Mind your business!!
Presented by
CA 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
Formation Sole Partnership Company LLP
information proprietorship Firm
Minimum One Minimum 2 Minimum 2 Minimum 2
requirements Proprietor partners directors partners & 2
Minimum share designated
capital of Rs.1.00 partners
Lac No minimum
capital
requirement
Formation Only shop act Partnership DIN for the first DPIN Partners
Requirement certificate is deed is directors Name approval
required required Name approval from ROC
from ROC Partnership
MOA & AOA Agreement
Time required 2-8 Days 4-12 days 8-20 Days 8-20 Days
Costs 1000 3000 13000
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Key Features
Features Sole Partnership Company LLP
proprietorship Firm
Loan to/ from No restriction No restriction Legal No
promoters restrictions restriction
FBT Not applicable Applicable Applicable Applicable
Additional Annual NO NO YES Not much
Compliances/ Audit
Winding up formalities Dissolution Lengthy legal
Deed procedure
Liability of promoters Unlimited Unlimited Limited Limited
Separation of NO NO YES NO
management from
ownership
Legal Identity separate NO NO YES YES
from owners
Tax on profits NIL NIL 17.00%
distribution
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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
Till 5 5-10 10-23 23-36 36-49 49-100 100 +
Slabs Lacs Lacs Lacs Lacs Lacs Lacs Lacs
Individual
Partnership - 2
Partnership - 3
Partnership - 4
Company
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Common Registrations
Registration When required?
Shop Act Certificate Mandatory for existence
Income Tax – PAN Mandatory for existence
Profession Tax Mandatory
Income Tax – TAN Mandatory/ As applicable
VAT/ CST Voluntary/ As applicable
Service Tax Voluntary/ As applicable
IEC Code Voluntary/ As applicable
Provident Fund Voluntary/ As applicable
Excise Registration As applicable
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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 Baheti
Baheti & Somani
Chartered Accountants
Phone: 020-2566 1440
jayesh.baheti@bandsindia.com
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