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Mind your business!!

Presented byCA Jayesh Baheti

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Topic Summary

• Introduction to LLP• Types of enterprises - formation & Features• How to choose which enterprise to form?• Tax consideration• Common licenses and registrations• STPI Registration• Fringe Benefit Tax (FBT)• Handle with care!!• Tax Planning

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Limited Liability Partnership

A hybrid between a Company and a Partnership Firm. Externally they have all features of a company and internally they are run and managed by members, hence they are like partnerships.

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LLP - Features

• Can form LLP from 1-Apr-2009• At lease one partner should be an Indian resident• No requirement of AGM/BM• Partner is an agent of LLP as against agent of partners

in a partnership firm• Economic interest of the partners are assignable• Partnership agreement is not available for public

verification• Partnership firm and Company can be converted into

LLP however reverse in not possible currently.

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Formation requirements

1300030001000Costs

8-20 Days8-20 Days4-12 days2-8 DaysTime required

�DPIN Partners�Name approval from ROC�Partnership Agreement

�DIN for the first directors�Name approval from ROC�MOA & AOA

Partnership deed is required

Only shop act certificate is required

Formation Requirement

�Minimum 2 partners & 2 designated partners� No minimum capital requirement

�Minimum 2 directors�Minimum share capital of Rs.1.00 Lac

Minimum 2 partners

One Proprietor

Minimum requirements

LLPCompanyPartnership Firm

Sole proprietorship

Formation information

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Key Features

17.00%NILNILTax on profits distribution

YESYESNONOLegal Identity separate from owners

NOYESNONOSeparation of management from ownership

LimitedLimitedUnlimitedUnlimitedLiability of promoters

Lengthy legal procedure

Dissolution Deed

Winding up formalities

Not muchYESNONO Additional Annual Compliances/ Audit

ApplicableApplicableApplicableNot applicableFBT

No restriction

Legal restrictions

No restrictionNo restrictionLoan to/ from promoters

LLPCompanyPartnership Firm

Sole proprietorship

Features

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Consideration for the structure

• Ownership Control• Management Control• Capital/ Investment• Profits repatriation and Tax Issue• Estimated life of a business• Commercial considerations

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Tax consideration for structure

• The maximum tax saved per person by splitting the profit is Rs.0.98/1.01/1.06 Lacs.

• Dividend distribution tax is not applicable for sole proprietorship and partnership firm

• Surcharge is applicable to an individual on income above Rs.10 Lacs whereas to firm and company it is applicable after Rs.100 Lacs

• Due to surcharge a sole proprietorship shall pay extra tax of 3.09% in the range of income Rs.41-100 Lacs

• FBT is not applicable to sole proprietorship• Sole proprietorship is not liable to deduct TDS till it is

liable for tax audit

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Incremental Tax on net profit

Analysis

Company

Partnership - 4

Partnership - 3

Partnership - 2

Individual

100 + Lacs

49-100 Lacs

36-49 Lacs

23-36 Lacs

10-23 Lacs

5-10 Lacs

Till 5 LacsSlabs

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Common Registrations

As applicableExcise Registration

Voluntary/ As applicableProvident Fund

Voluntary/ As applicableIEC Code

Voluntary/ As applicableService Tax

Voluntary/ As applicableVAT/ CST

Mandatory/ As applicableIncome Tax – TAN

MandatoryProfession Tax

Mandatory for existenceIncome Tax – PAN

Mandatory for existenceShop Act Certificate

When required?Registration

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STPI

How to set up?• Application STPI• Custom Bonding of premises

Benefits• Tax Exemption till FY 2009-10 (MAT Applicable

for the Companies)• Service Tax Refund• CST Refunds• Exemption on Excise or Import Duty on capital

goods

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Fringe Benefit Tax - FBT

• Not applicable to sole proprietorship• Must have employees in India• Fringe Benefit

> Value of Fringe Benefit e.g. ESOPs, concessional travel etc. > Deemed value of fringe benefit e.g. entertainment, sales promotion, staff welfare, conveyance, telephone, tour and travel etc.

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Handle with care - Cash

�Disallowance of expenditure for payment for expenses exceeding Rs.20000

�100% Penalty on loans/ deposits taken in cash exceeding Rs.20000

�100% Penalty on loans/ deposits paid in cash exceeding Rs.20000

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Handle with care - TDS

• Non-Deduction and Non-Deposit of TDS in time shall make the expenses not deductible

• Delay in deposition of TDS attracts interest

• If E-TDS return is not submitted by the Deductor then it is very difficult to get the credit for the amount deducted from Income Tax Department

• Quoting correct PAN is the most critical

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Tax Planning

• Make capital purchases before 30th Sep to claim depreciation for full year

• Split the profits in family and reduce average tax• Include clause of ‘salary to partners’ in partnership

agreement• Directors can take salary from the company• File your return of income always before due date• Plan advance tax/ FBT and pay on time• Accelerated depreciation on commercial vehicles

purchased during 1st Jan till 31st Mar 2009• Based on your business model choose appropriate

method of accounting – cash or mercantile (Companies have to follow mercantile method of accounting)

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THANK YOU!!!

Contact:CA Jayesh BahetiBaheti & Somani

Chartered AccountantsPhone: 020-2566 1440

jayesh.baheti@bandsindia.com