In order to develop Indian economy and attract talented entrepreneurs, the Government of India, under the leadership of PM Narendra Modi, has started the Startup India initiative to recognize,promote and support startups.
Incorporate your business
Incorporate your business as a Private Limited Company or a Partnership firm or a Limited Liability Partnership. You have to follow the normal procedures for registration of any business like obtaining the certificate of Incorporation/Partnership registration, PAN, and other required compliances.
Register with Startup India
The business must be registered as a startup. All you need to do is log on to the Startup India website and fill up the form with details of your business and upload certain documents.
Documents to be uploaded (in PDF format only)
a) A letter of recommendation/support
A letter of recommendation must be submitted along with the registration form. Any of the following will be valid-
A recommendation (regarding innovative nature of business) from an Incubator established in a post-graduate college in India, in a format specified by the Department of Industrial Policy and Promotion (DIPP); OR
A letter of support by an incubator, which is funded (in relation to the project) by Government of India as part of any specified scheme to promote innovation; OR
A letter of recommendation (regarding innovative nature of business), from an Incubator, recognized by the Government of India in DIPP specified format; OR
A letter of funding of not less than 20% in equity, by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network, duly registered with SEBI that endorses innovative nature of the business; OR
A letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation ;OR
A patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of the business being promoted.
b) You need to upload the certificate of incorporation of your company/LLP (Registration Certificate in case of partnership)
c) A brief description of the innovative nature of your products/services.
Answer whether you would like to avail tax benefits
Startups are exempted from income tax for 3 years. Inorder to avail these benefits, they must be certified by the Inter-Ministerial Board (IMB). Start-ups recognized by DIPP, Govt. of India can now directly avail IPR related benefits without requiring any additional certification from IMB.
Self-certify that you satisfy the following conditions
You must register your new company as a Private Limited Company, Partnership firm or a Limited Liability Partnership
Your business must be incorporated/registered in India, not before 5 years.
Turnover must be less than 25 crores per year.
Innovation is a must– the business must be working towards innovating something new or significantly improving the existing used technology.
Your business must not be as a result of splitting up or reconstruction of an existing business.
Get a recognition number
On applying you will immediately get a recognition number for your startup. The certificate of recognition will be issued after the examination of all your documents.
However, be careful while uploading the documents. If on subsequent verification, it is found to be obtained that the required document is not uploaded/wrong document uploaded or a forged document has been uploaded then you shall be liable to a fine of 50% of your paid-up capital of the startup with a minimum fine of Rs. 25,000.
Patents, trademarks and/or design registration
If you need a patent for your innovation or a trademark for your business, you can easily approach any from the list of facilitators issued by the government. You will need to bear only the statutory fees thus getting an 80% reduction in fees.
In order to provide funding support, Government has set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year). The Fund is in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds.
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The Government has notified the effective date of implementation of TCS provisions in GST returns w.e.f. 1.10.2018 (unless extended). This requires E-commerce operators like Amazon, Flipkart, etc. to collect TCS on the Transaction made by the suppliers through their portals w.e.f. the same date. If any under reporting is found, the same would be penalized by adding to the account of the supplier. The learned authors looks at the related provisions to bring attention to them so as to avoid penal actions.
As many transactions nowadays are happening through e-commerce mode, their day to day use in life is increasing. But with the implementation of GST, selling and purchase through GST is not as easy as it was earlier. There are many boundaries and restriction while transacting through E-Commerce. We will discuss here the provisions of TCS on E-commerce Operators.
E-commerce is the buying and selling of goods and services on the internet electronically and making payment electronically or via any other mode. Section 2(44) of CGST Act defines the term ‘e-commerce’ as the supply of goods or services or both, all the traders/dealers selling goods/services online would need to get registered under GST even if their turnover is less than 20 Lakh for claiming the tax deducted by E-commerce operators.
Firstly it is important to understand the difference between E-commerce Operators and E-Commerce Suppliers:
1. E-Commerce Operator
An entity like Amazon, Paytm-Mall, and Flipkart etc. that owns operates or manages digital platform for e-commerce. Section 2(45) of the CGST Act, defines “E-commerce operator” as any person who owns, operates or manages digital or electronic facility or platform for e-commerce.
2. E-Commerce suppliers
An entity that supplies goods or services on a digital ecommerce platform, means any entity which is supplying goods or services through E-Commerce operator and will be termed as E-Commerce Suppliers.
3. Liability to collect TCS
As per provision of section 52 of the CGST Act, every e-commerce operator, not being an agent is required to collect tax known as TCS on the net taxable value in case a supplier supplies some goods or services through its portal and the payment for that supply is collected by the e-commerce operator.
Tax is to be collected on net taxable value of goods or services supplied by other suppliers through e-commerce operator.
Tax is to be collected on net taxable value of goods or services supplied by other suppliers through e-commerce operator.
Explanation to section 52(1) clarifies that “net value of taxable suppliers” shall mean the aggregate value of taxable suppliers of goods or services or both made during any month by all registered persons through the e-commerce operator as reduced by the aggregate value of taxable supplies returned to the suppliers during the said month. Further, specified services on which ecommerce operator itself is liable to pay GST under section 9(5) is not included in the net taxable value and thus, no tax is to be collected on such amount.
4. Rates of TCS
An e-commerce operator needs to collect tax @2% (1% CGST + 1% SGST) from the supplier on the net taxable value of intra state supply of goods or services supplied through its portal.
Any dealer/traders selling goods/services online would get the payment after deduction of 2% tax. They would need to deposit the tax deducted by the 10th day of the next month.
Mr. X is a trader who sells his ready-made clothes online on Flipkart. He received an order for Rs.10,000 inclusive of tax and commission. Flipkart charges a commission of Rs.200. Flipkart would, therefore, need to deduct 2% tax (TCS) on the amount, including the money paid as commission (Rs. 200) and GST (Rs.1800 when GST @ 18%) Flipkart would thus be deducting tax for Rs.200 (2% of Rs.10000)
5. Notice to the E-Commerce Operators
A Deputy Commissioner or a person above the rank of Deputy Commissioner can issue a notice to the E-Commerce Operator asking him to furnish details regarding the volume of Goods/Services supplied, rate and value, goods still lying in godown etc.
On receiving such notice the operator is required to furnish such details within 15 working days. In case the operator fails to furnish such information within 15 days, he would be liable for penal action and penalty upto Rs.25000.
Further other relevant points can be noted out which are as follows:
Subject to above there are many other rules which are required to be followed by E-Commerce Operators. The government has notified the effective date of implementation of TCS Provisions in GST Returns with effect from 1.10.2018 (unless otherwise extended). Thus E-Commerce Operators like Snapdeal, E-bay etc. have to collect TCS on the transactions made by the suppliers through such portals w.e.f. 1.10.2018.
Further E-Commerce operators are required to timely deposit the TCS and also required to furnish monthly and annual return of TCS. Further sale entered in GSTR-1 will be compared with the report of supplies by E-Commerce operators furnished in GSTR-8. If any under reporting is found, the same will be penalized by adding to the account of the supplier.
Thus TCS provisions need to be carefully looked at as any discrepancies found may lead to penalizing actions.
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Corporate Restructuring through amalgamation, arrangement, mergers, acquisition and takeover has become vital to corporate strategy to day. To attain accelerated growth, corporate in India now a days resort more towards restructuring strategies. The Goods and Services Tax (GST) has been envisaged as an efficient tax system and it affects the structuring of the various operations in India. Corporate transaction in pursuance of amalgamation, arrangement, mergers, acquisition and takeover are also affected by GST. Thus, the industries are required to analyse the provisions of the GST Law and its impact on their business.
Registration of any business entity under the GST Law implies obtaining a unique number from the concerned tax authorities for the purpose of collecting tax on behalf of the government and to avail Input tax credit for the taxes on his inward supplies. By virtue of section 22(3) of the CGST Act, where a business carried on by a taxable person registered is transferred, the transferee or the successor would be liable to be registered with effect from such transfer or succession and he will have to obtain a fresh registration with effect from the date of such transfer or succession.
Section 22(4) states that if the business is transferred as an order of a High Court, Tribunal or otherwise pursuant to –
Sanction of scheme
Arrangement for amalgamation
De-merger of two or more companies,
The transferee would be liable to obtain registration from the date on which the Registrar of Companies issues a certificate of incorporation giving effect to such order of the High Court or Tribunal.
3. Input tax Credit
Section 18 enshrines the provisions regarding availment of input tax credit by taxable person. Section 18(3) of the CGST Act as well as rule 41 of the CGST Rules stipulates that in case of change of constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of business, the registered person would be allowed to transfer the unutilized input tax credit to transferor. In this context, the registered person is required to furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business in Form GST ITC-02 electronically on the Common Portal along with a request to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee. The transferee would accept the details so furnished by the transferor on the Common Portal and, upon such acceptance, the unutilized credit would be credited to his electronic credit ledger.
In the case of demerger, the input tax credit would be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
4. Itemised Sales
Where assets and liabilities of a business are transferred by way of assigning a value to each item then it is called as itemized sale. Such sale involves the disposal of key or selected business assets. Under the merger and amalgamation, value of each asset is calculated separately i.e. the whole business is transferred but item wise.
Transaction of itemized sale is supposed as supply under the ambit of GST and individual asset would covered under the definition of goods as per schedule II of the CGST Act. Thus, GST would levy on itemized sale.
5. Slump Sale
Slump sale will have the same treatment as normal supply. Under the GST regime tax is payable by the registered taxable person on the supply of goods and/or services. The term ‘Supply’ is wide in its import cover all forms of supply of goods or services or both that includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Further, supply covers the activities to be treated as supply of goods or supply of services as referred to in Schedule II. Accordingly, transfer of business assets is supposed as supply.
The transfer of business is amounted to transfer of a part of the assets and not the whole business. Moreover, para 4© of the schedule II specifies that in case business is transferred as a going concern then it would not constitute as supply. However, in pursuance of Notification No. 12/2017 Central tax (rate) dt 28.06.2017 services, which are provided by way of transfer of a going concern as a whole or an independent part thereof, are exempted from GST. Thus, no GST would applicable on slump sale transaction as transfer of business on a going concern basis.
6. Liability of companies w.r.t. order of court or Tribunal
According to section 87 of the CGST Act, when two or more companies are amalgamated or merged in pursuance of an order of court or of Tribunal or otherwise and the order is to take effect from a date earlier to the date of the order and any two or more of such companies have supplied or received any goods or services or both to or from each other during the period commencing on the date from which the order takes effect till the date of the order, then such transactions of supply and receipt would be included in the turnover of supply or receipt of the respective companies and they would be liable to pay tax accordingly.
Such two or more companies would be treated as distinct companies up to the date of order and the registration certificates of companies would be cancelled with effect from the date of the order.
7. Sale of Securities
In most case, the usual mode is the acquiring of company by making an offer by the transferee company to the shareholders of the transferor company to purchase their securities, in the transferor company, at a price stated for the purpose. The definition of goods as well as services under the GST regime do not cover the securities, therefore GST would not be levied on the sale of securities.
8. Summing Up
Goods and Services Tax have impact on each and every industry and business in India. Transfer of business under mergers, amalgamation and acquisitions do not attract any tax liability under GST regime, they are unlikely to impacted by indirect taxation. For calculating the Capital gains, the holding period is calculated from the date of original purchase of shares. The companies who opt for merger and acquisition, the liability to register arises on the date of transfer for transferee of a business as going concern. Further, GST Law stipulates transfer or sale of business assets can take place either as a slump sale or itemized sale. In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilized ITC would be allowed to be transferred to transferee. Thus, GST Law brought the immense clarity on the taxability of business transfer and related aspect thereof.
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