in the fact that the money thus received is used for varied purposes, like public education and healthcare; infrastructure development like bridges, dams, roads and railways; civil services and defence. The main importance of taxation in India is assisting the government in satisfying all its development objectives.

Mandatory Filing of Income Tax Return

ITR, or Income Tax Return, is a form issued by the government for individuals to declare their annual income, expenditures, exemptions, deductions and taxes paid. Mandatory filing of income tax returns is important for deductions under Sections 80C, 80D and others for individuals who make more than Rs. 2, 50, 000 as income. The deductions together can help bring down the taxable income of a person. Filing income tax returns is not mandatory for individuals with income less than Rs. 2, 50, 000.

The majority of individuals are not aware of the importance of tax returns and consider them to be a time-consuming procedure. Hence, they do not file tax returns. Nevertheless, as a responsible citizen, you must understand tax and its importance and file your returns on time yearly. As a working Indian, follow the tax return filing procedure and reap its benefits. For income tax advisory and filing services, contact professionals at https://adca.in/income-tax-advisory-and-filing.php

But before understanding the importance of taxation in India and its benefits, let's get into the features of taxes levied on an individual's income.

Main Features of Income Tax in India

Some of the main features of income tax in India are:

  • Income tax in India is levied as per entry No 82 of a list I or Union List of the Seventh Schedule to the Article 246 of the Constitution of India.

  • Income tax is chargeable by the Central Government of India on all forms of income except agricultural income. The state government charges income tax on agricultural income.

  • Since the liability to pay income tax and its burden are on the same person, the kit is a direct tax.

  • Also, it is an annual tax as it is an individual's income of a specific year that is tax chargeable.

  • Income tax is the tax on the income earned by an individual. This "individual" can be any person, firm, local authority, company, the body of the individual, association of person, Hindu Undivided Family or any other artificial juridical individual. Individuals covered under income tax are known as assessees.

  • Income tax is a tax on house property income, salary income, capital gains, business or professional income and other earning sources. On that note, a few incomes are specifically exempted from income tax.

  • Income made during a specific financial year is duly assessed to tax in the following immediate financial year.

  • There is a prescribed rate at which income tax is charged. Tax rates prescribed under Income Tax Act include 20% for taxes on long-term capital gains, 15% for taxes on short-term capital gains on shared covered under STT and 30% taxes on income made from lotteries.

  • The Central Government (Ministry of Finance) administers income tax in India in coordination with the income tax department with branches nationwide.

  • Income tax applies throughout India, including Jammu and Kashmir.

Advantages of Taxation

Here are a few benefits of taxation that you must know about:

  • Regular filing of tax returns makes it easier for individuals to process loans from different banks.

  • It also helps individuals to claim their carried forward losses.

  • Any form of tax paid by an individual helps build a nation. The money generated through tax contributes to the government's cash flow, and the government further uses this amount to build infrastructure.

  • Regular tax payment also helps people with their credit card and visa applications. It improves their eligibility for such documents.

  • Filing regular taxes is one of the major prerequisites for obtaining a tax clearance certificate, especially when selling or transferring assets.

  • ITRs make an individual eligible to undertake all kinds of government assignments.

Purpose of Taxation

The most basic purpose of taxation is to fund all government expenses. While earlier taxes from individuals with taxable income were used to raise armies, build defences and support the ruling classes, they are now used to encourage the development of a more equitable society. On the other hand, higher taxes on certain products and services, like gasoline and tobacco, have been put in place to avoid further consumption.

Important Sections in Income Tax

The Income Tax Act features a total of 23 chapters and 298 sections. Considering this huge amount of information in place, it is extremely difficult to go through all the chapters and sections. However, there are five income tax important sections that every individual with taxable income should know about. Clear knowledge of these five sections can be useful when deciding to invest their corpus in any of the investment tools. Also, if you do not understand income tax sections very well and require help with income tax audits in Bangalore, get straight to https://adca.in/income-tax-audit.php, where you can find the best assistance possible. The main sections of income tax are:

  • Section 80C allows for deductions on an individual's investments in specific instruments. The two most well-known options in this category include Tax Saving Fixed Deposits and Tax Saving Mutual Funds.

  • Section 80CCC provides income tax deduction to pension funds under Chapter VI- A from the total gross income of the taxpayer for that specific financial year. This section enables taxpayers to invest in pension funds.

  • Section 80CCD offers income tax deductions for all NPS or National Pension Scheme contributions. The maximum deduction individuals can claim from this section is 10% for salaried individuals and 20% of total gross income from the self-employed.

  • Section 80TTA of the Income Tax Act (Chapter VI-A) allows individuals to claim deductions of up to Rs. 10, 000 annually from the interest earned through savings accounts deposits held in cooperative societies, post offices and banks.

  • Section 80TTB of the Income Tax Act gives senior citizens above 60 years of age the flexibility to claim tax breaks in the interest income made from deposits they hold. 

Taxpayers can considerably bring down their taxable income by using the different income tax exemptions and deductions allowed under the Income Tax Act. 

FAQS 

How many types of tax returns are there?
There are 7 forms of tax returns for individuals. These are ITR 1, ITR 2, ITR 3, ITR 4, ITE 5, ITR 6 and ITR 7. Companies and firms can file their income tax returns using ITR-5, 6 and 7.

Who is eligible for ITR?
According to the Income Tax Law in India, individuals with an annual income exceeding Rs. 2, 50, 000/ 3, 00, 000/5, 00, 000 are mandated to file income tax returns. This will be their way of informing the government to operate the country's financial sectors smoothly.

What's a simple tax return?
A simple tax return is the income tax filed using IRS form 1040 without attaching any schedules or forms.

Who is not required to file an income tax return?
Individuals with income less than Rs. 2, 50, 000 and people above 80 years of age not making professional income or income from regular business are not required to file income tax returns.

Who is exempted from filing ITR?
As per section 194P of the Income Tax Act, senior citizens above 75 years of age, senior citizens with "resident" status in the previous year and those with interest and pension income only are exempted from filing ITR.

Which tax savings is best?
Life insurance, pension plans, mediclaim or health insurance, tax saving mutual funds and NPS are the best tax savings offering maximum benefits.

Difference between an LLP and Pvt Ltd

Operating as a business is one of the best ways to work on your terms and gain complete financial independence. But put in a lot of effort to set up your own business. Beginners in this field must develop the right business plan, which involves choosing an appropriate name for the company, planning operations and arranging funds. Aspiring entrepreneurs must also know the difference between LLP and Pvt Ltd to register their business accordingly.

LLP Vs. Pvt Ltd: An Overview

LLP, or a Limited Liability Partnership, is a business entity that offers the advantages of a partnership firm and a private limited company. All partners in an LLP have limited liability towards the firm. The limited liability also applies to their contributions, and one partner may not be held responsible for the liabilities of the other partners. An LLP in India operates as per the guidelines noted under the Limited Liability Partnership Act 2008.

A Private Limited Company or Pvt Ltd is where private investors hold shares, and the public cannot trade those shares on the stock exchange. The shareholders may be different from the owners of a Private Limited Company, and thus the liabilities and profits are shared among the company owners, according to the Companies Act, 2013.

LLP Vs. Private Limited: Advantages

Some major benefits of registering a business as an LLP are:

- Starting and managing an LLP is easier because of its fewer formalities.

- The death of any of the partners does not affect the survival and existence of a limited liability partnership firm as it has perpetual succession.

- The cost of registering an LLP is lesser than registering other forms of businesses or companies.

- You do not require huge capital to start an LLP.

- Partners in an LLP have limited liability.

The benefits of registering a business as a Private Limited Company include the following:

- You do not require a minimum paid-up capital to develop a Private Limited Company.

- Members of Pvt Ltd have limited liability.

- Such companies can raise funds very easily.

- A Pvt Limited Company has a separate legal entity from all its members.

- The company also has perpetual succession.

Understanding the Difference between Pvt Ltd and LLP

Now let us have a clear idea of the points of difference between LLP and private limited. They are as follows:

Registration Procedure

The registration procedure features key differences between LLP and a private limited company.

- You must register for a Pvt Ltd firm as per the Companies Act, 2013, along with the Registrar of Companies. A DIN or Director Identification Number is required to register a Pvt Ltd.

- An LLP is registered as per the Limited Liability Partnership Act, 2008, along with the Registrar of LLP. A DPIN or Designated Partner Identification Number is required to register an LLP.

Ownership

Speaking of the ownership difference between Pvt Ltd and LLP Company

- A Private Limited Company is more flexible in ownership, and a maximum of 200 shareholders can hold it.

- In the case of an LLP, partners can hold ownership and operate the company without additional directors, share distribution, and shareholders.

Tax Structure

There is also a certain level of tax structure difference between Pvt Ltd and LLP in India:

- Though the tax compliance is the same for both business entities, besides the tax on annual income applicable for both, private limited companies need to pay an additional dividend distribution tax when their profits are distributed among the shareholders.

Features

The characteristic points of difference between LLP and Pvt Ltd India are as follows:

- LLP and Pvt Ltd are transferable entities, but the process is easier in the case of a Pvt Ltd firm where the shares can be moved easily to another shareholder.

- Also, private limited companies can hold general and board meetings within specified timelines which does not apply to the LLPs.

- While a private limited company must draft an Article of Association and Memorandum of Association that puts down its business activities, objectives, shareholding details and company information, a limited liability partnership contract suffices for an LLP. 

FAQS 

Which is better, Pvt Ltd or LLP?
Coming to LLP vs Pvt ltd company, LLP will be the right fit for you if you plan to operate a small business with limited capital and a partner. However, go for a Private Limited Company if you want to operate a business with substantial funds and aggressive growth.

Why is LLP better than Pvt?
Once you know the difference between a private limited company and LLP, you will find that LLP is better than Pvt mainly because the cost of registering an LLP is lesser as compared to registering a Pvt Ltd. Similarly, there are fewer formalities, and you need to produce fewer documents to register as an LLP.

Can an LLP have employees?
Yes, an LLP can have employees. The Indian government has not barred any individual from business and employment.

Why do people prefer LLP?
you thoroughly review LLP and Pvt ltd differences, you will find that people prefer LLP mainly because it does not expose partners to unlimited liability. Additionally, the partners or members of an LLP company can be sued, or even they can sue an individual, as an LLP is a legal entity. 

What is the minimum capital for LLP?
The difference between a Pvt Ltd company and LLP also points out that no minimal capital is needed for LLP, unlike a private limited firm where the minimum capital requirement is Rs. 1 lakh.

Is the GST number mandatory for LLP?
Yes, the GST number is mandatory for all the limited liability partnership firms supplying products and services. They are required to obtain GST registration based on their annual turnover.

What is the minimum tax for LLP India?
The AMT or Alternative Minimum Tax for LLP Indian is 18.5%. However, this tax is levied with other applicable surcharges and cess. 

How many partners are required for LLP?
At least two partners are required to establish an LLP. However, the maximum number of partners cannot be restricted to form a limited liability company.

NRIs or non-resident Indians with warnings abroad and even in India face several finance management problems. They also find it difficult to track different bank accounts while repatriating money to their home accounts. NRO and NRE accounts come to the rescue here. An NRI opens a bank account in India to manage their foreign earnings, which is an NRI account. 

What is Form 26QB? Understanding the Requirements, the Process to Fill In and Other Important Details

NRIs or non-resident Indians with warnings abroad and even in India face several finance management problems. They also find it difficult to track different bank accounts while repatriating money to their home accounts. NRO and NRE accounts come to the rescue here. An NRI opens a bank account in India to manage their foreign earnings, which is an NRI account. 

On the other hand, an NRO account is a bank account that an NRI opens in India to park earnings made in India. Such incomes include dividends, rent, interest and pension and must be initiated by filing Form 26QB. If an NRI books an apartment in India and pays money from a bank account, it is important for them to file Form 26QB online. TDS form 26QB can be filed separately.  

What is Form 26QB?

Form 26QB is a return-cum-challan form used for paying TDS or Tax Deducted at Source to the government for all deductions made under Section 194-IA of the Income Tax Act, 1961. This section handles transactions involving the sale of immovable property and applicable TDS. Submitting a duly filled-in TDS form 26QB within 30 days of transferring immovable property is important. Some of the most critical requirements to file form 26QB are as follows:

 - Seller and buyer address

- Seller and buyer PAN

- Property details

- Seller and buyer contact details

- Tax deposit information

- The amount credited or paid

Key Features of Form 26QB under Section 194-IA

The Income Tax Act 1961 lays out a few important rules about the sale and purchase of the immovable property. In these transactions covered under Section 194-IA, the property buyer, also called Deductor, needs to deduct TDS if the value of the transaction is above Rs. 50 lakhs. Next, the buyer must also issue form 16B to the seller. Essential requirements to file form 26QB, as listed under Section 194-IA of the Income Tax Act, 1961, are as follows:

- When completing the transaction, the buyer should deduct TDA at 1% interest of the total sale amount.

- The buyer doesn't need to deduct TDS on immovable properties valued at less than Rs. 50 lakhs. TDS is generally deducted from the entire transaction amount for transactions below this limit.

- TDS u/s 194-IA does not apply to transactions that involve agricultural land.

- TDS is deducted proportionately on each instalment if the payment is made in instalments.

- The property buyer doesn't need to get a TAN or Tax Deduction Account Number for deducting and depositing TDS. Nevertheless, PAN is crucial for the property buyer and seller if a TDS deduction occurs using form 26QB.

- The property buyer should present a TDS certificate to the seller after deducting and depositing TDS. This should be done within 15 days of the transaction in lieu of the tax deducted and deposited to the government.

- Lastly, the property buyer should get form 16B and present the same to the seller.

Penalties Related to Section 194-IA Form 26QB

Failure to deduct TDS, issue form 16B, or file form 26QB under Section 194 IA of the Income Tax Act may attract penalties and interests. These include:

- A penalty of 1% interest will be levied on the amount not deducted for TDS in case of non-deduction of TDA on the part of the property buyer.

- A monthly penalty of 1.5% of the deducted amount will be levied on non-remittance of TDS to the government.

- In case of a delay in filing TDS returns, a penalty of Rs. 200 per day for each day of default shall be levied.

How to Fill Form 26QB Online?

The process of filling out form 26QB online is very easy. Just go for form 26QB, download and start filling in the form. The steps for the 26QB form download and filling in are as follows:

- Get to https://www.tin-nsdl.com/.

- Next, click on Services- epayment: Pay Tax Online.

- Go to Proceed in the TDS on Property section and start filling in form 26QB by providing all relevant details. Ensure you have all details, like PAN details of seller and buyer; communication details of seller and buyer; property details; tax deposit details and details of the amount credited or paid.

- Submit the form, and you will get a confirmation screen. You will also get two options on the screen. They are Print Form 26QB and Submit to the Bank. You will also get an exclusive acknowledgement number to note down.

- Now click on the option that says Print Form 26QB and then click on Submit to the Bank.

- The next step is to make the payment through internet banking, and once you complete the payment, you will get a challan with payment details, bank name and CIN. This challan is proof of your payment. 

Payment through Challan 26QB (Online and Offline)

You can make form 26QB payment either online or offline. The steps you need to follow for form 26QB online payment include the following:

- Get to onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

- Now click on Form 26QB.

- Choose 0020 if you are a corporate taxpayer; otherwise, click 0021.

- Fill in all the empty blanks and then click on Proceed.

FAQs

What is the use of 26QB?
The main purpose of form 26QB is to pay the TDS or Tax Deduction at Source to the government for all deductions made under Section 194-IA of the Income Tax Act, 1961.

How to generate a 26QB form?
Form 26QB must be generated at TRACES or TDS Reconciliation Analysis and Correction Enabling System. It is an online platform for managing and implementing TCS and TDS. The steps include:

- Logging into TRACES by providing user ID, password, PAN and specified captcha.

- Getting to the justification report download where you get form 26QB.

- Entering required details along with CIN details.

- Next, you will get a success message

- Now navigate to the requested downloads and provide the requested date or number

- The last step is to download the file and open it using the password "PAN of the Buyer" in capital letters.

Who needs to file 26QB?
Property buyers should file form 26QB for every exclusive buyer-seller combination for their respective shares. Fill two forms if there are two sellers and a single buyer. Alternatively, four forms should be filled in if there are two sellers and two buyers. 

What happens if TDS is not deducted on the purchase of property?
If TDS is not deducted on property purchase, an interest of 1% is levied for every part of the month or every month from the date on which the TDS was deductible till the date on which the TDS was deducted. This penalty can range to Rs. 1 Lakh under Section 271H. You can avoid this penalty by paying the TDS, the late payment fee, and the interest amount as soon as you get a tax notice.

Who will claim TDS on the sale of a property?
While the buyer needs to deduct TDS on the property and deposit it to the government during the property sale, the seller avails credit of the same or claims TDS on the sale of the property.

What is the stamp duty value for the property in form 26qb?
Section 194-IA of the Income Tax Act, 1961, read with Rules 30, 31, and 31A of Income Tax Rules, states that the stamp duty value of 1% shall be deducted for all transactions made during property purchase at the time of making a sale payment consideration. 

Can we claim a TDS refund on the property purchase?
Yes, claiming a TDS refund on a property purchase is possible. The property seller has the right to do so, while the buyer needs to deduct TDS on the property and deposit the same with the government during the property sale.

Is 26QB refundable?
Yes, taxpayers can submit a refund request for form 26QB on TRACES if they meet criteria like:

- PAN of the taxpayer matches TAN Master and TRACES profile.

- Deductor has registered the DSC of the Authorised Person on TRACES.

Have Any Question? We Can Help You..

Call Us +91 80-2572 4815