A Sole Proprietorship form of business is managed by a single person. It does not require any registration as such, but to legally start a business, government proofs are required by banks. Any individual who wants to start a business with less investment can choose this type of business form.
All losses are borne by the owner, and he enjoys all the profits too. The business is controlled by the owner, and he/she can appoint someone else for conducting the business. In that case as well, ownership will solely lie with the owner.
Many local businesses such as grocery stores, parlours, boutiques, retail stores, etc., can be established as a sole proprietorship firm. Even small traders and manufacturers can establish a sole proprietorship firm
Less compliances
Just one person can easily start a sole proprietorship business, as there is minimum compliance and it is relatively economic than LLP or company.
Control of the business
The sole proprietor will have complete control over the business, and it is easier to maintain secrecy.
Quick decision making
The sole proprietor is the sole decision maker of the business, and as they are taken by 1 person, it is quick and easier.
Unlimited liability
There is an unlimited liability on the sole proprietor. He is personally liable for all the transactions he enters in the business. If any loss occurs, he will have to bear the whole loss out of his personal estate.
No perpetual succession
There is no perpetual succession which means it can come to an end if something happens to the sole person taking care of the business. It can shut down at any time. This makes the business unreliable and difficult to gain public trust for entering into agreements or contracts to expand the business.
Difficult to raise funds
Since a single person manages the business, it is not easy to raise capital. The capital of the business is from the investments put in by the sole proprietor. The sole proprietorship firm has no separate legal entity status from the owner. As it can come to an end at any time and there is no separate entity, it is difficult to obtain funds from third parties.
The documents required for registration of Sole Proprietorship are-
As a sole proprietor, you must file Income Tax Return annually. Also, you need to file your GST Return if you are registered under GST. A sole proprietor should also deduct TDS and file TDS return if liable for Tax Audit.
The Sole Proprietorship requires opening a bank account in the name of the business, a Certificate of Registration under the Shop and Establishment Act of the respective state and GST Registration. The registration process takes approximately 10 days, subject to departmental approval and reverts from the respective department.
Please find below Highlights of Union Budget 2021-22.
General
1. First digital Budget in the history of India
2. Vehicle Scrapping Policy. Vehicle Fitness Test after 20 years in case of Personal vehicle and 15 years in case of commercial vehicles
3. 64,180 crores allocated for New Health Schemes
4. 35,000 crores allocated for Covid Vaccine
5. 7 Mega Textile Investment parks will be launched in 3 years
6. 5.54 lakh crore provided for Capital Expenditure
7. 1.18 lakh crore for Ministry of Roads
8. 1.10 lakh crore allocated to Railways
9. Proposal to amend Insurance Act. Proposal to increase FDI from 49% to 74 %.
10. Deposit Insurance cover (DICGC Act 1961 to be amended). Easy and time bound access of deposits to help depositors of stress banks.
11. Proposal to revive definition of ‘Small Companies’ under Companies Act 2013. Capital less than 2 Cr. and Turnover Less than 20 Cr.
12. Disinvestment: IPO of LIC, Announced Disinvestment of Companies will be completed in FY 2021-22
Direct and Indirect tax
1. Senior Citizens: Reduced Compliance burden. 75 years and above. Proposal not to file ITR if only pension income and interest income.
2. Reduction in time for IT Proceedings: Reopening of Assessments period reduced from 6 years to 3 years except in cases of serious tax evasion cases
3. Proposal to constitute ‘Dispute Resolution Committee’. (Taxable income 50 lakhs and disputed income 10 lakh).
4. National Faceless Income Tax Appellate Tribunal Centre
5. Relaxations to NRI: Propose to notify rules for removing hardship for double taxation.
6. Tax Audit Limit: Proposal of tax audit increased from 5 Cr. to 10 cr. (Only for 95% digitized payments business)
7. Propose to provide relief on advance tax liability on dividend income.
8. Propose to include tax holidays for Aircraft leasing companies
9. Prefiling of returns (Salary, Tax payments, TDS etc.) Details of Capital gains from listed Securities, dividend income, etc. will be prefilled
10. Small Charitable Trusts. Increased from 1 crore to 5 crores (Compliance limit)
11. Late deposit of employee’s contribution by employer will not be allowed as deduction
12. Incentive to startup: Tax holiday exemption for one more year
13. Duties reduced on various textile, chemicals and other products
14. Gold and Silver (BCD reduced)
15. Agriculture Products: Custom duty increased on cottons, silks, alcohol etc.
Since ages, the Hindu society has been a patriarchal society. This has also been reflected in the laws of the land. The Hindu Succession Act, 1956 which governs the inheritance and succession of the Hindus was one such act. As per this Act, the rights of female members was very limited compared to the male counterparts.
Hindu Succession Amendment Act, 2005 came into effect on 9th September 2005 abolished this inequality towards females. A joint Hindu family means all people lineally ascending or descending from a common ancestor including wives and unmarried daughters. However, a Hindu coparcenary is a much focused group. It consists of the ancestor and his three descendants. Coparcenary property is one inherited by a Hindu man from his father, grandfather or great grandfather.
Before the 2005 Amendment Act, only the males viz., sons, grandsons and great grandsons were considered as coparceners. W.e.f 9th September 2005, the daughters became coparceners by birth in their right having the same liability in coparcenary property as if she had been a son. This was a landmark moment in the Indian legal as well cultural history where the partiality between man and woman were removed in law.
However, certain legal points remained ambiguous viz.,
There were conflicting judgements from Supreme Court itself in this regard before. However on 11th August 2020, a three-judge bench consisting of Justice Arun Mishra, Justice Abdul Nazeer and Justice M.R. Shah in Vineeta Sharma vs Rakesh Sharma & Ors [Civil Appeal No. 32601 of 2018] took note of these conflicting judgements and settled the law:
Thus this judgement now clears any confusion that prevailed as regards to the Amendment Act of 2005 and Hindu daughters are now on equal footing with Hindu sons when it comes to inheritance and succession of property,
DIRECT TAX PROPOSALS – BUDGET 2020
Hon’ble Finance Minister Smt Nirmala Sitharaman presented the Budget on Saturday, February 01, 2020. The Budget seeks to provide momentum to the buoyancy in direct taxes through tax incentives, reducing tax rates, deepening and widening of tax base, removing difficulties faced by tax payers, curbing tax abuse and enhancing tax effectiveness, transparency and accountability.
Here are some of the key highlights of the important Direct Tax proposals announced
I) TAX RATES:
1) Individual Income Tax Rate – Simplified Optional Tax Regime (Section 115BAC):-
Income Slabs |
Existing Tax Rates |
New Simplified Tax Rates |
0 – 2.5 Lakhs |
NIL |
NIL |
2.5 – 5 Lakhs |
5% |
5% |
5 – 7.5 Lakhs |
20% |
10% |
7.5 – 10 Lakhs |
15% |
|
10 – 12.5 Lakhs |
30% |
20% |
12.5 – 15 Lakhs |
25% |
|
Above 15 Lakhs |
30% |
B. The conditions for opting for simplified tax rates will be as under:
a. No deduction shall be allowed for the following:
Income Head |
Particulars |
Existing exemption |
Salaries
|
10(5) – Leave Travel Allowance |
Available twice in every block of 4 years |
10 (13A) – House Rent Allowance |
Available in respect to housing rent paid |
|
10 (14) – Allowances for expenses to perform duties |
Eg: Uniform Allowance, Helper Allowance, Children Allowance etc. |
|
10(17) – Allowances to MPs and State legislature |
Daily Allowance, Constituency allowance. |
|
10 (32) – Deduction in respect of clubbed income of minor child |
Rs. 1,500/- from the total clubbed income |
|
16(ia) – Standard deduction |
Rs. 50,000/- from total salary |
|
16(ii) – Entertainment allowance |
Available to government employees upto Rs. 5,000/- |
|
16(iii) –Profession Tax |
Amount of profession tax paid |
|
Income from House Property |
24 (b) – Interest on housing loan for self-occupied property. |
Upto Rs. 2,00,000/- |
Income from Business / Profession |
32(1)(iia) – Depreciation |
Additional depreciation of 20% on new plant/machinery |
Specified business deductions u/s 32AD, 33AB, 33ABA, 35(2AA)(1)(iii)(iia)(ii), 35AD |
Related to specific business. |
|
10AA - SEZs |
Deduction for newly established SEZs. |
|
Income from Other Sources |
57(iia) – Deduction against family pension |
1/3rd of family pension or 15,000/- whichever is less. |
Chapter VI-A |
All sections except u/s 80CCD – Contribution to Pension scheme, 80JJAA – deduction for new employees |
Common deductions like LIC, EPF, PPF, ELSS, housing loan repayment, education loan, Mediclaim etc. |
b. No set off of loss allowed for:
c. No exemption / deduction / allowances / perquisites allowed under any other law:
d. Manner of exercising the option for simplified tax rate:-
2) Removal of Dividend Distribution Tax (DDT)
Presently, companies are required to pay DDT @ 15% on dividend declared. Consequently in the hands of the shareholder dividend was tax-free and if total dividend exceeds Rs. 10 lakhs, dividend was taxable @ 10%.
It is proposed to remove levy of DDT on dividends declared by the company. Consequently any dividend received by the shareholders shall be taxable in their hands.
3) Concessional Tax rate for Resident Co-operative Societies – Section 115BAD :
Keeping in line with the concession provided to domestic companies, Section 115BAD will be inserted to provide a concessional income tax rate of 22% to co-operative societies provided:
4) Concessional Tax rate for Electricity Generation Companies:
It is proposed to include in new domestic companies u/s 115BAB the electricity generation companies and thus taxable at a concessional rate of 15%.
5) Concessional Tax scheme for domestic companies u/s115BAA and 115BAB:
It is proposed that companies opting for concessional tax rate u/s 115BAA and 115BAB will not be allowed deduction under chapter VI-A other than section 80JJAA and 80M.
II) START-UPS:-
1) Rationalization of Section 80-IAC:
Existing provisions u/s 80-IAC provide that eligible start-ups can claim deduction of 100% of profits and gains from business for a period 3 consecutive years on fulfillment of certain conditions. These conditions are proposed to be modified as under:
2) Deferment of Taxation of Employee Stock Option Plan (ESOP) of start-ups:
Presently ESOPs are taxable at the time of exercise of the option and then at the time of sales of those shares. It is proposed to defer the tax on ESOPs and ESOPs of eligible start-ups will now be taxed within 14 days of the following whichever is earlier:
III) INCOME FROM BUSINESS AND PROFESSION:-
1) Tax Audit Limit for SMEs:
Presently Tax audit is applicable to businesses having a turnover exceeding 1 crore. With a view to reduce compliance burden and encourage cashless economy it is proposed to increase the threshold limit to Rs. 5 crore if the following conditions are satisfied:
2) Penalty for Fake Invoices – Section 271AAD:
It is proposed in case it is found that that there is:
Penalty equal to amount of such false entry or omitted entry may be levied.
Similar penalty may also be levied on person who causes the above person to make a false entry or omit such entry.
“False Entry” includes use of intention to use:
IV) RETURN FILING, COMPLIANCE AND TAX ADMINISTRATION:-
1) Due Date for Return filing in case of Tax Audit:
Due date of filing of Return for assesses required to file Audit Report u/s 44AB and other sections of the Act is proposed to be extended by 1 month to 31st October u/s 139(1).
2) No Dispute but Trust Scheme – ‘Vivad Se Vishwas’Scheme:
Under this scheme, Taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided taxpayer pays by 31st March, 2020. Availing of this scheme after 31st March, 2020 will have to pay some additional amount. The scheme will remain open till 30th June, 2020.
3) Stay by ITAT:
ITAT may grant a stay on demand provided assessee has deposited 20% of the disputed tax demand.
4) E-assessment:
Best judgement assessment u/s 144 now covered under E-assessment.
5) E-appeal:
Government to notify scheme for e-appeal before Commissioner.
6) Survey Operation u/s 133A:
In case information is received from prescribed authority, survey operations to be conducted after obtaining approval of Joint Director / Joint Commissioner.
In any other case approval of Director / Commissioner is needed.
V) INTERNATIONAL TAXATION, NON-RESIDENTS AND TRANSFER PRICING:-
1) Definition of “Resident” modified:
Present Conditions for Resident |
Proposed Conditions for Resident |
· He / she is in India for 182 days or more during the financial year. OR · If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year (182 days if you take job/ business outside). |
· He / she is in India for 182 days or more during the financial year. OR · If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year (120 182 days if you take job / business outside). |
2) Definition of “Resident but Not Ordinarily Resident” modified:
Present Conditions |
Proposed Conditions |
If you have been an NRI in 9 out of 10 financial years preceding the year. OR You have during the 7 financial years preceding the year been in India for a period of 729 days or less. |
If you have been an NRI in 7 out of 10 financial years preceding the year.
|
3)Taxability of Income of NRI:
If an Indian citizen on account of domicile or residence or other similar reasons is not liable to tax in any other country or territory, then he / she shall be deemed to be resident of India and thus the global income will be taxable in India.
4) Tax Collected at Source (TCS) @5% on foreign remittance through Liberalised Remittance Scheme (LRS):
TCS shall be collected @5% from the buyer by an authorized dealer who receives more than Rs. 7 lakhs in a financial year for remittance out of India from a buyer under Liberalized Remittance Scheme remitting such amount out of India;
Other Conditions:
5) Modification in condition for offshore funds exemption from “business connection”:
It is proposed to amend section 9A of the Act to relax the two conditions so as to provide that:
6) Certain non-residents exempt from filing Return of Income:
Non-residents will not be required to file Return of Income if:
7) Safe Harbour Rules (SHR) u/s 92CB and Advance Pricing Agreement (APA) u/s 92CC to cover determination of attribution of profit to Permanent Establishment (PE):
To reduce avoidable disputes it is proposed to cover determination of attribution of profit to Permanent Establishment (PE) under SHR and APA.
VI) CAPITAL GAINS:-
1) Cost of Acquisition u/s 55:
Presently in case if a property was acquired before 01.04.2001, the cost acquisition shall be higher of:
It is proposed to amend the section whereby the Fair Market Value as on 01.04.2001 shall not exceed the Stamp duty value as on 01.04.2001
2) Increase in safe harbor limit from 5% to 10% for land and building value u/s 43CA, 50C and 56
It is now proposed that as per section 43CA, 50C and 56(2)(x) if the consideration value is less than 90% (presently 95%) of the stamp duty value then the stamp duty value shall be deemed to be full value consideration for these sections.
VII) TAX DEDUCTED / COLLECTED AT SOURCE:-
1) TDS on Technical services u/s 194J reduced to 2%:
TDS on technical services other than professional services is proposed to be reduced to 2% from 10% presently.
2) TDS u/s 194C now applicable on contract manufacture:
Definition of “work” proposed to be amended to include contract manufacturing wherein the associate purchases raw material from the assessee, manufactures / processes the same as per the instructions of the assesse and then the associate sells the final product to the assessee.
The assessee will now be required to deduct u/s 194C.
3) TDS on e-commerce transactions (Sec. 194O):
4) Tax Collected at Source (TCS) @ 5% on remittance under Liberalised Remittance Scheme: (discussed under International Taxation section)
5) Tax Collected at Source (TCS) @ 5% on selling of overseas tour package:
TCS shall be collected @5% from the buyer by a seller of an overseas tour program package who receives any amount from the person purchasing such package.
Other Conditions:
6) Tax Collected at Source (TCS) @ 0.1% on sale of goods exceeding Rs. 50 lakhs:
Regards,
Tax Team - LedgerPro
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Disclaimer:
Virtual CFO Service provides businesses which have a finance / accounts team but does not have an in house CFO, who is the financial partner in the growth.
Having a full time professional CFO may not be in the budget of SMEs, start ups or sometimes the founders may not be confident of hiring the right kind of person for a CFO role due to lack of knowledge in the finance field. With the constant developments in the finance fields and the financial environment becoming more and more dynamic, start ups and SMEs are increasingly recognizing the need to have professional CFO services as they realize that managing accounts, finance, compliances, payrolls, corporate governance, reporting are a strategic value addition and not a mere compliance function.
The services Virtual CFO may provide are:
As a start up or SME, company many times falter or overlook the miniscule law compliances which prop in day to day transactions. Such non-compliances make the accounts team relaxed due to inaction such non compliances start compounding over a period of time. Huge penalties and prosecution stand in the face of the management who have no clue whatsoever at that time and as a matter of fact also don’t have much choices or options to do anything else. The common law compliances that most companies have to abide with are:
a) Companies Act:
b) Income tax Act:
c) Service Tax:
d) State VAT:
e) FEMA & RBI compliances:
f) Payroll processing:
All the labour laws like Provident fund, ESIC, Labour Welfare fund, Bonus act, Minimum Wages Act, etc.
g) Profession Tax:
MIS is the bread and butter for the management when they want an overview of the financial health of the company. For most of the owners and entrepreneurs, accounting is more of a compliance rather than value addition. However, CFO gets behind all the numbers, analyze them in depth and offer reports to the management to give them insights on profitability, cost, various trends, payables, receivables and billables of the company.
A detailed MIS gives a executive report in the areas of:
a) Profitability;
b) Segment wise drivers of revenue and cost
c) Debtors;
d) Creditors;
e) Cost;
f) Other Balance sheet items.
It assists the management in taking the decisions on good solid facts and analysis and less on feelings, emotions and gut. They are able to channelize the resources and energies towards the avenues which are yielding them true profit and contributing towards the growth of the organization.
MIS offers the company report card for the past month and a road map for the month to follow.
Setting up of Internal systems and having adequate internal checks and balances is very important so the management can trust that once a work order is in pipeline the same will be completed in a defined manner and any hassles in the same will be duly reported. Further it also helps in avoiding revenue leakages and have an efficient and effective accounting framework.
This is a very important area of interest for the management.
a) Firstly, all the areas of revenue are identified. The first area of revenue is your customers. Does your business target new customers or it works on customer retainership model. Do you want your old customers coming back or you want to spend more (say advertising) to bring in new customers.
b) Analyzing your business model – high volume or high margin!
c) Improving your revenue margins:
d) Effect of new technology on your business – is it viable to transform your business to a new technology in revenue terms?
e) Insurance:
This is one of the most ignored area in an organization. The management either tends to spend too much or too less on unwanted insurance policies.
f) Cost of Labour:
This is usually the highest contributor of cost in an organization especially in technology driven start ups. The management tends to hire more and more in bid to present a rosy picture to the investors in respect to the size of the company and its potential. This results in more people doing a job of few. Also management in its foray to hire young staff turns up hiring inexperienced staff and end up paying them huge salaries with hardly any returns and sometime even negative returns.
However, in the long run the management must keep in mind that ultimately bottom line is what matters and should try and keep the organization as lean as possible.
Our team at LedgerPro provides solutions to all these problems and helps in optimizing profits to the companies. It is the need of the hour, especially for start-ups and high growth businesses.
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