Limited Liability Partnership (LLP) is combination of Partnership and Company and is governed by Limited Liability Partnership Act, 2008. LLP is a special partnership that gives protection to each partner against any negligence on the behalf of the other partners.

Advantages of LLP

1. Liability Protection: The liability protection that comes with a LLP is a big advantage. The individual partners are not held personally responsible for any company debts or obligations. Any lawsuit or claim against the company cannot be held against the partners, protecting personal assets.

2. Flexibility: Partners have flexibility within business ownership under a limited liability partnership. Each partner in the business has the ability to decide how much they want to contribute and how much of a partner they truly want to be in the business. They are also not obligated to participate in business meetings or consultations with anyone that they do not feel the need to.

3. Tax Advantages: The individuals in the partnership are liable for filing their personal income taxes as well as self employment taxes for the Internal Revenue Service. The partnership is not held responsible for paying these taxes. The credits and deductions of the company are divided among the partners according to the amount of interest in the company.

Procedure of LLP Incorporation

MINIMUM REQUIRMENT

  • Minimum 2 partners
  • DSC (Digital Signature Certificate ) of  the Directors
  • DIN(Director Identification Number) of the Directors
  1. Obtain DSC

Obtain a Digital Signature Certificate from Authorized DSC issuing Authority.

Documents required for obtaining DSC :

Proof of Identity

Proof of Residence

One self attested passport size photograph

Obtain DIN

Application to be made in Form DIR-3 for obtaining the DIN no. of the Directors after obtaining the DSC.

Documents required for obtaining Director Identification Number:

  • Scanned copy of Passport-sized photograph( JPEG Format)
  • Identity proof: Scanned copy of PAN card (passport if foreign national) and
  • Address Proof: Driver’s License/Voter ID/ Utilities Bill not more than two months old from the date of filing. Documents should be  self-attested.

Register DSC

After obtaining the DIN No. register the DSC on MCA portal in the name of Designated Partner/Director. In MCA portal go to MCA services-DSC Services-Register DSC.

Incorporation Method

Name Approval (Form 1)

Apply in Form INC-1 for Name approval of the Proposed LLP after finalizing the nature of business of the proposed LLP. Maximum Six names can be given in order of preference. CRC will approve the available and suitable name among the given names for the proposed LLP.

Note: Applicants can themselves check the available names in MCA Website under the head MCA Services: Check LLP Name.

Once name of the proposed Company is approved, it remains valid for 3 months from the date of approval.  Within the period of the said 3 months, LLP has to be incorporated otherwise again name approval in LLP Form 1 is required to be filed with MCA.

Requirements for filing LLP Form 1

  • DPIN/DIN of two designated Partner
  • Name of the Proposed LLP
  • Description of proposed business activity

Proposed business activity filled in LLP form 1 will be prefilled in LLP Form 2 i.e incorporation form. Applicants are advised to finalise the business activity of LLP before filing LLP Form 1.

Proposed monetary value of partner's contribution

Once proposed monetary value of partner's contribution has been filled and filed in Form 1, the monetary value of contribution in Form 2 should not be less than the value mentioned in form 1.For example: if partner's contribution in Form 1 was mentioned as Rs. 20 Lacs and after approval of Form 1, partners want to change and reduce the LLP contribution to Rs. 10Lacs, is not permissible. The Contribution can be more than the contribution stated in LLP Form 1 but cannot be less than contribution mentioned in LLP Form 1.

In case the Designated Partner is nominee of a body corporate, select the type of body corporate. Enter the corporate identity number (CIN) or foreign company registration number (FCRN) or Limited Liability Partnership Identification number (LLPIN) or Foreign Limited Liability Partnership Identification number (FLLPIN) or any other identification number, as applicable.

Details of minimum two designated partners of the proposed LLP, one of them must be a resident of India, is required to be filled in the application for reservation of name. Only individuals or nominees on behalf of the bodies corporate as partners can act as designated partners.

Ensure that correct details have been provided as the same shall be automatically pre-filled in Form 2 for incorporation of LLP.

LLP Form 2 (Incorporation Document and Subscriber's Statement)

LLP Form 2 within 3 months from the date of approval of LLP Form 1

Mention Total Number of Partners and Designated Partners. Fill up details of same. Enter the amount of proposed monetary value of partner’s contribution in figures and system will automatically display the amount in words. Attach details in respect of names of partners/ nominees/ witnesses and their signatures in the format as Subscribers’ sheet attachment. Attach proof of register office address of LLP. An individual has to give prior consent to become a designated partner and LLP to file consent in format prescribed. Select the state and office of registrar in which registered office of the proposed LLP is to be situated.

In case the name includes banking, insurance, venture capital, mutual fund, stock exchange, Chartered Accountant, Company Secretary, Cost Accountant, Advocate, CA, CS, CWA, asset management, non banking financial, architect, merchant  bankers, chit fund, securitization and reconstruction etc, a copy of the in-principle approval of the regulatory authority or council governing concerned profession should be attached with Form 2

Pay the prescribed registration fee as per LLP Rules, based on the total monetary value of contribution of partners in the proposed LLP

On submission of complete documents the Registrar after satisfying himself about compliance with relevant provisions of the LLP Act will register the LLP and will issue a certificate of incorporation

 Drafting of LLP 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. 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.

The following clauses are important to be incorporated in agreement:

  • Name, Object and Register Office of LLP
  • The initial Contribution of the LLP by Partners
  • Methodology of valuation of Non Monetary contribution
  • The net profits or losses sharing ratios
  • Detail of Designated Partners
  • Interest payable on Capital Loan prescribed u/s. 40(b) of the Income-tax Act, 1961
  • Remuneration payable to the working partners or as prescribed u/s. 40(b) of the Income-tax Act, 1961
  • Mode of operation of Bank Accounts
  • Maintenance of Book of Accounts
  • Appointment of arbitrator
  • Rights and Duties of Partners
  • Rights and Duties of Designated Partners
  • Indemnity clause
  • Goodwill clause
  • Procedure for change in name
  • Procedure to appoint Auditor
  • Admission of New Partner
  • Meeting
  • Cessation of Existing Partners
  • Winding up of LLP
  • Amendments of LLP
  • Extent of Liability of LLP
  • Liability of Partners in LLP
  • Ancillary or other business carried over by LLP

 Filing of Form 3 – LLP Agreement

The LLP agreement has to be uploaded. Once it gets approved all the formalities for registration gets completed.

Note: Form 3 has to be uploaded within 30 days of incorporation of LLP otherwise penalty is Rs. 100/- per day.


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1. INCREASE IN THRESHOLD LIMIT FOR TDS UNDER VARIOUS SECTION IS AS FOLLOWS :

Present Section

Heads

Existing Threshold
Limit (Rs.)

Proposed Threshold Limit
(Rs.)

1 92A

Payment of accumulated balance due to an employee

30,000

50,000

194BB

Winnings from Horse Race

5,000

10,000

194C

Payments to Contractors

Aggregate annual limit of 75,000

Aggregate annual limit of 1,00,000

194LA

Payment of Compensation on acquisition of certain Immovable Property

2,00,000

2,50,000

194D

Insurance commission

20,000

15,000

194G

Commission on sale of lottery tickets

1,000

15,000

194H

Commission or brokerage

5,000

15,000

 

2. REVISION IN TDS RATES :

Present Section

Heads

Existing Rate
of TDS (%)

Proposed Rate of
TDS (%)

194DA

Payment in respect of Life Insurance Policy

2%

1%

194EE

Payments in respect of NSS Deposits

20%

10%

194D

Insurance commission

Rate in force (10%)

5%

194G

Commission on sale of lottery tickets

10%

5%

194H

Commission or brokerage

10%

5%

 

 

 

 

 

 

 

 

 

 

3. EXEMPTION FROM REQUIREMENT OF FURNISHING PAN TO NON RESIDENTS:

Section 206AA provide that in case deductee doesnot furnish PAN, tax need to be deducted @ 20%. This provisions were applicable to payments to non resident and foreign companies as well. Hence taxes were required to be deducted @20 % on foreign remittance though DTAA provided for lesser rate as invariably the foreign companies did not have PAN.  Amendment to section 206AA provides much sort exemption to Non Residents and Foreign Companies from requirement of furnishing PAN. This exemption has come into effect from June 1st, 2016.

4.  Form 15G/ 15H made applicable to TDS on Rent under section 194I.

Till now a person receiving interest income was entitled to furnish form 15G/ 15H to payer of interest to avoid deduction of  TDS on interest. 15G/ 15H is declaration stating that total income of payee for the year will be below the threshold limit of income subject to tax and hence there will not any income tax liability.

From June 1st form 15G / 15H has been made applicable to deduction of tds u/s 194I, the receiver of rent can provide a declaration in form 15G/15H to payer of rent and claim exemption from deduction of tds from rental receipts.

5. CHANGES IN DUE DATES FOR FILING OF TDS RETURN AND ISSUE OF TDS CERTIFICATES :

This changes is effective for TDS return due after June 1st, 2016

6. TCS PROVISIONS EXTENDED TO SALE OF GOODS AND SERVICES  :

TCS @ 1% has been made applicable to below from june1st 2016:

a. Sale of Motor vehicle of the value exceeding Rs 10 lakhs whether amount is received in cash, cheque or any other mode.

b. Sale in cash of any goods ( other than Bullion and Jewellery) or providing of any services (  other than payments on which tax is deducted at source  under tds provisions)  of value exceeding Rs 2 lakh, where sale consideration has been received in cash .

The revised tcs chart with effect from June 1st 2016, is as follows :

Nature of Goods

TCS Rate

Alcoholic liquor for human consumption

1%

Tendu Leaves

5%

Timber obtained under a Forest Lease

2.5%

Timber obtained by any mode other than Forest Lease

2.5%

Any other Forest produce not being forest timber or tendu leaves

2.5%

Scrap

1%

Minerals being Coal or Lignite or Iron ore

1%

Parking Lot, Toll Plaza, Mining and Quarrying

2%

Where ANY amount of consideration is received in cash on sale of :- Bullion (consideration exceeds Rs. 2 Lakhs), Jewellery (consideration exceeds Rs. 5 Lakhs), and with effect from June 1,2016,Any other goods and services (exceeding Rs. 2.00 Lakh) if TDS Provision is not applicable

1%

Where amount is received by cheque or any other mode on sale of :- Motor vehicle of the value exceeding Rs. 10.00 Lakh (applicable from June 1,2016)

1%

 


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The learned author identifies the amendments introduced by the finance act 2016 which impact corporate sector. he discussion is not confined only to provisions exclusively applicable to companies. some provisions which apply to companies and non company assessees have also been discussed.

1.Introduction

Corporate sector is an integral part of the company of a country and india can be no exception. this sector, besides contributing substantial revenues to the Govt.'s kitty, also enriches the GDP of the country year-after-year. Hence, its natural that each year's Finance acts have number of provisions concerning Corporates. In later paragraphs, an account of the provisions contained in the Finance act 2016, specifically applicable to companies are discussed and measures also applicable to companies.

2.Finance act provisions concerning corporate sector

These, in brief, are us under

(1)Lower tax rate for companies

     In the previous year's budget ,the FM had announced that in a period of next  4 years, he would bring down the rate of corporate tax to 25% from 30%. He has made a beginning for this year's budget. the proposal is that new manufacturing companies incorporated  on or after march 1, 2016 will have an option either to adopt a reduced corporate tax of 27.55%(Where the income exceeds Rs. 1crore but does not exceed  Rs. 10crore)or 28.84% (where income exceeds 10crore) provided such companies do not claim profit linked /invest linked deduction or do not avail of investment allowance and accelerated depreciation. The new startup companies who do not wish to claim any exemption can straight away claim tax rate of 25%. The conditions to avail of 25% rate are:

(a)The company should be set up and registered on or after 1st day of march, 2016;

(b) the company should be engaged in the business of manufacture or production of any article or thing and is not engaged in any another business;

(c)the company while computing its total income has not claimed any benefit under section 10AA, benefit of accelerated depreciation, benefit of additional depreciation, investment allowance, expenditure on scientific research and any deduction in respect of certain income under part-C of chapter 6-A Other than the provisions of section 80JJAA; and

(d) the option is furnished in the prescribed manner before the due date of furnishing the return of income.

    The issue is as to how the corporates will react to such proposals. The initiative seems to have been taken to give a boost to the manufacturing units in the country and make in india programme of the P M a success. But, the scheme is not expected to be enthusiastically welcomed in view of the fact that heavy capital is needed for manufacturing units and they may not like to continue with higher rates with incentives , which effectively bring down the rates to nearly 24%.

(2)Other amendments

      (1)new startups, involving innovation development , setup before april1,2019 will get 100% deduction of profits for a period of 3 years out of 5 years (subject to satisfaction of certain conditions ). However, the MAT would be applicable on such startups.  some conditions have already been started earlier . Others relate to benefit -under section 54E&54GB.

  (2)Effective corporate tax rate for small companies having  turnover less than 5crore is reduced to 31.96%. the reduced corporate is expected to lead growth of such companies.

  (3)the act taxes long term capital gains in the hands of non residents @10% which arise from the transfer of unlisted shares of a company in which public are not substantially interested, i.e. private companies. this ensures taxability of gains arising from transfer shares of unlisted companies and likely to incentivize corporate reorganization in india.

(4)If an assessee purchases a luxury car exceeding the price of  Rs.10lakhs or purchase goods or avails of services exceeding 2lakhs in cash, tax at source is to be collected @1% This measure is intended to provide money trail and give clues regarding black money invested in such assets.

(5)The existing provision of sub-section (1A) in section 32AC of the act provides for investment allowance at the rate of 15% on investme4nt made in new assets (plant and machinery) exceeding Rs.25crore in a previous year  by a company engaged in manufacturing or production of any article or thing subject to the condition that the acquisition and installation has to be done in the same previous year. this tax incentive is available up to 31-3-2017.

          The dual condition of acquisition and installation can cause a genuine hardship in cases in which assets having been acquired could not be installed in same previous year . Hence sub section (1A ) in section 32AC has been amended so as to provide that the acquisition of the plant $machinery of the specified value has to be made in the previous year. However installation may be made by 31-03-2017.

            The dual condition of acquisition and installation can cause genuine hardship in case in which assets have been acquired could not be installed in same previous year. Hence sub section (1A) of section 32AC has been amended so as to provide that the  acquisition of the plant &machinery of the specified values has to be made in the previous year .however , installation may be made by 31-03-2017 in order to avail the  benefit of investment  allowance of 15%. It is further provided that where the installation of the new asset in a year or other than the year of acquisition, the deduction under this sub section  shall be allowed in the year in which the new asset is installed.

(6) A person resident in india or a non resident having a permanent establishment in india , making payment exceeding in aggregate Rs.1lakh  in a year towards online advertisement to a non resident, who does not have a permanent establishment in india would have to withhold  tax at 6% of gross amount paid ,as an equalisation levy which is to discharged by way of withholding this provision is intended to bring alignment of domestic tax law with OECD recommendation on BEPS on digital economy . this provision would impact the income of non  resident e-commerce giants providing online advertisement services (such as Google, yahoo, etc...)or other services to the companies in india     


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Section 2 (42A) provides that short term capital asset means a capital asset held by an assessee for not more than thirty six months immediately preceding the date of its transfer.

It is provided that in the case of a security ( other than a unit) listed in a recognised stock exchange in indiaor a unit of the unit trust of india established under the Unit Trust of India Act, 1963 or a unit of an equity oriented fund or a zero coupon bond, the provisions of this clause shall have effect as if for the words " thirty Six Months" the words " twelve months" had been substituted. 

The Finance Act, 2016 has inserted a third proviso to section 2 (42A) from the assessment year 2017-18 so as to provide that in the case of a share of a compnay ( not being share listed in a recognised stock exchange in India), the provisions of section 2 ( 42A) shall have effect as if for the workds " thirty Six Months"  the words " Twety Four Months " had been substituted.

The advertisement charges for advertising on google, facebook, Linkedin and other digital advertising platform are usually paid out of india in foreign currency, though entire advertising activity happens in india, and escapes any taxation in India.

The Indian Finance Minister Sri Arun Jaitly has introduced the equalization levy with effect from june 1, 2016. The provision for equalization are provided in Chapter VIII of the Finance Act 2016.

Brief summary of Provisions are as follows :

Rate of tax and Services Covered :

 The equalization levy would apply @ 6% on amount paid or payable  for Online advertisement, any provision for digital advertising space or any facility service for the purpose of online advertisement or any other service as may be notified later by government. Levy is applicable on amount paid or payable for above services to non-resident.

The scope of the levy may be expanded to cover a wider range of digital goods and services as time progresses.

Equalization levy is aimed at taxing business-to-business (B2B) e-commerce transactions. Levy is not applicable  where payment is  not for the purposes of carrying out business or profession.

Levy is not applicable if aggregate of payment to a non resident during the financial year does not exceed Rs 1 lakh.

Collection and deposit and filing of return :

The said tax of 6% is required to be deducted from the amount paid or payable to non-resident for specified services.

Tax so deducted is required to deposited on a monthly basis within 7th of following month. Interest at the rate of 1 % per month or part of month is applicable for delayed deposit of taxes.

Annual statement with respect to levy is required to filed with specified period form end financial year in which service are provided. To rectify any mistake or omission in the statement filed revised statement can be filed within 2 years from end of financial year in which service is provided. Statement will be processed and intimation for any demand or refund will be sent with in end of 1 year from the end of financial year in which statement is filed. Any mistake in such intimation can be rectified within one year from the end of financial year in which intimation was issued.

Penalty :

Non deduction of equalization of levy would attract penalty equal to amount of equalization levy in addition to payment of equalization levy and interest on delayed payment.

Where Equalization Levy is deducted but not deposited with government would attract penalty of Rs 1,000 per every day during which such failure continues. This penalty is subject to maximum limit of equal to amount of equalization levy.

Non filing of annual statement would attract penalty of Rs 100 for each day during which the failure continues.

No penalty shall be imposed where assessee proves to the satisfaction of the Assessing Officer that there was reasonable cause for the said failure.

Chapter provides for appeal to Commissioner ( appeals) and to Income Tax Tribunal against order levying penalty.


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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. 

Have questions? contact ADCA - one of the main providers of accounting services in Bangalore.

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

Services provided :-

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

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

   (i) transportation of students, faculty and Staff.

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

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

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

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

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

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

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

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

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

   ( i) transportation of students, faculty and Staff.

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

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


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GST

Leviability 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

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3. Special Economic Zones - Related Issues Under GST


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