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GST Updates on Proper Fitment of Products Based on Actual Tax

GST Updates on Proper Fitment of Products Based on Actual Tax

The goods and services tax bill (GST Bill) is expected to be introduced pretty soon. As such the GST Council is now looking to meet during May 2017 in order to decide the rates of each item. The two systems that are to be taken into account for this purpose are Service Accounting Codes (SAC) and Harmonised System of Nomenclature (HSN). The GST Council has finalized four tiers of taxation to be imposed on goods. They are 5 per cent, 12 per cent, 18 per cent, and 28 per cent. It is being said that bulk goods are expected to be taxed at 12 per cent and 18 per cent.

Rate of taxation

The lowest category of 5 per cent is expected to be applied for essential goods while luxury goods will be subjected to the highest slab of 28 per cent. Along with this, an additional cess is expected to be levied on goods like luxury cars, pan masala, tobacco products, and aerated drinks. As of now, the different industries are waiting with bated breath to see which category they are slotted in. Once they get to know about the said categories they would be in a better position to take stock of the effects that the new tax structure would have on them. All this data is going to be crucial with respect to GST registration.

How is government seeing the situation?

From the information that has come through the public domain the effect of the new taxes is not going to be too different than what is the case with the present tax structure. However, this is always going to be easier said than done. If we are to understand how government’s thought process will be translated to reality it is necessary to understand the effects of the present tax regime on various products. At present, a lot of goods are subjected to a value added tax (VAT) of 14 per cent and excise duty of 12.5 per cent. Will this have any effect on GST registration in Bangalore?

The effects of present tax regime on goods

If you add those two categories it comes to 26.5 per cent and it is expected that these goods will now be classified under the highest bracket of 28 per cent under the new goods and services tax regime. However, if goods were fitted into higher rates just by adding the value added tax rates and excise rates then the goods and services rates that we arrive at would be distorted to say the least. There is a chance that tax incidence in actuality could be lower than what is apparent now as far as GST in India is concerned.

Reasons for lower tax incidence

GST registration in Karnataka is expected to get smoother than before. One of the major reasons for a possible lower tax incidence is that excise rates could go down in the future. More important than this is the fact that the same good may be subjected to different rates of value added taxes in various states.

Chartered Accountant Services in Bangalore

Chartered Accountant Services in Bangalore

The top chartered accountant service providers in Bangalore operate as firms. In most cases it is seen that these organizations have been in the business for a significant period of time. This means that they have gathered sufficient experience in their line of work and know what they are doing. They have dabbled in a wide variety of services at the same place for a lengthy period of time and thus they can help you no matter how good or bad your situation is. There are always certain areas in which these organizations tend to specialize. Some of those areas may be mentioned as below:

  • back office management services
  • audit and assurance
  • direct and indirect taxation
  • international taxation
  • corporate law
  • management consultancy
  • matters related to the Foreign Exchange Management Act
  • mergers and acquisitions        

Industry-wide experience

The providers of chartered accountant services in Bangalore operate in various industries that can be as similar as chalk and cheese. This means that on a regular basis they are being exposed to various situations and predicaments, and they have thankfully been able to come out of those with flying colours. This also augurs well for you as a prospective client.

Helping you always

This implies that you can be from any industry and you can be facing any kind of problem. You can be sure that when you come to a chartered accountant in Bangalore it will surely help you. These organizations operate as per simple principles – of providing the best-possible solutions for the issues being faced by the clients. The business environment has become quite dynamic now and everyday new challenges are coming up. With the help of these companies you would always be in a better position when it comes to facing such challenges and dealing with them in an effective manner.

Talent and overall way of work

The companies that provide CA services in Bangalore Karnataka normally work with the very best professionals in the industry. This is one reason they are able to deliver the kind of service that they are known for. They are always well served in terms of the people that are working for them. These companies normally use the best and latest – cloud based in this case – accounting, customer relationship management, and payroll software. These software tools are used all over the world. These companies also cater to international clients that can be from countries such as the following:

  • The United States of America
  • France
  • The United Kingdom
  • The Netherlands
  • Spain
  • Hungary
  • Taiwan
  • Singapore
  • China
  • Japan
  • Romania
  • Switzerland
  • Suriname
  • South Africa

These companies always aim to provide services that cannot be matched in terms of quality and are delivered at the time that they are contractually obligated to do. They believe in a never-ending cycle of sharing knowledge with their clients in order to empower them. They always make their best efforts in order to make sure that they are adding value to their clients.

Basics of Limited Liability Partnership (LLP)

Basics of Limited Liability Partnership (LLP)

In India, businesses mainly operated as companies, sole proprietorships and partnerships. Each of these is subject to different regulatory and tax regimes reflecting their organization and ownership. With the growing Indian economy, the role played by its entrepreneurs as well as its technical and professional manpower has been acknowledged worldwide. Since then, a need was felt for a new corporate form that would provide an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the statute-based governance structure of the limited liability company on the other, in order to enable professional expertise and entrepreneurial initiative to combine, organize and operate in flexible, innovative and efficient way, which would provide a further impetus to India's economic growth. The limited liability partnership (abbreviated as 'LLP') is an answer to that.

After several deliberations and amendments by various committees, the revised Limited Liability Partnership Bill, 2008 was introduced in the Rajya Sabha on 21st October, 2008. After being passed by both Houses, the Honorable President of India gave assent to the Bill on 7th January 2009 and Limited Liability Partnership Act, 2008 ('The Act') became a law. The LLP in India is based on UK LLP Act, 2000 and Singapore LLP Act, 2005.

The LLP is an alternative corporate business vehicle that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm.

The salient features of the LLP under the Act are as follows:

• The LLP is an alternative corporate business vehicle that gives the benefits of limited liability but would allow its members the flexibility of organizing their internal structure as a partnership based on an agreement amongst its partners.

• Since LLP contains elements of both 'corporate structure' as well as 'partnership firm structure' LLP is called a hybrid between a company and a partnership.

• The Act does not restrict the benefit of LLP structure to certain classes of professionals only and is available for use by any enterprise which fulfils the requirements of the Act.

• The LLP is a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a LLP. It is capable of entering into contracts and holding property in its own name.

• The LLP has perpetual succession. The LLP can continue its existence irrespective of changes in partners.

• The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners are governed by an agreement between partners or between the LLP and the partners subject to the provisions of the proposed legislation. LLP provides flexibility to devise the agreement as per their choice. In the absence of any such agreement, the mutual rights and duties shall be governed by Schedule I to the Act.

• The LLP is a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or unauthorized actions of other partners or their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.

• Every LLP shall have at least two partners and shall also have at least two individuals as designated partners, of whom at least one shall be resident in India. The duties and obligations of designated partners shall be as provided in the Act read with the LLP agreement.

• The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to exemption to certain class of LLPs.

• The Central Government shall have powers to investigate the affairs of an LLP, if required, by appointment of competent inspector for the purpose.

• The compromise or arrangement including merger and amalgamation of LLPs shall be in accordance with the provisions of the Act.

• A firm, private company or an unlisted public company would be allowed to be converted into LLP in accordance with the provisions of the Act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the Act. On and from the date of registration specified in the certificate of registration, all tangible (movable or immovable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be.

• The winding up of the LLP may be either voluntary or by the National Company Law Tribunal.

• The Act confers powers on the Central Government to apply provisions of the Companies Act, 2013 as appropriate, by notification with such change s or modifications as deemed necessary. However, such notifications shall be laid in draft before each House of Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both Houses.

• The Indian Partnership Act, 1932 is not applicable to LLPs.

• Taxation of LLP is akin to taxation of a partnership firm under the Income-tax Act, 1961.

Benefits to LLP under Income Tax Act, 1961 and Companies Act, 2013: There are several benefits to a LLP under the Income-tax Act, 1961 and the Companies Act 2013 over a company, the same is summarized below:

S. No.

Features

Company

LLP

1

Legal entity

Separate

Separate

2

Perpetual succession

Yes

Yes

3

Liability

Limited

Limited

4

No. of members / partners

Private company- Minimum: 2; Maximum:200 Minimum 2

Public company –Minimum: 7; Maximum: No limit

One person company - 1

Minimum – 2

Maximum – No Limit

5

Instrument requirements -

Incorporation

Memorandum and articles to be filed with RoC, Fees for filing all doc.

Memorandum to be in respective forms specified in Tables A, B, C, D and E in Schedule I

Articles to be in respective forms specified in Tables F,G,H,I and J in Schedule I

Various other documents required to be filed

at the time of incorporation.

Filing Fee high as compared to LLP

Incorporation documents to be filed with Registrar. LLP Agreement is to be filed with Registrar in Form 3. In absence of certain clauses in LLP Agreement, mutual rights and duties will be as specified in First Schedule to LLP Act. Filing Fee very less as compared to company

6

One person formations

One person can form a company under Companies Act, 2013 – One person company

One person cannot form a LLP.

7

Types of entities

Companies Act, 2013 provides for various types of companies such as small company, dormant company, producer company, holding company, subsidiary company,

associate company, etc.

No different types, only one type LLP

8

Change of registered office

In case of change from one Registrar to another – prior approval from Regional Director required

Registered office can be changed to any place in India by informing RoC subject to prescribed conditions. Less formalities as compared to company

9

Suffix to the name

Name to contain 'Limited' or 'Private Limited' as suffix

Name to contain 'Limited Liability Partnership' or 'LLP' as suffix

10

Bringing in capital

Cumbersome process of Public Issue, Private Placement, Preferential Issue or Rights Issue

Very easy to bring in capital

11

Directors identity

All directors to obtain director identification number (DIN)

Only designated partners to obtain designated partners identification

Number (DIN).

12

Operations of business

Regulated by memorandum and articles of association

Regulated by LLP agreement

13

Listing on stock exchanges

Possible

Not possible

14

Meetings

Regulated by Companies Act, 2013 – Board Meetings, general meetings are required.

Not mandatory - No provision for regular

Meeting of Board of partners. Partners can decide when and how to meet, delegation of powers etc. as per the LLP agreement.

15

Statutory audit

Compulsory even if no transaction during the year.

Compulsory only if turnover exceeds Rs. 40 lakh or contribution exceeds Rs. 25 lakh

16

Other audits

Specified companies to have internal auditors, cost auditors, secretarial auditors.

No such requirement under LLP Regulations

17

Formats for Financial Statements

It provides for specific format for financial statements. Non compliance results in heavy penalties

No specific format under LLP Regulations

18

Other Disclosures

Detailed disclosures for annual reports, directors report, etc.

No such provisions under LLP Regulations

19

Method of accounting

Accrual only

Cash or accrual, any one allowed

20

Day-to-day business operations

Managing director, whole-time director and KMP to look after day-to-day administration

Designated partner to look after statutory compliances. All partners can look into day-to-day affairs of the LLP as per LLP agreement.

21

Authority in conduct of business

Individual director or member does not have authority in conduct of business of company

Every partner has authority to conduct business of LLP, unless the LLP agreement provides to contrary.

22

Related party transactions

Regulated under section 188 of Companies Act, 2013

Not regulated by the Act

23

Accepting deposits

Regulated by sections 73-76 of Companies Act, 2013

Not regulated by the Act

24

Making loans and investments

Regulated by section 186 of Companies Act, 2013

Not regulated by the Act

25

Loans to directors / partners

Restrictions under section 185 of

Companies Act, 2013

No restrictions

26

Remuneration

Restrictions on remuneration to director as per Companies Act, 2013

No restriction on remuneration to partner.

Remuneration should be as per the provisions of LLP agreement which may be subject to limits under Income-tax Act.

27

Requirement of specific

management

Specified companies to have independent directors, women directors, key managerial

personnel, audit committee, nomination and remuneration committee, etc.

No such requirement

28

Corporate social responsibility (CSR)

Mandatory CSR provisions for specified companies

No CSR provisions

29

Change in name and address of members / partners

No legal requirement to intimate change of name and / or address by a member

Every partner has to intimate change of name or address to LLP within 15 days in Form No. 6. LLP also has to file the details with Registrar within 30 days of change in Form No. 4.

30

Notice of resignation of director

Notice of change of director is to be given by company in DIR-12. A director who has resigned has also to file Form DIR-11 to RoC

A partner who has resigned from LLP can

himself file notice of his resignation to RoC in Form No. 4

31

Shares, allotment, etc.

Share, share certificate, register of members, transfer and transmission of shares, etc., is required

No requirement of share and share certificate. Hence, no question of its issue, allotment, transfer, etc.

32

Return on capital

Paid as dividend to shareholders. No interest is payable on capital to

shareholders

Profits can be withdrawn by partners as per LLP agreement. Also interest can be paid on contribution if LLP agreement allows so.

33

Charges

Charges are required to be registered

Not mandatory for registration of charges.

Only statement of accounts and solvency requires the information if any charge is registered.

34

Records and registers

Elaborate records and registers are required to be maintained

No records and registers have been prescribed.

35

Fraud, penalties and Prosecution

Fraud defined in the Act. Heavy penalties and prosecutions. More than 80 provisions for imprisonment. Class action provided.

Lesser penalties and prosecution. No class action. Fraud not defined.

36

Oppression and mismanagement

Elaborate provision relating to redressal in case of oppression and mismanagement

No provision relating to redressal in case of oppression and mismanagement

37

Nidhis / NBFCs

Specific provisions relating to Nidhis / NBFC

No specific provisions relating to Nidhis / NBFC

38

Financials

Annual financial statements to be filed.

Statement of accounts and solvency is to be filed annually.

39

Not for Profit Organizations

Can incorporate section 8 company for NPO activities

Not allowed to incorporate LLP for NPO activities

40

Conversion

A private limited company and a unlisted public company can be converted into LLP under LLP Regulations

A LLP can be converted into a company under Companies Act, 2013

41

Rate of Income tax

Domestic companies - For AY 2016-17 - 30% plus 3% cesses. Surcharge 7% if total income exceeds Rs. 1

Crore but is below Rs. 10 Crore.

Surcharge is 12% if income exceeds

Rs. 10 Crore.

For AY 2016-17 - 30% plus 3% cesses. Surcharge 12% if total income exceeds Rs. 1 Crore.

42

Residential status

If it is Indian company or the control and management of company is situated wholly in India then it would be resident in India

If control and management of a LLP is situated wholly outside India then it would be non-resident.

43

Applicability of accounting

Standards

Company (Accounting Standards) Rules, 2006 or to specified companies w.e.f. 1st April 2017 Indian Accounting Standards (Ind AS).

Secretarial Standards for minutes.

Accounting Standards issued by ICAI.

44

MAT / AMT under Income-Tax Act, 1961

Minimum alternative tax under section 115JB applicable

Alternative minimum tax under section 115JC applicable

45

Remuneration to directors / partners

Remuneration allowable would be as per appropriate resolutions passed, there is no specific restriction under Income- tax Act

Remuneration allowable would be as per

LLP agreement subject to compliance and limits mentioned in section 40(b) of Income- tax Act, 1961

46

Interest to directors/ partners

Interest allowable would be as per

appropriate contracts/agreements for taking of loans, there is no specific restriction under Income- tax Act,1961

Interest allowable would be as per LLP Agreement subject to compliance and limits mentioned in section 40(b) of the

Income- tax Act,1961

47

Dividend Distribution Tax

Applicable @ 15% plus surcharge @ 12% and cesses under section115-O of Income-tax Act, 1961

Not applicable

48

Liability of directors / partners for tax dues in case of liquidation

Every director is jointly and severally liable unless he proves non-recovery cannot be attributed to his gross neglect, misfeasance or breach of duty – Section 179 of Income -tax Act, 1961

Every partner is jointly and severally liable unless he proves non-recovery

cannot be attributed to his gross neglect, misfeasance or breach of duty – Section 167C of Income -tax Act, 1961

From the above comparison a person may easily come to a conclusion that for a small and medium enterprise doing business in form of LLP is much easier than doing as a company. Due to this, the law related to LLP, its formation, conversion, operation and taxation has gained immense importance.